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Tiff on 2nd bridge job resolved

KUALA LUMPUR: UEM Builders Bhd and Ministry of Finance-owned (MoF) Jambatan Kedua Sdn Bhd (JKSB) finally signed a RM1.55 billion agreement for the construction of part of the second Penang Bridge, officially ending a two-year disagreement on certain matters in relation to the project.

Sources say yesterday’s contract does not include the RM200 million that UEM Builders incurred in establishing a casting yard.

“The government will compensate UEM Builders for the casting yard separately,” said a source.

The cost of building the casting yard and apportionment of jobs between UEM Builders and China-based CHEC Construction (M) Sdn Bhd, the other party in the RM4.5 billion project, were among the main reasons for the project’s delay.

At yesterday’s ceremony, JKSB also signed a contract worth RM2.2 billion with CHEC Construction for the foundation works and substructure of the bridge. CHEC Construction, a wholly-wned subsidiary of China Harbour Engineering Co, will also construct the main navigation span.

UEM Builders’ RM1.55 billion job entails the construction of the superstructure.

The second Penang bridge project was mooted in 2006 when Tun Abdullah Ahmad Badawi was the prime minister. The Chinese government extended a soft loan amounting to US$800 million
(RM2.54 billion) for the project, which explains the involvement of CHEC Construction in the project.

In 2007, the mandate to construct, operate and transfer the bridge was given to UEM Group, which is a wholly-wned subsidiary of Khazanah Nasional Bhd. UEM Group then awarded the construction of the job to a joint venture of CHEC and UEM Builders, with the former holding a 51% equity stake.  
One of the reasons why UEM Group was appointed the concessionaire for the second bridge was because it was also the concessionaire for the existing Penang Bridge.   

However, after more than a year, UEM Builders and CHEC could not come up with a shareholders’ agreement due to disagrements over the apportionment of jobs and cost. This was largely due to the job-scope being trimmed.

Under the original mandate to UEM, the jobs in relation to the construction of the approach to the bridge on both sides, estimated at RM800 million, were part and parcel of the project. But, subsequently, it was excluded as the federal government decided to award the job to other contractors in the state.

JKSB took over the project from UEM Group in July 2008, and awarded a RM1.3 billion job to UEM Builders for the superstructure portion of the bridge, which was much lower than the RM2 billion it expected to get.

JKSB chairman Tan Sri Sulaiman Mahbob said yesterday the issues pertaining to the award value to UEM Builders hadbeen resolved.

“It has been resolved, otherwise we won’t be signing the contracts today,” he told reporters after the signing ceremony yesterday.

He said it took JKSB more than a year to finalise the contracts with CHEC and UEM Builders as it needed to clear some “teething” and legal issues following the change of business model and funding of the project.

As opposed to the original agreement where UEM as the project owner has the concession to operate the bridge, now its subsidiary UEM Builders is just a contractor. JKSB will award the concession at a later stage.

On construction jobs related to the approach of the bridge on both sides, Sulaiman said 40 contractors submitted bids when tenders closed recently.

“The tender for the third package worth RM750 million closed recently and it will be divided into three sub-packages. The packages will be awarded earliest next month.”

Sulaiman also said that based on the competitive prices tendered by contractors, the project could cost less than RM4.5 billion.

The second Penang bridge, now 24% completed, is expected to be ready by November 2013, more than a year later than its original deadline of May 2012.

The project, work on which began in November 2008, is financed by The Export-Import Bank of China (China Exim), Bank Pembangunan Malaysia Bhd and Kumpulan Wang Amanah Persaraan Diperbadankan.

It is learnt that the loan from Bank Pembangunan is RM1.4 billion while equity contribution by UEM Group amounts to RM50 million. The remaining RM260 million is to come from the government.

This article appeared in The Edge Financial Daily, April 27, 2010.
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