Pestech denies unit's insolvency, says problem lies with Gemas-JB project’s cash flow

• Pestech added that during this two-year extension period, PTech received no loss or expense payments for the contract prolongation.

KUALA LUMPUR (July 4): Pestech International Bhd has denied that its subsidiary, which has been terminated as a sub-contractor for the the Gemas-Johor Bahru electrified double-track rail project, is insolvent as claimed by the main contractor Syarikat Pembenaan Yeoh Tiong Lay Sdn Bhd (SPYTL).

Pestech instead alleged that the rail project was experiencing serious negative cashflow issues created by SPYTL, due to rear-loaded project payment milestones and a delay in SPYTL’s works, which resulted in the need for an extension of time of over two years for the subsidiary, Pestech Technology Sdn Bhd (PTech), to complete the works.

Pestech added that during this two-year extension period, PTech received no loss or expense payments for the contract prolongation.

Pestech said this in a filing on Monday (July 3) in response to queries from Bursa Malaysia on PTech’s termination as the sub-contractor on the grounds that Ptech was allegedly insolvent, had repudiated the contract, and breached an anti-corruption obligation.

Pestech said PTech had at no material time repudiated the contract, nor demobilised from the project site, insisting that while works slowed due to the project’s negative cashflow, they were still ongoing.

On the alleged breach of anti-corruption obligation, Pestech said PTech denies the allegation and has called for SPYTL to prove that PTech triggered a material breach of the sub-contract.

The project, with a fixed sub-contract price of RM399 million, was awarded in September 2018 to PTech from SPYTL under the SIPP-YTL JV — a consortium between SIPP Rail Sdn Bhd and SPYTL.

PTech was to provide turnkey engineering, procurement, construction and maintenance services relating to the electrification system for the 197km electrified double-track from Gemas to Johor Bahru. The contract work was initially slated for completion in April 2021.

PTech, as part of an unincorporated consortium with Ansaldo STS Malaysia Sdn Bhd, was also awarded another RM339 million sub-contract in relation to the signalling system of the double-track project from Gemas to Johor Bahru. Under the consortium, PTech’s share of the contract sum was RM75 million.

Pestech said the termination of the project and the litigation will not have any material effect on the revenue and earnings for the financial year ended June 30, 2023 (FY2023).

However, there will be an impact on the group’s revenue and earnings for FY2024, the group added but gave no further details.