Guan Eng, Pua clarify LRT3’s cost, scope and timeline

 Ex-finance minister and his former political secretary say the newly opened LRT Shah Alam Line will serve as a catalyst for economic development in Selangor.

From Lim Guan Eng and Tony Pua

We respectfully thank the Sultan of Selangor, Sultan Sharafuddin Idris Shah, for his observations on the completion of the LRT3 project, now known as the LRT Shah Alam Line.

We wish to respectfully and humbly clarify several matters, which can be verified with Prasarana and MRCB Bhd.

Firstly, the LRT3 project was never stopped, stalled, or suspended during the Pakatan Harapan administration between 2018 and 2020. We also affirm that the then PH administration fully supported the LRT3 project and considered it a critical and essential initiative to improve the daily lives of Klang Valley residents.

Secondly, the Barisan Nasional administration helmed by Najib Razak approved RM9 billion for the LRT3 project and provided Prasarana with a RM10 billion government guarantee to raise funds in 2015.

However, Prasarana awarded various work package contracts (WPCs) amounting to RM15.2 billion in March 2018, significantly exceeding the approved RM9 billion budget.

After accounting for all other costs, including but not limited to land acquisition, project delivery partner (PDP) and consultancy fees, and interest incurred during the construction period, Prasarana submitted a revised budget of RM31.65 billion in March 2018, along with a request for an additional RM22 billion government guarantee to raise funds for the project.

Thirdly, following the change of government in May 2018, construction work continued uninterrupted, while the new administration worked closely and amicably with the appointed PDP, MRCB-George Kent, to rationalise project costs.

Fourth, as the LRT3 project was only 9% complete at that point, we took the opportunity to engage independent engineering consultants to review and propose rationalisation measures to ensure proper accountability.

This was necessary as there were several “hidden” off-balance sheet liabilities incurred during the previous administration. This is in addition to the tens of billions of ringgit in debt arising from the RM50 billion 1MDB scandal.

It should also be noted that the mandate for the review required that the project’s scale and scope align with passenger demand based on traffic studies and be approved by the (then) Land Public Transport Commission (SPAD).

Fifth, the Cabinet approved a 47% reduction in the project’s cost from RM31.65 billion to RM16.63 billion, resulting in savings of RM15.02 billion.

Sixth, we prioritised functionality and practicality over luxury and grandeur. There was no necessity to build MRT-sized stations for an LRT project.

The measures taken included:

a) Reducing the number of trains ordered from 42 sets of six-car trains to 22 sets of three-car trains, in line with passenger traffic studies up to 2035 conducted by independent consultants and approved by SPAD.

b) Deferring – not cancelling – five LRT stations with low projected initial ridership to be built in the future when demand justified their construction, with provisions made for their future development.

c) These five stations have since been reinstated in line with current developments. The government recently awarded Phase 2 of the project worth RM5.3 billion for these stations, additional trains, and other upgrades. This increased the total project cost from RM16.63 billion to RM21.93 billion, which remains RM9.72 billion lower than the original approved cost of RM31.65 billion under the Najib administration.

d) The target completion date was extended from 2020 to 2024. The original 2020 deadline was already unrealistic, given that only 9% of the project had been completed by mid-2018. This extension also eliminated acceleration costs, which are fees paid to contractors to expedite construction.

Seventh, the PDP model was abolished. Under the PDP model, the contractor collected a percentage of the total project cost. The higher the project cost, the higher the fees, creating a perverse incentive to inflate project value. The model was replaced with a fixed-price contract, ensuring no cost overruns.

The LRT3 project has now been successfully completed, with additional upgrades and improvements implemented. This has resulted in upfront savings of more than RM9.72 billion for Malaysian taxpayers, with a final project cost of RM21.93 billion compared with the original approved cost of RM31.65 billion.

As a result of the lower project cost, the government is also expected to save up to RM10 billion in interest costs over the next 25 to 30 years.

We wish to reiterate that these savings were achieved without compromising passenger capacity or functionality. They have also enabled current and future governments to reallocate funds to other welfare and development priorities for the rakyat.

We express our gratitude for Sultan Sharafuddin’s concern regarding the LRT3 project, which, as Tuanku rightly noted, plays an important role in reducing traffic congestion, travel time, and serving as an economic catalyst for development in Selangor. - FMT

Lim Guan Eng served as the finance minister from May 2018 to February 2020, with Tony Pua as his political secretary.

The views expressed are those of the writers and do not necessarily reflect those of MMKtT.