LRT3: Why the additional funding of over RM7 billion?

There needs to be more accountability and transparency in project funding and execution.

COMMENT

The issue of the LRT3 light-rail line that would cost the new Pakatan Harapan (PH) government about RM31.45 billion is really mind-boggling.

A project that was tendered out in 2015 with all the required specifications and legally awarded to the chosen project delivery partner (PDP) at their quoted price of RM9 billion was suddenly revised upward, by about 2.5 times higher, by the previous Barisan Nasional (BN) government several months before the 14th general election (GE14).

The move was suspicious, to say the least, and leaves the new PH government with no choice but to review the project.

While it is understood why there is a need for a review, the more relevant questions being asked among experts are centred around one of these issues:

• Why didn’t the PH government cancel the project; or

• At least suspend the LRT3 project pending a thorough investigation; or

• In the worst-case scenario, re-tender and re-award the project based on the new specifications.

According to media reports, the additional cost of RM22 billion was requested by the executing agency, Prasarana, in March 2018.

If the project cannot be executed on its original budget of RM10 billion, consisting of RM9 billion for construction plus RM1 billion for land acquisition, then it would not be worthwhile to continue with the project.

This is because the original price tag for this 37km line was already considered high when the project was awarded in 2015.

Secondly, the LRT3, with its low projected ridership, is also not so critical in the public transport strategy for the Klang Valley.

Therefore, under the present economic climate and the country’s financial situation, cancelling the project is wiser than incurring more costs that would benefit only a handful of passengers.

In essence, the original budgeted limit of RM10 billion with the agreed specifications, must be adhered to by both parties in the contract.

The RM7 billion question

The Finance Ministry (MoF) which fully owns Prasarana, made a quick review and decided suddenly on a new figure of RM16.63 billion for the project to go ahead but with much reduced or lower specifications.

This decision is not right without linking the LRT3 to the projected travel demand. Something is amiss and the explanation on cost escalation does not rhyme with the project economics.

In fact, many elements associated with the LRT3 project do not make sense and warrant further clarifications and possibly multiple investigations – financial, technical and legal.

Therefore, rather than providing the PDP with more money, a full investigation into these three areas encompassing the increased project cost, project delay, non-performance and non-compliance by the parties involved should be undertaken prior to approving any new funds.

Pending the outcome of the thorough investigation, the project should therefore be suspended.

An additional RM7 billion is a big amount, representing a 77.5% increase in the total project cost, whereas a common contingency amount for such a project should not exceed 10% of the original contract price.

Even 10% is considered hefty for a large-scale project such as this.

Hence, a suspension of the project, during which time full-fledged investigations can be carried out, will provide all the needed information in our country’s march towards transparency and accountability.

Lower specs and re-tender

It has been reported that the number of stations for the LRT3 has been reduced by six in the final specifications.

All the stations will be designed for a configuration of a four-train set rather than the original six-train set and the design for the depot and other facilities will follow these new specifications.

The lower specifications will result in lower costs, though it is noted that it may not be in proportionate terms, plus some possible penalties. The simple question is; why the sudden jump from RM9 billion to RM16.63 billion when the specifications were reduced?

There are many more questions to be answered by the MoF rather than just a short explanation on how the request for the budget was simply increased from RM9 billion to RM16.63 billion.

No doubt, if the intention of the government is to go for lower specifications that reflect the travel demand for this corridor, then it is only fair that the project should be re-tendered.

Among other new bidders invited, the current PDP must also be given a chance to re-quote for these lower specifications.

Many experts are of the opinion that the government will be able to obtain a lower price than RM9 billion if the project is re-tendered.

To justify the LRT3 project, Prasarana wrote a nice story about traffic congestion and how the LRT3 was meant to tackle the problem. No indication was given on whether it was meant for the proposed alignment or just an overall statement on congestion.

That being the case, the lower specifications as proposed by the MoF should also be accompanied by a new travel demand and traffic congestion reduction studies that will justify the additional funding of RM7 billion. This, however, was not carried out.

The truth is, the RM7.63 billion could be better utilised to create value for the rakyat.

It is about time we show some accountability and transparency in project funding and execution.

Rosli Khan has spent over 30 years in the transport industry, managing more than 100 consultancy projects -FMT