MoF unit sounds warning on ECRL lay-offs

This article first appeared in The Edge Financial Daily, on July 19, 2018.
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KUALA LUMPUR: A ministry of finance (MoF) unit has cautioned China Communications Construction (ECRL) Sdn Bhd (CCC-ECRL), the main contractor of the suspended East Coast Rail Link (ECRL) project, against its rapid lay-offs following the suspension.

In a letter to CCC-ECRL dated July 17, Malaysia Rail Link Sdn Bhd (MRL) said it is observing the contractor’s “drastic action especially on the demobilisation of your staff”.

“Please note that MRL requires you to officially notify us of personnel whom had been registered as person-in-charge to all local authorities, ie CIDB, JKKP etc.”

“It is required for you to maintain those staff during the suspension period to avoid any unforeseen actions by the authorities, like closing of your site offices, or imposing penalties, etc,” said MRL in the letter.

The reference to registered personnel likely refers to compliance-related officers on site, who by regulation need to avail themselves to regulatory authorities for enquiries and checks.

CIDB refers to the Construction Industry Development Board Malaysia, which regulates construction activity. JKKP is the Malay acronym for the Department of Occupational Safety and Health.

Recall that last Wednesday, The Edge Financial Daily reported that the contractor had begun terminating its Malaysian employees after the 688km rail project was suspended.

MRL is a wholly-owned unit of the Minister of Finance Inc, the corporate vehicle of the MoF. It was set up as the project owner of ECRL.

CCC-ECRL is a unit of state-controlled China Communications Construction Co Ltd (CCCC), which is dual-listed on the Hong Kong and Shanghai stock exchanges.

The July 17 letter, a copy of which The Edge Financial Daily sighted, came two weeks after MRL’s suspension notice on July 3.

On July 4, CCCC expressed disappointment and concern that the suspension may lead to additional costs, losses and damages.

“We are upset and concerned about the livelihood of our 2,250 local staff, as well as several subcontractors, suppliers and consultancy firms,” the contractor said.

A week after the suspension order, CCCC began dismissing Malaysian staff, The Edge Financial Daily reported last week.

When queried last week, CCCC said it was investigating to clarify what happened.

One source familiar with CCCC’s thinking said that as many as 30% of the company’s local employees tied to the ECRL project will eventually be laid off due to the suspension.

That estimate places as many as 675 Malaysian-held jobs at risk, going by a previous CCCC statement that it has 2,250 local employees.

Another source said that Chinese employees involved with the ECRL project are also expected to be redeployed soon amid the suspension.

The job cuts dominate an expected trip by Finance Minister Lim Guan Eng to China later this month to renegotiate the ECRL costs.

In a statement two weeks ago, Guan Eng said the cost of the 688km rail project would total RM81 billion, far higher than the initial price tag of RM55 billion indicated by the previous government.

ECRL is financed by the Export-Import Bank of China.

Sources said the employment contracts of the dismissed workers contain a clause that provides for automatic termination if the ECRL project is suspended, terminated or completed.

Such clause is not unusual in project-based employments. But the speed of the terminations has surprised MRL as there is no telling how soon the project may resume, people familiar with the situation said.

One termination letter sighted by The Edge Financial Daily said that “there is a need to reduce manpower on the basis that there is no work that can be carried out”.

During employee briefings this week, CCCC officials indicated that some staff would be dismissed, while some others would be sent home with half pay pending the project’s resumption.