The MRT: Old Habit Dies Hard

Malaysia is a nation in haste. It is in our habit that we rush things, more often than not paying the price of the rushed decisions later down the road. Even when I was still an accountant managing finance operations, I always lamented our society’s obsession with speed at the expense of quality and thoroughness. Luckily we are such a rich country that we can still afford the price for the mistakes done due to the rushed decisions. For how long we can do this is anybody’s guess.

Of all the mega projects recently announced by the government recently, the mass rapid transit (MRT) is undoubtedly the project with the highest financial, social and economic impact. With an initial price tag of RM36 billion, it is expected to lessen the public transport woes in the Klang Valley considerably when it becomes fully operational in 2017. Malaysians have long called for an integrated public transport system in the Klang Valley to alleviate the traffic problems, so when the project was announced naturally it was received with a cautious sigh of relief.

It is unfortunate that the failure to present a solution to lessen the public transport woes sooner is now used as an excuse to hasten the decision making on the project, especially when we are looking at a financial commitment of epic proportion (by the national standard). It is deja vu all over again, with the government rushing the decision and project.

For a start, the RM36 billion price tag is not only high (which in itself is an under-statement) but is suspect. There has not been a full disclosure of the breakdown of the cost or the extent of future financial commitments to be borne by the public. It is difficult to ascertain whether the initial statements issued by the government on the nature of financing required for the project was intentional or resulted from a mix-up. Whatever it was, it was initially implied that the MRT project, as one of the entry points projects, will be funded substantially by the private sector only to find out later on that the funding will come from public funds.

In a way, the announcement to award the right to design, develop and construct the MRT system to Gamuda-MMC without a tendering exercise was met with a docile public response. This is expected as the public was under the impression that the project would be funded privately by Gamuda-MMC.

Unfortunately, details emerged later that the MRT project would utilise public funds after all under a hybrid arrangement where Gamuda-MMC will be appointed as the project delivery partner. The government explained that the risk for cost overruns and delays will be borne by Gamuda-MMC, as if that will make up for the absence of an open tender process promised earlier.

My discomfort with the recent developments on the project is not only confined to the manner Gamuda-MMC was given the project on a silver platter (after all, you get used to it after a while), but more so on the price tag quoted.

I was made to understand that Gamuda-MMC had spent millions of ringgit to complete the study and engineering design of the proposed MRT project. It went to the government with the engineering design and it is this design that was adopted in full by the government under this project delivery partnership (PDP) arrangement. The price tag of RM36 billion is therefore a result of a study and engineering design commissioned and directed by Gamuda-MMC.

Under the PDP arrangement, Gamuda-MMC will act as a project management consultant (PMC) and a turnkey contractor to deliver the project. This will give it substantial influence and power to award packages to subcontractors, while the full financing will come entirely from the public funds.

Let’s go through a few hypothetical scenarios.

How sure are we that the RM36 billion price tag for the construction (excluding rolling stocks and several other packages) are not inflated to build in the financial buffer and to mitigate the risk for Gamuda-MMC? What guarantee do we have that an army of value engineering experts and quantity surveyors have been employed by the government to comb through the proposal and engineering design to ensure it brings the best value for money for the public?

Are we certain that the RM36 billion is the full cost of the project, or only for a few packages of the project? If the RM36 billion only covers the cost for a few packages, what is the full sum of the project?

What is the development concept for the MRT stations? While the government is expected to acquire the land necessary and pay compensation accordingly using the public funds, who will own the MRT stations and the prime land surrounding each MRT station? If each station development is going to be awarded separately, will the government award each station and the land bank around the station to the highest bidder?

How can we ensure transparency and avoid a conflict of interest when the PDP (Gamuda-MMC) is expected to be the leading bidder for the underground package?

Even if a proper tendering process is instituted, what guarantee do we have that the public pays for the bare minimum that it requires for a satisfactory and integrated public transport system not an overblown project that is designed and implemented with the developers’ need in mind, because the public had given Gamuda-MMC the blank cheque.

In all of this, what is the role of the Land Public Transport Commission (SPAD) and how can it ensure that we pay the right price for the MRT system that we are building? Will the cost balloon to RM50 billion by the time the project is completed?

And there will be intense competition to grab the stations most strategically located and the landbank surrounding them, most of which will be decided by way of direct negotiations. In 10 years’ time, Malaysia’s public debt level would have hit the 60% mark (out of GDP) for the first time due to the large debts including funds taken to finance the MRT. In addition, the existing light rail transit and monorail systems continue to make losses each year and consume public funds.

The country’s award and running of the LRT and monorail services was a bad experience because it was not well planned and thought out and now we are rushing the MRT project. We might land up with the same problem in the future.

The questions pose need to be answered thoroughly to avoid the country falling into a deeper abyss of debts. The public must not be blinded by the yearning for a fully integrated transport system that we fail to exercise vigilance.

Rafizi Ramli is chief executive of the Selangor Economic Advisory Office.

This article appeared in The Edge Financial Daily, January 25, 2011.

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