This article first appeared in The Edge Malaysia Weekly on January 14, 2019 - January 20, 2019

THE funding conundrum for the light rail transit line 3 or Bandar Utama-Johan Setia line has taken another twist as a number of contractors contend that they have yet to receive payment from Prasarana Malaysia Bhd for work packages completed since last February. Because of this problem, sources say several smaller subcontractors are on the brink of bankruptcy.

The sources add that Prasarana has not paid for work that had been completed up to Sept 30, 2018, amounting to RM800 million, and that a meeting was held recently between the work package contractors and the main contractor, MRCB George Kent Sdn Bhd (MRCBGK).

“Prasarana has stopped paying us for the work done since February last year. When we requested a meeting with them, Prasarana went silent,” one of the sources tells The Edge.

“We are really hard-pressed in the current situation. How are we going to continue with the work if we are not paid? Some of the smaller subcontractors are saying that they are on the brink of bankruptcy as they don’t have enough cash to roll over,” says another source.

The sources say MRCBGK had to let some 100 workers go following a reduction in the project scope by the new government and an extension of the deadline for its completion. Initially targeted to be completed by 2020, the LRT3 will now only be ready in 2024.

Prasarana declined to comment on the non-payment allegations and details about the funding of the project when contacted by The Edge. However, the government-owned company says it is currently working closely with its partners and stakeholders to fine-tune the implementation of the project.

Efforts to reach Imran Salim, the managing director of Malaysian Resources Corp Bhd (MRCB) — one of the joint-venture contractors — proved unsuccessful. Imran took over the position from his father, Tan Sri Mohamad Salim Fateh Din, on July 2 last year.

The allegations of non-payment have called into question Prasarana’s funding exercises. The public transport infrastructure owner and operator has been raising bonds every year since 2009 to fund the construction of LRT3 and other infrastructure projects.

According to Bond Pricing Agency Malaysia’s Bond and Sukuk Almanac 2017, Prasarana had RM24.7 billion worth of outstanding debt papers as at Dec 31, 2017. Last September, it issued yet another RM1 billion worth of sukuk.

Last March, the company also sought government approval for the issuance of RM22 billion worth of debt papers to fund the construction of LRT3 on the basis that the earlier RM10 billion raised — also from the debt market — was insufficient.

Although the Ministry of Finance has agreed to continue with the project at a much reduced cost of RM16.6 billion because it will be scaled down, it appears that the fixed-price contract between Prasarana and MRCBGK has yet to be signed.

A source close to MRCB says the group is currently negotiating the final details of the contract with Prasarana. According to an MRCB filing with Bursa Malaysia, the contract was supposed to be executed no later than Dec 12 last year.

“The contract is now expected to be executed by the end of this month,” adds the source.

Amid high government debt and obligations exceeding RM1 trillion, the 37km LRT3 was one of the infrastructure projects reviewed by the Pakatan Harapan government following its historic win in the 14th general election last May.

Finance Minister Lim Guan Eng has revealed that the actual cost of the project was RM31.45 billion, and not RM9 billion as originally estimated by the previous Barisan Nasional government. He attributed the massive difference in cost to Prasarana’s poor management.

Following his comments, Masnizam Hisham, the then CEO of Prasarana, stepped down on Sept 2 after less than eight months at the helm. She was replaced by Datuk Mohamed Hazlan Mohamed Hussain, former director of organisational support at DRB-Hicom Bhd.

The downscaling of the project will see five stations with low traffic projections axed and the purchase of 42 sets of six-car trains reduced by nearly half to 22 sets of three-car trains. A 2km tunnel and an underground station in Persiaran Hishamuddin, Shah Alam, have also been shelved.

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