Extra RM3.6b for northern rail double tracking due to land, other costs

KUALA LUMPUR, Oct 15 — Putrajaya has to spend an extra RM3.6 billion for land acquisition, compensation and other costs for the RM12.49 billion Ipoh-Padang Besar double-tracking project, which has faced two time extensions to the original contract for the 329km line, reveals the Auditor-General’s Report 2011.

The report issued today said the extra costs were due to land acquisition (RM698.17 million), squatter compensation (RM37.64 million), consultancy charges (RM256.96 million), TNB re-connection charges (RM203.48 million), other and legal fees (RM1.38 million), deferred payment scheme processing fees (RM10.05 million) and Bank Pembangunan Malaysia Berhad (BPMB) interest charges (RM2.4 billion).

File photo of work on the double-tracking project. — Picture courtesy of www.2t.com.my

The Auditor-General’s Report also revealed that the Finance Ministry wanted the processing and legal fees to be paid by the contractor MMC-Gamuda Joint-Venture (MGJV) but the Transport Ministry went ahead and included the costs under the “associated cost and expenses” category in the additional agreement as it cropped up after the contract negotiations were done.

While the Transport Ministry has to pay a total of RM9.095 billion for the loan and interest charges due to BPMB, the Auditor-General pointed out there was also an RM11.11 million fee to process the deferred payment scheme which worked out to 0.15 per cent fee for every repayment to the government-owned bank.

It also said that a total of RM1.06 million was paid to CIMB Investment Bank Bhd and Maybank Investment Bank Bhd for financial advice on the deferred payment scheme to BPMB.

“The auditors cannot determine if this payment gives value for money as the ministry did not offer other banks to give financial advisory services,” the report said.

Incidentally, the MGJV is also the project delivery partner for the multi-billion ringgit My Rapid Transit (MRT) project in the Klang Valley.

The report noted that Keretapi Tanah Melayu Berhad (KTMB) had been appointed the authority’s enforcement representative and on February 24, 2009 had also picked Konsortium Kinta Samudra-Emenea-Techart (KSET) as the project’s management consultant with a ceiling cost totalling RM256.96 million.

The Auditor-General said the overall cost had been driven up by the consultant fees due to two time extensions that delayed the project by 669 days.

He also noted other weaknesses in the project that had raised the cost, including the long delay in acquiring the land, noting it took between 82 days and 1,227 days to close. 

He reported that auditors were unable to determine if the payments to both CIMB Investment and Maybank Investment were priced competitively as the Transport Ministry had failed to issue offers to other banks.

The Auditor-General recommended the ministry finalise immediately the increase in consultant fees due to the time extension.

It added that the views of the ministry’s legal adviser must be taken into account to limit the impact of KSET’s defects liability period.

The Auditor-General also suggested that the ministry should get offers from other banks so as to ensure that charges, such as the interim processing fee and the payment for financial services advice, are competitive for future project.

The report also recommended a longer time frame of at least a year to conduct the land acquisition in the ministry’s future projects.

It recommended too that MGJV and KSET be directed to continue monitoring the project and to improve the poor quality works that failed to follow the specifications given.