Specification changes led to LRT3 cost surge

This article first appeared in The Edge Financial Daily, on July 23, 2018.
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KUALA LUMPUR: A chunk of the increase in costs for the light rail transit Line 3 (LRT3) project — from RM9 billion to RM31.65 billion — stemmed from Prasarana Malaysia Bhd seeking to make changes to the specifications in the original plan, documents sighted by The Edge Financial Daily revealed.

In September 2015, Prasarana appointed MRCB George Kent Sdn Bhd — a joint-venture company between George Kent (M) Bhd and Malaysian Resources Corp Bhd (MRCB) — as the project delivery partner (PDP) for the implementation of the LRT3 project, which was slated to run 37km from Bandar Utama to Klang through Shah Alam.

There has been much backbiting between the PDP and Prasarana since the escalation of costs first surfaced earlier this month.

Prasarana has made quite a few statements lately, but did not make reference to any of these issues. Documents seen by The Edge Financial Daily showed that there were at least 22 issues and changes to the original Employers Requirements of the tender documents dated April 2015 which Prasarana had sought.

When asked to comment on the cost escalation and changes sought, Prasarana said: “Last Friday, Prasarana submitted to the ministry of finance (MoF) a detailed account stating its version of the project flow and challenges it faced in the LRT3 over the years.”

“Prasarana being a subsidiary of the Minister of Finance Inc, would stand guided by the MoF on the way forward for the LRT3 project,” a Prasarana spokesman told The Edge Financial Daily.

The documents showed that some of the key changes sought by Prasarana included an extension to train length from 109m to 114m, with six-car trains. This new instruction was only made in June 2016, and resulted in France’s Systra SA, which won the contract to produce preliminary designs for the LRT3 line, having to resubmit its preliminary design.

This change entailed the length of the stations to be increased to 125m, and maintenance buildings at the depot, and the stabling yard where trains are parked when they are not in operation, to be extended as well.

“Without the new instruction, the PDP could have proceeded with the preliminary design by June 2016,” the documents read.

There were also “persistent changes” in alignment beyond the alignment freeze date of April 2016. The documents indicated that in April 2016, Prasarana — during a workshop — had requested to change the original Systra concept from side platforms to island platforms, further delaying the preliminary design.

There were also variations to the alignment made in July 2016 involving Pasar Besar Klang, and the uncertainty resulted in a delay in the preliminary design target date being concluded on Aug 19, 2016. The relocation of the Persada PLUS station had a similar impact of delaying the preliminary design.

A change to the number of parking lots from 5,000 initially to 6,000 had also adversely impacted the preliminary design.

Also a change in requirements from a four-car train set to a six-car required 50% more cars to be manufactured within the same time frame, and impacted the signalling and communications specifications, among others.

The changes in signalling specifications brought about the requirement for a separate uninterruptible power supply room, which impacted the station layout design and affected the tender drawings.

There was also a change in the communication system from the Tetra digital radio communication system to add on LTE technology as an option as well, and a change to six overhaul tracks from the original plan of two.

The Edge Financial Daily learnt that the scope of work and costs were dictated by Prasarana as per the PDP agreement, and in some instances the board was not aware of the changes requested by the management to the PDP.

On July 14, Prasarana issued a statement to say that it was fully aware that the initial cost of LRT3 of RM10 billion was inadequate, and a substantial increase would be needed for the project to be completed.

It went on to say that on March 30, it had formally requested approval to issue an additional RM22 billion government guaranteed bonds, with the expectation that the final total cost of LRT3 would increase to RM31.65 billion.

It is worth noting that until April last year, there was no mention of any increase from the RM9 billion figure reported earlier.

The only indication that the LRT3’s actual cost could be higher was when former Prasarana president and group chief executive officer Datuk Seri Azmi Abdul Aziz was quoted in April last year as saying that the RM9 billion estimate was based on the government’s budget.

“There have been significant developments over the year. So, we are tracking that and ensuring we will be working on a figure that is realistic,” he had said.

Indeed, in an earlier statement issued on July 11, Prasarana said that it had started efforts to reduce the project cost of the LRT3 since February this year.

Nevertheless, Finance Minister Lim Guan Eng has since announced that the project will go ahead, but the costs have been slashed by 47% to RM16.63 billion — a savings of RM15 billion.

For its financial year ended Dec 31, 2016, Prasarana suffered a net loss of RM2.11 billion on revenue of RM835.90 million. To put things in perspective, the transport company has accumulated losses of RM8.32 billion.