Penang transport infrastructure cost balloons from RM27bn to RM46bn

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Photograph: The Malaysian Insider

When Halcrow first came up with its transport masterplan, the projected cost of implementing the Penang masterplan was reported to be RM27bn. This figure included the RM6bn-plus for the tunnel and three highways (under Zenith), which was the state government’s idea.

But then, enter project delivery partner, the Gamuda-led SRS Consortium, with its own proposals. The total cost has now ballooned to  RM46bn (including the RM6bn-plus for the tunnel and three highways).

The SRS proposals have deviated significantly from the Halcrow masterplan. Whereas Halcrow proposed cheaper trams and bus rapid transit, SRS proposals now include more expensive elevated LRT (cost RM6bn) and monorail as well as a new north-south highway on the island (RM6bn).

At the first meeting of the enlarged Penang Transport Council the other day, a partner from audit firm KPMG revealed how project delivery partner SRS was chosen. The selection was through a request for proposals, under which six proposals were received with all sorts of different things in each proposal.

I pointed out that this was not the same as a strict open tender with definite criteria of what was expected from all bidders – in this case the implementation of the strategy that Halcrow had proposed. After all, the Penang state government and the NCIA had paid Halcrow RM3.2m for its masterplan strategy.

I asked why none of the firms that submitted proposals under the RFP had any experience in delivering trams and a bus rapid transit system – which is what Halcrow had recommended.

I didn’t receive satisfactory answers. So it is not a surprise that SRS is proposing something different – and at higher cost.

Ballooning cost for KL MRT project

In 2011, a press report quoted sources saying the KL 150km MRT project cost had ballooned to RM50-53bn from Gamuda-MMC’s RM37bn estimate a couple of years earlier.

Now, we are told that:

  • Line 1 cost around RM23bn,
  • Line 2 was estimated to cost RM23bn. But last year, the estimated cost rose to RM28bn. By this year, the estimated cost has risen to RM32bn.

Total: RM55bn for just two of the three lines planned – quite different from the original RM37bn estimate.

Will Penang experience the same rising costs?

‘Recipe for inflated project cost’

One of the problems is that the project delivery partner’s fee of 6 per cent for the KL MRT project is based on the total project cost.

So the higher the project cost, the more the PDP fee that the government will have to pay the PDP (on top of the PDP’s expenses).

The same figure of 6 per cent of project cost is being used for the Penang project deliver partner. So SRS Consortium stands to earn RM2bn from PDP fees alone.

Tony Pua came up with an excellent critique of the basis of the PDP fee for the KL MRT project in 2012 (see below). The PDP fee is a recipe for inflated project cost, he said.

I couldn’t agree with him more. Much of his argument applies to the Penang PDP fee as well – but you won’t hear Penang state government leaders echoing what he said back then.

Media statement by Tony Pua Kiam Wee in Kuala Lumpur on Monday, 13th February 2012:

MRT Co 6% fee-formula for MMC-Gamuda Project Delivery Partner is a recipe for inflated project cost

Gamuda Bhd has announced to Bursa Malaysia on Friday last week that its jointly-controlled entity, MMC Gamuda KVMRT (PDP) Sdn Bhd, has executed the PDP Agreement with Mass Rapid Transit Corporation Sdn Bhd in respect of the implementation of the project known as the Klang Valley Mass Rapid Transit Project-Sungai Buloh-Kajang line (KVMRT-SBK).

Assuming the “successful” delivery of the KVMRT within the agreed target cost, it shall be paid a fee which is equivalent to 6% fee of the aggregate of all the awarded works contracts.

First of all, a 6% project fee is almost unheard of in a project of this scale. Based on an estimate that the KVMRT-SBK is expected to cost RM18 billion, the fees to the PDP alone will be RM1.08 billion. This fee will only be reduced if the PDP wins the tender for the underground tunnelling works – in which case the value of the tunnelling works will be excluded from the calculation of the fee.

The reason why the fee is so high is simple – not only was there no competitive tenders, which would surely have brought the fees down, the Government has chosen to award the contract and commenced work on the KVMRT a year ago before the fee was even agreed upon. Such recklessness on the part of the Government has resulted in it being beholden to the PDP with little room to manoeuvre or negotiate.

Any ordinary man on the street will know that it is ridiculous to ask a contractor to start the kitchen renovation without first agreeing to the cost.

On top of the fees, the PDP will also be separately reimbursed for “overheads, fees for engineering consultancy, quantity surveyors and system integration works and fees for site investigations and topographical survey” amounting to RM2.85 billion. Adding the reimbursables to the estimated PDP fee of RM1.08 billion, the PDP will effectively collect RM3.93 billion for playing the role of a project manager.

What’s worse, despite the supposed role of the PDP having to bear any cost-overrun for the KVMRT, the PDP has managed to negotiate into its contract a 15% “allowed contingency”. This means that if the cost of the overall project were to increase by up to 15%, the PDP will still collect every sen of its fee including a 6% of the 15% “allowed contingency”. A 15% variation based on a RM18 billion project value for the SBK line would be a possible cost increase of up to a massive RM2.7 billion without penalty to the MMC-Gamuda joint-venture.

Secondly, and perhaps more critically, not only has the PDP contract been awarded with no open or competitive tender, the structure of the agreement is such that the overall cost of the project is incentivised to be inflated.

Given that the PDP is being paid on a percentage of contract cost and has to bear any cost-overrun beyond the 15% “allowed contingency”, the PDP which has to help the Government evaluate the various tender proposals will be incentivised to pick the bids with higher prices than the lower ones.

For example, if there are 5 bids to construct the MRT terminal at Taman Tun Dr Ismail (TTDI), there is greater incentive for the PDP to recommend the bid with the highest or higher prices, instead of the lower priced ones. The simple reason is that the higher priced ones will translate into a higher fee for the PDP given the fixed 6% structure.

The entire MRT project has been awarded and structured in such a reckless manner that the consequences in a few years’ time may have a devastating impact on the KVMRT’s viability. The higher than necessary cost for the project would necessitate the imposition of higher MRT fares on the Klang Valley commuters, which will in-turn negate the intention of shifting the population to public transport. Finally, given the size of the project, a drastic increase in cost will have an over-bearing impact on Malaysia’s financial position as the KVMRT is expected to be financed entirely by debt. As it stands, we are already weighed down with a RM462 billion federal government debt.

The Government must explain with full details and transparency, how these issues will be addressed to ensure that Malaysians and our children will not be burdened by its reckless implementation.

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Super

hahahahaha GE will most probably be next year and on course to finish of Cat and defacto in Penang and Selangor. Waiting for that day soon..

Momok Tomok

The issue is hypocrisy. They don’t walk the talk. They criticize BN and can find whatever wrong with what BN is doing but the same fault that they preach is also being done by they themselves.

zoro

why bn did not appoint you or anil in transport council? how to critise bn when it is counciless.

Stylo Logan

Remember Husni quit Umno and BN because he could no longer stand the hypocracy of BN.
He must know that 1MDB is a lump of … and rakyat will suffer soon for its humongous debt.

Jive

Anil,
BREXIT? Black Friday for global financial meltdown? Redistribution of wealth a new order to punish the greedy ones?
How this would impact ordinary Penang-lang?
Wait n see, don’t play play

tunglang

You love playing ball with global economic theory?
The richie who invested in UK are more affected than any ordinary Penang lang who doesn’t hold even a British Pound.
London Bridge is falling down, falling down, falling down.
London Bridge is falling down, so are the richie.

Andy

In Halcrow’s recommended costs for Tram, it was based on Tram built on level with the streets. But as we know 91% of the paths for Tram is not suitable for on level Trams, an elevated Tram route wouldn’t make sense (coz it cost roughly the same as LRT). So the George Town heritage area remained with the Tram systems. And the Bayan Lepas Line (converted to LRT), Tg Tokong Line & Ayer Itam Line (converted to Monorail). A new Butterworth Line is also added… The original proposed construction costs for the 3 (trams on street level) were only 2.4… Read more »

zoro

you mean the same elevated concrete structure but with different vehicle one is tram and the other light rail running on top? halcrow estimate price is lower although length is longer than src which cost manu times more???

zoro

anil you always show your favourite at street level. if elevated what is the different with lrt and tram operating overhead which you strongly oppose???

zoro

Ask our ah soon khor on eng soon. The major cost is the civil and elevated structure cost. How many years it takes to build under hot sun and rain? Whereas a rolling stock is many times cheaper than the civil cost build in a factory with suppliers from different factories and country. Halcrow is a pommy consultant whereas gamuda is a local contractor. How can a bridge supporting tram which is at least twice the weight of a light rail train estimated by halcrow cost less than a bridge supports light rail train? Mind you Malaysian is light weight… Read more »

David Loman

CM Lim Guan Eng confirmed today that the debate between state executive councillor Lim Hock Seng and Gerakan secretary-general Liang Teck Meng on the undersea tunnel will be held at 9pm on June 28, at the Caring Society Complex.

Anil can cover the event live?

zoro

any comfirmation by macc to charge tokong for buying cheap bungalow? how many moons passed and trips to his bungalow. still searching for needle. pg lang better go and help a gee. he is big tun and who knows may get a smaller tan see.

gk ong

MACC boss is leaving for international stage where his experty is very much sought after. So Jibby will appoint a new guy to hammer in the final nail…

zoro

many musical chairs and no wonder main bola and gula in international games always lose. we are no 1 in tilting the playing field and shifting goal posts in home grd.

Kool-Aid Drinker

Hahahahahahaha. You too funny. Don’t quit your day job tho.

David Loman

Debat isu ‘terowong’ Hock Seng, Teck Meng 28 Jun

LSS

Tokong dun care.. after all these dodgy projects, he will no longer be Sec-Gen of DAP due to two-term limitation (and hence Penang CM) and will just balik Melaka.

calvinsankaran

Well, they will either amend the party constitution or just create another new post to allow him to control the party. Perhaps the new Ketum of DAP??

zoro

have they done that? or like tokong of telor anson making uni promises?

ST Lim

Having witnessed what goodies given to the SgBeasr & K Kangsar folks, LGE better don’t overspend on Transport Master Plan so that “gila-FREEbies” Penangites can be enticed come GE14.

I talked to many Ah Pek Ah Mah, and they expect LGE to bring in Taiwan Hokkien artists they idolise watching the series on Astro HuaHeeDai, and they won’t settle for local ones. SiaBoey folks now getting upmarket in taste.

glissantia

Astounding achievement in greed. Beats the KL MRT. Long live cepat kaya.

Selangor also has a state FOI law which has disappeared without a trace. No one can find out anything about the new highways which are announced one day and denied the next.

Albert Khoo

Taxpayers

David Loman

LGE should know that currently the chinese are tuned to the frequency of W11FM (what’s in it for me). MCA & Gerakan knew this and use Cash Is King methodology with the 1MDB largesse to provide instant goodies to the Chinese folks. Any benefit of the Penang Transport Masterplan will not be felt by the voters in the next 5 years. DAP is losing touch of the short-term wants of Penangites, and BN could satisfy their crave for instant gratification as proven in the recent by-elections. So it is very likely that many Penang chinese will soon swing their votes… Read more »

zoro

unlike kl mtr, SRC has to entertain the federal authoriy to give a go ahead. How authority is going to give? malaysian culture like long break in work.

SRC has to give donations like brethen arabs who are so generous(?)

in return pg lang must be generous and donate too. whether is bus or tram the same ptinciples apply. gelekan with tua khor policy.

TayTay's Vajayjay

Oh my English!

zoro

no substance or matter that is your english??

Jon Snow

Winter has come. Yet I still have no clue what you are talking about.

Ramsay Bolton

Zoro. Poor Zoro. You still think you sound smart mouthing off like that? Your first comment was bad enough but you just had to make it worse didn’t you?

“no substance or matter that is your english??”

I rest my case. Not even the wisest maesters can decipher that. Oooh, did I just use a big word there? Use a dictionary!

james k

No wonder the cost keeps ballooning. There should be a clause stating that the 6% is fixed with the 27 billion, which means a flat rate of 162 million.

Anyway thanks for sharing the details of the council’s meetings.
Can the minutes be made public?
Or do we need to pay RM500 ala FOI?

gk ong

Cost overrun is a ‘Malaysian practice’, besides the right to sleep on the job and procure items 20% above market price?

Or is it a case of join them if you could not beat them? AG Report has been showing us classic examples every year.

Zz

Almost 60 years bn control Malaysia everything on US! bn still win Malaysia election, make us suffer, pay all the bills. With this kind of project, its not impossible people paid for it, the real question is, are penang government ready to roll out without central government (bn) help? I believe, Yes they can!

zoro

what is value for money if it is a ghost tram and take hours to arrive at its destination and when it comes it comes in groups of tram at the same time due to shared road? like melbourne cars have to stop for tram passengers to cross the road? only poor and without cars, are forced to take trams. end result nsw and vic state gomen are subsiding public transport.

zoro

If Gomen not enough cash, you mean pg lang going to keep on donating forever to state Gomen in order to subside an inefficient public transport? better go and find out the only tram service in Malaya has to be dismantle.

ong eu soon

Hahaha. Appoint me as the project delivery partner, I will only charge 1% with much much lower cost. Any way we found a solid ground to remove the guy at the top. Next is to throw all the projects into dustbin.

zoro

try to charge low, macc will go after you like ms pang. now all poltical traders must buy high and pasar mlm traders must sell like high ends shops in star hill

Annas E Ahmad

Who’s gonna pay?

tunglang

State gomen to pay using Penang assets (inclusive of sea space for reclamation)?
Why not sell off the whole of Komtar to finance whatever dizzy-frenzied CAT Satu Lagi Projek?
The state gomen under the always-get-cheap-mentality leadership can thereafter rent a space from SingLanders’ heritage rows, which btw is at ground level to ground level Penangites for an intimate understanding of their daily needs & wants. Also, no need to get a parking lot for MercS300Lansi (to save up more for Projek-Projek) as there are RapidPenang everywhere.
Deity, do you need an abacus from me?