We are open to further discussions — MMC-Gamuda

KUALA LUMPUR (October 9): MMC-Gamuda KVMRT (T) Sdn Bhd said that the joint venture (JV) was not being given a fair chance to work out the cost reduction for the underground works of the mass rapid transit Line 2 (MRT2) as the Ministry of Finance (MoF) did not reveal the target it wants to achieve.

However, the JV said it remains open to further discussions with the MoF in reaching an agreeable reduction.

Both MMC Corp and Gamuda Bhd said so far, they have not received any notice from MRT Corp Sdn Bhd or the government pertaining to the termination of the MRT2 underground contract.

In a four-page statement, MMC-Gamuda said that although the MoF has made known that the offered reduction of RM2.3 billion is still not adequate, to date it has not been conveyed to MMC-Gamuda an acceptable target figure that the ministry has in mind.

“If the target figure is made known together with the components of the savings as individual items, both parties would be placed in a better position to re-examine these components from where savings could be derived and to narrow the differences.

“The appointment of an international engineering consulting firm as proposed by MMC-Gamuda would greatly facilitate this exercise,” said the JV, in which Gamuda and MMC hold equal equity stakes.

MMC-Gamuda said it has offered a reduction of RM2.3 billion, which represents 24% of the RM9.6 billion of the uncompleted underground works.

Gamuda’s and MMC’s share price were dealt a big blow after the MoF announced on Sunday that it had the contract terminated as both parties could not reach an agreement on reducing the cost of the underground portion of the public rail project. Gamuda’s share price plunged 22% to a seven-year low of RM2.43 yesterday while MMC fell 16.3% or 22 sen to RM1.13, wiping off a total market capitalisation of RM2.6 billion in a single day.

MMC-Gamuda said the contract price for the underground works awarded to it was RM15.47 billion, which is lower than the RM16.71 billion figure given by the MoF. Furthermore, MMC-Gamuda pointed out that MRT Corp shared the same view that the cost-cutting advised by a local consulting firm is “too simplistic”.

According to the statement, MoF believed that the JV company could offer more reduction for the underground works premised upon the review by a local engineering consulting firm appointed by the ministry. “A significant part of the review findings was refuted by MMC-Gamuda on technical grounds as being too simplistic and arising from a lack of relevant experience.

“Ironically, Mass Rapid Transit Corp Sdn Bhd (MRT Corp), which has a huge staff of experienced technical experts, also issued their own report of the aforesaid consulting firm’s proposals on Aug 27, which carried similar views as MMC-Gamuda,” said the statement.

It was MRT Corp’s call
MMC-Gamuda pointed out that two main factors that have a major influence on the price of underground works are namely the employer’s requirements and safety requirements.

“In comparison with MRT Line 1 (MRT1), the employer’s requirements have increased the scope of works significantly, for example, larger floor space, a fivefold increase in the underground entrance and pedestrian walkways.

“As MRT2 geology is complex, the average depth of the diaphragm walls in MRT2 is 51m compared with MRT1 at 39m,” it added.

During the initial tender process, MMC-Gamuda said it had submitted an alternative proposal with savings by reducing the prescriptive requirements without compromising the safety, performance and functionality of the operational railway. But MRT Corp elected not to accept the alternative offered by MMC-Gamuda, the statement said.

The JV has now offered the alternative proposal to MoF, but only those applicable to the balance of uncompleted works, as 40% of works are done. “MMC-Gamuda believes that the MoF’s aim of achieving savings is best done by both parties reaching an acceptable compromise instead of terminating the contract and retendering the remainder of the underground works,” it said.

Severe job cuts and flood of lawsuits
On the consequences of the termination, MMC-Gamuda warned that it would result in immediate job losses of over 20,000 personnel involved in the underground works from a supply chain of over 600 Malaysian companies.

“Of the 20,000, over 3,000 are made up of MMC-Gamuda JV staff, and of this, more than 60% are bumiputera. This will cause unnecessary hardships to a significant number of Malaysian workforce in an already slowing market.

“In addition, the termination will unjustifiably expose MMC-Gamuda to a flood of lawsuits for compensation from terminated employees, subcontractors, suppliers, manufacturers, etc whose contracts will similarly be terminated due to no fault of theirs,” it added.

On the government's move to retender all the unfinished underground work of the project through an international open tender process, MMC-Gamuda said unless the MoF significantly lowers the requirements, only foreign contractors will be eligible.

This article first appeared in The Edge Financial Daily, on Oct 9, 2018.

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