CCCC upset over ECRL suspension

  • Business
  • Thursday, 05 Jul 2018

CIMB Equities Research remains cautious on the construction sector despite possible revival of the East Coast Rail Line (ECRL), albeit downsized,

PETALING JAYA: The Government is pushing to renegotiate the agreement tied to the East Coast Rail Link (ECRL) project, and has suspended works on the multibillion ringgit project.

In an immediate response, the main contractor China Communications Construction Company Ltd (CCCC) expressed its disappointment on the move and warned that the cost of the ECRL construction could rise due to the suspension.

“We respect and comply with Malaysian laws. Under the situation, we have no choice but to adhere to the suspension instruction.

“While the duration of the suspension has not been specified, we are concerned about incurring additional cost, losses and damages arising from the suspension.

“We are upset and concerned about the livelihood of our 2,250 local staff, as well as several sub-contractors, suppliers and consultancy firms,” stated the company in a statement.

Sources told StarBiz that a new high-level committee has been formed by the government, under the advice of the Council of Eminent Persons, to evaluate all possible options to reduce the final cost of the ECRL, apart from renegotiating the agreement with China’s state-owned CCCC.

The committee, which was formed about two weeks ago, will be headed by the Transport Ministry and includes representatives from the Attorney-General’s Chambers, the Economic Planning Unit and the project owner of the ECRL, Malaysia Rail Link Sdn Bhd (MRL).

The suspension of ECRL works is effectively the committee’s first move, said a source.

“The ECRL project will be continued and the suspension is only temporary. However, the duration of suspension would depend on the time taken for CCCC to agree to the terms set by the government.

“Essentially, it is about getting a fair deal out of this project,” stated the source.

Prime Minister Tun Dr Mahathir Mohamad had said previously that the ECRL project would be completed, only if the government could lower the project’s cost and achieve more favourable terms through renegotiation.

On July 3, Finance Minister Lim Guan Eng announced that the final cost of the ECRL was a staggering RM81bil, adding that the 688-km rail project would only be continued once the cost has been lowered to a financially-viable level.

Citing “national interest”, MRL has ordered ECRL’s main contractor CCCC to halt all engineering, procurement, construction and commissioning (EPCC) contract works, pending further instruction.

A source said that MRL would not be liable for any compensation for the time being, due to the EPCC works suspension.

Breaking down the final cost of the ECRL, Lim pointed out that the project’s overall cost had risen to RM81bil, after taking into account land acquisition, interest, fees and operating costs.

Prior to this, the previous Barisan Nasional government had said that the project would cost RM55bil, about 47% lower than the figure mentioned by Lim.

The ECRL, which spans from Port Klang to Gombak and onwards to Kuantan and Pengkalan Kubor, has come under heavy criticism for its expensive price tag of RM55bil, which translates to close to RM80mil per km.

Other railway projects in Malaysia have so far averaged less than RM50mil per km.

Detractors have also labelled the ECRL as the world’s costliest rail project.

The funding of ECRL comes largely from China, with the country’s Export and Import Bank providing 85% of the funds.

The remaining 15% will be raised by the government locally.

To date, a staggering RM19.68bil has been drawn down from the RM55bil with only one year of work done.

Dr Mahathir was reported to have said that payments to CCCC were not made according to the amount of work done.

Speculation is rife that some of the money drawn down has been diverted to pay off 1Malaysia Development Bhd’s debt-servicing obligations.

However, Lim has said that the drawn-down monies could be recovered, although only partially.

“The Government via its wholly owned operating subsidiary, MRL, has paid CCCC the sum of RM19.68bil, comprising of an advance payment of RM10.02bil and a progress payment of RM9.67bil.

“The advance payment of RM10.02bil, however, is backed by an advance payment bond of the equivalent amount,” he said.

“In other words, in the event of a worst-case scenario, the federal government can recover RM10.02bil of the RM19.68bil paid,” said Lim.

The ECRL project started off with an initial estimate of less than RM30bil in 2007.

When the previous government signed the agreement with CCCC in 2016, it was for only Phase 1 – from Gombak to Wakaf Baru in Kelantan – tagged at RM46bil.

The cost of Phase 2, from Gombak to Port Klang, was another RM9bil.

On May 13, 2017, the previous government signed an additional agreement with CCCC to carry out Phase 2 of the project.

Subsequently, the Cabinet approved the northern extension of the project from Wakaf Baru to Pengkalan Kubor in Kelantan for the value of RM1.28bil, Lim said.

On Aug 23, 2017, the Cabinet further permitted the upgrading of the ECRL to a double-tracking project, costing an additional RM10.5bil.

According to these figures, the basic cost of the ECRL amounts to about RM66.78bil.

However, it does not include the land acquisition cost, interest, fees and operating costs.

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