A little education, please


  • Business
  • Saturday, 26 Feb 2011

What does the project delivery partner of a multi-billion ringgit project do?

THERE'S a new term in town project delivery partner (PDP). So far this year, four listed companies have used it when announcing their involvement in projects that are expected to cost billions of ringgit, and yet we know so little about what it means to be a PDP.

In identical announcements issued on Jan 31, Gamuda Bhd and MMC Corp Bhd said their 50:50 joint venture (JV) had been appointed the PDP for the Klang Valley Mass Rapid Transit (MRT) project by Syarikat Prasarana Negara Bhd. The companies, however, did not provide the scope, terms and conditions of the appointment, saying these are subject to the signing of agreements between the Government and Prasarana. and between the JV and Prasarana.

On Wednesday, Malaysian Resources Corp Bhd (MRCB) and Ekovest Bhd came out with brief statements about their own JV receiving a letter of intent that indicates the Government's intention to make the JV the PDP of the River of Life project. Again, the companies offered no more details on the scope and cost of services because there will be negotiations between the JV and a joint development committee set up by the Government.

Both projects are massive undertakings and are among the initiatives promoted in the Economic Transformation Programme (ETP). Specifically, they are among the nine entry point projects (EPPs) that are meant to create a so-called Greater Kuala Lumpur/Klang Valley that will act as a driver of economic growth.

According to the ETP roadmap, the MRT project will require about RM47bil, based on early estimates. The infrastructure cost will come to RM36bil, while the rest will be for land acquisition and operating assets. A lot has been reported about the project, and a Klang Valley MRT Open Day was held in Kuala Lumpur on Feb 13. So, most people have an idea what it's all about.

On the other hand, the River of Life project could do with a quick introduction. The objective is to revitalise the Klang River into a heritage and commercial centre by redeveloping several locations along a 10km stretch of river and by cleaning up the river. Says the roadmap: “Ten nodes of economic activity have been identified along the Klang and Gombak rivers. For each of the nodes, in addition to beautifying the river bank and improving connectivity, mixed-use developments will be encouraged to increase retailing, residential options and places of leisure such as parks and green spaces.”

The total capital expenditure needed for the River of Life project is RM17.9bil. Of this, RM14.3bil is “earmarked as the private investment component in real estate development”.

Clearly, there's a lot of money to be earned from these projects. A slice of the pie can translate into millions of ringgit in revenue. Question is, how would a PDP's slice look like? For that matter, what does a PDP do? None of the announcements to Bursa Malaysia by the four companies explains the role of a PDP. It's as if the term has been in common use all along and everybody is supposed to already understand the functions of a PDP.

This is not the case, of course. A search of the Bursa Malaysia website shows that until Jan 31, no listed company had used the term PDP. Usually, when we talk about a company bagging a project, it's either as a contractor, a concessionaire or a project manager, or a combination of these roles.

It's understandable that the four companies are in no position to reveal numbers and other deal details at this point, but surely they could have provided some clarity as to the extent and nature of the JVs' involvement in the projects. In the absence of information from these companies, we have to rely on other sources. A good place to start is the Dec 18 media release by the Land Public Transport Commission, which announced the Cabinet's approval of the implementation of the MRT system.

On the appointment of the MMC-Gamuda JV as the project's PDP, the commission explained: “The PDP plays the role of a project manager but with the added responsibility of having to deliver the project within an agreed time and cost. Any cost overrun and delays in project completion which are basic common risks in projects will be borne by the PDP. The PDP is not a turnkey contractor and the project will be divided up into work packages which will be awarded individually through open tender. The Government will make the final decision on the awarding of contracts.

“The PDP will not be allowed to tender for any of the work packages except for tunnelling works. The Government felt that an exception should be made as the PDP is the only local construction company that has experience in major tunnelling works such as in the Smart Tunnel project in Kuala Lumpur, and the Kaohsiung MRT project in Taiwan. Nevertheless, the PDP will still have to compete for the work package with other companies and the award will be given on the basis of merit.”

So that tells us quite a bit about the PDP arrangement. Presumably, like a project manager, the PDP earns a fee for its services, but because the PDP bears more risks and is not usually allowed to tender for the contracts, it charges higher rates than a plain vanilla project manager.

So why is Malaysia turning to the PDP model when we previously relied on turnkey contractors and project management consultants? According to Minister in the Prime Minister's Department Senator Datuk Seri Idris Jala, the aim was to start the MRT project quickly. In a briefing at Menara Star in December, he said the turnkey option was not flexible and might prove costly in the long run, while hiring a project management consultant would meant waiting at least five years for local players to build up their competencies before the project could start.

In a press conference after Gamuda's annual general meeting in December, group managing director Datuk Lin Yun Ling said that with the PDP model, “the Government can have its cake and eat it as well”. He was also quoted as saying the Government would be able to transfer the project's delivery and performance risk to the PDP and at the same time have the entire project packaged and tendered out transparently and competitively.

This all sounds rather good, but would it kill the listed companies to put in a bit more effort to educate us a little every time they use an unfamiliar yet pivotal term?

Deputy executive editor Errol Oh is looking for the letter that appointed him the PDP for his two sons. It may come in handy during contractual disputes.

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