KUALA LUMPUR (July 16): Prasarana Malaysia Bhd, which has been blamed by the finance ministry (MoF) recently for poor management which resulted in a jump in the Light Rail Transit 3 (LRT3) project cost, said it had known the initial projected RM10 billion cost for the project was “inadequate”.

In a statement on Saturday, Prasarana said the cabinet had, in 2015, approved its issuance of government guaranteed bonds of RM10 billion for the construction of LRT3.

“The RM10 billion government guarantee, which was approved on March 30, 2015, only took into account the cost of work package contracts and supply of feeder buses (RM9 billion), as well as land acquisition (RM1 billion).

“Prasarana was fully aware that the initial cost of LRT3 (RM10 billion) was inadequate, and a substantial increase would be needed for the project to be completed,” it said. It explained that the initial government guarantee excluded the goods and services tax (which is now no longer required); fees for the project delivery partner (PDP); PDP reimbursable cost; contingencies; and the owner’s cost including contributions to utilities companies, staff cost and more.

Also not included were: The owner’s consultancy services like independent checking engineers who would report to the Land Public Transport Commission (SPAD); preliminary and general costs; land rental; cost claims; and interest during construction.

“On March 30, 2018, Prasarana formally requested approval to issue an additional RM22 billion government guaranteed bonds with the expectation that the final cost of LRT3 would increase to RM31.65 billion.

“Prasarana currently awaits instructions from the MoF on the rigorous and comprehensive cost rationalisation to be approved. Finance Minister Lim Guan Eng had announced that the cabinet had approved the reduced cost of RM16.6 billion, a 47% reduction or savings of RM15 billion from the cost of RM31.65 billion. Prasarana would abide by the instructions of the MoF,” the statement read, adding that SPAD had also fully supported the MoF’s decision to rationalise the cost of the project.

“In view of the financial constraints faced by the government, Prasarana supported the decision to remove stations with projected lower ridership from the alignment to further reduce cost. SPAD has also fully sanctioned the proposed reductions in stations, which would not be expected to see a high passenger load.

“Nevertheless, provisions have been made for new stations to be built, or existing stations to be upgraded when demand increases in the future,” it added.

Last Tuesday, Guan Eng announced that LRT3’s projected cost had jumped to RM31.65 billion, and said a drastic cost reduction was needed to make the project feasible and cost-effective.

He also said the MoF would not support any additional funding required for the project unless the cost is significantly rationalised without compromising the rail network’s integrity, safety and quality of service.

Two days later, Guan Eng said the LRT3’s final cost has been cut to RM16.63 billion, after renegotiation and rationalisation undertaken with all key stakeholders, including Prasarana, the PDP, which is a Malaysian Resources Corp Bhd-George Kent (Malaysia) Bhd joint venture, and SPAD.

This article first appeared in The Edge Financial Daily, on July 16, 2018.

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