MMC-Gamuda set to win RM12.5b rail deal

A CONSORTIUM comprising MMC Corporation and Gamuda is poised to snare a RM12.5 billion (S$5.3 billion ) contract from the government to electrify and double-track a 329-kilometre portion of the railway grid between Ipoh, the capital of Perak state, and Padang Besar on the Malaysia-Thai border.
The award is likely to refocus attention on Malaysia's increasingly expensive penchant for opaque and so-called 'negotiated' contracts. In this case, the uproar could be even louder: the contract award represents almost 86 per cent of a much larger project in 2003 that would have electrified the entire North-South railway grid from Johor Baru to Padang Besar, an extra 268 km over the current award.
The latter project had been awarded in the twilight days of the administration of former Prime Minister Mahathir Mohamad but was abruptly cancelled two months after he stepped down by his successor Abdullah Ahmad Badawi in the name of fiscal austerity: Malaysia was, and still is, running a fiscal deficit. Mr Abdullah's decision then was the genesis of an acrimonious break between the two men that flared into the open a year later.
Now Mr Abdullah seems to have changed his mind in spectacular fashion. Executives familiar with the matter said that the government was likely to make the announcement 'soon' and that it was to be a government contract and not a private finance initiative as had been re-proposed by the consortium in November, 2006. If true, Mr Abdullah is following in the footsteps of Dr Mahathir who had always envisaged the project as being government funded.
Infrastructure specialist Gamuda is controlled by businessman Lin Yun Ling while MMC, a power, ports and construction conglomerate, is the flagship company of tycoon Syed Mokhtar Al-Bukhary.
The enormous cost escalation of the project is expected to be explained away by the government as a function of rising commodity prices over the last three years.
Indeed, in January this year Gamuda's Mr Lin was quoted as saying that 'it would make more sense to build the railway sooner rather than later given the rising costs of raw materials such as fuel (up 300 per cent) and copper (up 100 per cent).' Mr Lin also said that with double tracking, the saving in fuel consumption over the next 30 years - at the then oil price of around US$70 a barrel - would be RM150 billion.
Even so, at RM12.5 billion, the Gamuda-MMC bid would come in at around RM38 million a kilometre which some consultants say is expensive. According to them, Ircon, or the Indian Railway Company of India, which is bidding for the southern stretch of railway between Gemas and Johor Baru, has valued its bid at around RM31 million a kilometre.