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Monday, 30 July 2018

(The Star) Blame game in LRT3 project

PETALING JAYA: Syarikat Prasarana Negara Bhd and the project delivery partner (PDP) are blaming each other for the cost escalation in the Light Rail Transit 3 (LRT3) project. 

In a report to the Finance Ministry, Prasarana contended that the PDP of Malaysian Resources Corp Bhd and George Kent Bhd (MRCB-GK) failed to carry out its duties extensively resulting in awards being given out that cumulatively resulted in the project exceeding the budget of RM9bil. 

Prasarana also noted in the report that the previous management failed to monitor the PDP’s performance closely and proceeded to award contracts despite the project exceeding the cost. 

The report stated that the previous management did not notify their board of directors about the escalating cost of the LRT3 project until the end of November last year, when most of the work packages were already awarded. 

By that time, the construction cost of the LRT3 had already blew past its government approved budget of RM9bil, according to sources familiar with the matter. 

The LRT3 project is the first undertaken by Prasarana via the PDP model. Under the model, the PDP would deliver the project within cost and schedule in return for a fee. 

“The deficiency of PDP and the failure by the previous management of Prasarana in managing cost and time have jointly contributed to the poor management of the LRT3 project,” according to a source. 

However, MRCB-GK contends that the cost escalation was due to changes to the design that Prasarana requested after having awarded the job of PDP in September 2015. 

It had been reported that there were more than 22 instances where Prasarana had requested changes to the design and specifications to the project. Prasarana is disputing at least 12 of the changes. 

MRCB-GK is said to have alleged that the number of stations were increased to 30 from 26 and that the total cost of the project was not finalised before the PDP contract was awarded in 2015. 

The project cost was capped at RM9bil. By June this year, the figure had ballooned to RM15.6bil. 

Sources said the weakening of the ringgit exchange rate against the US dollar from 3.10 to 4.40 at the time when most of tenders were awarded last year contributed to more than RM1.8bil in additional cost. 

A total of 29 work packages worth RM15.2bil had been awarded for the LRT3 project, before the board at Prasarana was made aware in November of the project’s massive cost increase. 

Sources said the previous management at Prasarana could have alerted its board as early as in February 2017 about the potential budget burst. 

Sources said the previous management at Prasarana, led by former president and CEO Datuk Seri Azmi Abdul Aziz, had relied heavily on the PDP to manage the cost and progress of the project. 

They proceeded to award another RM4.4bil worth of contracts despite exceeding the RM9bil cap. 

“The previous management did not update the board that the budget had burst and the board was only aware of the gravity of the situation in November after the management had tabled the budget requirement for LRT3 for 2018,” a source said. 

The board then proceeded to instruct the management to immediately reduce the cost. 

Azmi left Prasarana at the end of December last year after his contract expired. He was replaced by president and current CEO Masnizam Hisham, who had been with Prasarana since 2004. 

The board of Prasarana last week said Masnizam has their backing to continue leading the company amid reports suggesting that she will be replaced. 

Finance Minister Lim Guan Eng, on July 10, said poor management by Prasarana had caused the total cost of the project – including land acquisitions, fees and interest – to increase to a massive RM31.45bil. 

The Cabinet had since directed Prasarana to cut this by almost half to RM16.62bil by reducing the number of train-sets, shelving five stations and extending the timeline to complete the project from 2020 to 2024. 

In addition, the construction of the LRT3 project will be restructured from a PDP model to a “fixed price contract” with the MRCB-GK joint venture (JV). 

A final decision on how the project will be implemented and which party will be in charge is expected to be made this week. 

Meanwhile, over the weekend, it was reported that Prasarana and its PDP partner MRCB-GK JV have separately said they will cooperate with any investigation related to the LRT3 project by the Malaysian Anti-Corruption Commission.