Mega projects can put construction back on track


  • Construction
  • Wednesday, 09 Sep 2020

StarBiz reported on Monday that among infrastructure projects in the pipeline, the revival of MRT3 and HSR appear imminent.

PETALING JAYA: The revival of infrastructure projects such as the Mass Rapid Transit Line 3 (MRT3) and the KL-Singapore High Speed Rail (HSR), should they happen soon, could provide a ray of light amid the gloomy outlook for the construction sector.

Analysts said that while sentiment for construction has improved with the reopening of the economy, there is an absence of a re-rerating catalyst. According to TA Research, the Bursa Malaysia Construction Index remains depressed, closing at 163.29 points on Monday.

“Even though it has rebounded from a recent low of 121.91 points recorded on March 19, (during the knee-jerk panic selldown after the movement control order on March 18) it has declined steeply by 52.6% from a five-year peak of 344.84 points in May 2017, and is just 10.5% higher from the trough of 147.74 points recorded during the period of Pakatan Harapan (PH) administration, ” it said in a report yesterday.

The research firm said it was maintaining an underweight on the sector and will reassess valuation if any mega infrastructure projects come to fruition. There was a lack of mega infrastructure projects by the PH administration after it came to power after the 14th General Election in 2018.

However, considering the multiplier effect in terms of job creation and the trickle down effect on sub-sectors, there are expectations that some big-ticket projects may be rebooted to stimulate the economy, which has slowed down significantly since the outbreak of Covid-19.

StarBiz reported on Monday that among infrastructure projects in the pipeline, the revival of MRT3 and HSR appear imminent.

Analysts said the mid-term recovery plan, which will most likely to be tabled in Parliament in October prior to the tabling of Budget 2021 in early November, are more appropriate platforms to revive some mega projects. TA Research also views MRT3 as “a low-hanging fruit” project, which could be implemented in the foreseeable future. “With MRT2 expected to be completed by late-2022, in order to ensure continuity of MRT projects and to minimise demobilisation and mobilisation costs associated with construction machinery, especially the tunnel-boring machine, as well as the project team, especially tunnelling experts, MRT3 has to be rolled-out in the near future, ” it said.

It anticipates the project delivery partner (PDP) would require about six to 12 months from the appointment of PDP to kick-off the construction work.

The MMC-Gamuda joint venture was initially appointed as the project PDP in October 2014 to implement MRT2, before the overall completion of MRT1 in July 2017.

Prior to GE14, the project was on the verge of being awarded at a contract value of RM45bil. Subsequently, the value was lowered to around RM20-25bil with the tunnelling portion estimated to be worth RM12bil, or RM6bil each for MMC and Gamuda, said Alliance DBS.

In the current context, the research firm said that an ideal structure to minimise risk and capitalise on the current low interest rate environment would be for the project to be undertaken via the PDP structure.

The project is likely to be financed by bonds issued by Danainfra, it said in a recent report.

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