The consortium led by Shimizu Corp may emerge as the frontrunner to bag the tunnelling portion of the Pahang-Selangor Inter State Water transfer project, sources say.

Shimizu’s partners in the project are IJM Corp Bhd, UEM Group and Nishimatsu Construction Co.

There are two other bidders — Taiseh Corp teaming up with privately held HRA Teguh Sdn Bhd and a standalone bid by Kajima Corp.

The Ministry of Finance is understood to have approached the consortium led by Shimizu after scrutinising all three bids.

This move could be taken as an indication that the Shimizu-led consortium is likely to bag the job, sources say.

The tunnelling project forms part of the gargantuan Pahang-Selangor Interstate water transfer plan. It entails the building of a 45km tunnel through the Titiwangsa mountain range, the building of a dam and a pumphouse in Pahang, and a water treatment plant in Selangor. The total value of the contract is said to be about RM7 billion.

However, there may be an issue giving the project to Shimizu and its partners who had put in a bid of RM1.3 billion.

The bid is understood to have conditions attached. These include a price variation order depending on the hardness of the rock. In international tenders, conditional bids are generally disqualified.    

Industry sources say it is a given that Shimizu’s cost will be higher than RM1.3 billion, as the hardness of the rock will be much more than the 176MPa (megapascal) anticipated by Shimizu.

A source familiar with the industry says the hardness of the rock will be in the region of 200MPa, based on the experience of another player conducting a similar job nearby. This could nudge Shimizu’s bid up by between RM200 million and RM300 million to about RM1.5 billion to RM1.6 billion.

The Triang water transfer tunnel, which is being built in Negeri Sembilan by Ultra C&E (M) Sdn Bhd — a unit of South Korean Ultra Construction & Engineering — had encountered rocks averaging 200MPa at the same mountain range, with certain portions at the outlet portal being even as hard as 220MPa, says the source.

Kajima’s bid is also understood to have had conditions attached, and is said to be higher than the other two bids.

Meanwhile, Taiseh and HRA had made a bid of RM1.5 billion without any variations, as per the requirements of the tender notice.

This would mean the Taiseh-led team’s bid could be lower than that of Shimizu’s bid.

As such, the move by the Ministry of Finance to re-negotiate with Shimizu is said to have not gone down well with Taiseh and its partner HRA.

Also clauses in the bid document state that there can be no modification after submission, documents obtained by The Edge show.

Understandably there has been a long delay in awarding the job. Bidding closed in March last year, and the bid documents opened about a month later, on April 22, 2008.

The reason for the delay has been a standoff over the award of the project, with the Malaysian government on one side and the Japan International Cooperation Agency (JICA) on the other.

JICA came into the picture when it merged with the Japan Bank for International Cooperation (JBIC) in October last year, and took charge of operations. In 2003, JBIC had agreed to provide a loan of some RM2 billion for the raw water transfer project under the New Miyazawa Initiative, a plan introduced by the Japanese government to assist ailing Asian economies after the financial crisis of 1997.

JICA has been rooting for the Shimizu-led consortium, while the Malaysian government was at that time bent on giving it to Taiseh and HRA, as their bid was more concrete, without any variation orders.     

Late last year, a local paper had reported Deputy Minister of Energy, Water and Telecommunications Datuk Joseph Salang Gandum as saying: “We are still negotiating with JBIC and we hope JBIC would tolerate (bear with us). Malaysia is a sovereign country and would not sell its dignity and name.” He was replying to a question on the status of the loan from JBIC and the progess of negotiations.

It is not clear why the Shimizu-led consortium is now a frontrunner when the bid by Taiseh and HRA appeared to have been given more weight by the government.  

Officials from Taiseh and HRA are understood to be looking to renegotiate as well.

“When Shimizu takes into account the harder soil conditions, its bid will surely be higher than that of the Taiseh-led consortium. Further, Taiseh may even lower its offer,” the source adds.

Taiseh is learnt to have made its bid based on oil prices at US$90 per barrel, and when steel prices were high as well. With oil prices now at about US$45 per barrel, and with steel prices dropping, Taiseh’s bid could be considerably cheaper.   

As for Shimizu, its partner Nishimatsu is encountering some problems in Thailand. Allegations of bribery and embezzlement of funds by top officials have surfaced in news reports.

The bid document states that JBIC and the Malaysian government should observe a high standard of ethics in the project. While any problem Nishimatsu has is not related to this particular tunnelling project, it could put the consortium in an unfavorable position.

The situation is still fluid, but it is noteworthy that Taiseh and HRA’s tender bond of RM7 million is still with the government, meaning they are not out of the running.

This article appeared in the Corporate page, The Edge Malaysia, Issue 747, March 23-29, 2009