This article first appeared in The Edge Malaysia Weekly on April 19, 2021 - April 25, 2021

THE big boys of the construction sector are preparing to get a piece of the action in the Klang Valley MRT Line 3 or Circle Line project following the government’s decision to do away with the past practice of appointing a project delivery partner (PDP) to carry out large-scale rail projects.

This week, the players will attend the request for information (RFI) briefing by MRT Corp for elevated civil works and stations, being a likely avenue to touch on the technical and financial aspects of the project.

It is understood that some companies could be forming partnerships in the light of the proposed private funding of up to 30% for the project, which has an overall estimated cost of some RM30 billion.

Participants as well as MRT Corp will need to put significant effort into meeting the challenging milestones set. The process from RFI to construction is fast-tracked to just one year, compared with 18 months typically seen in other mega projects, including the MRT2.

The RFI submission is scheduled for May, ahead of the MRT3 route finalisation and tender offer in August, while construction works are expected to commence in early 2022.

MRT Corp in its briefing last week described the project as a “game changer” with high spillover effects that will increase the technological capabilities of local talent, support socio-economic development across urban areas along the route and create jobs for Malaysians.

“This is not just a construction project but a large transformation — a large change management programme,” says MRT Corp CEO Datuk Mohd Zarif Hashim.

In the past, the Barisan Nasional government had opted for the PDP structure for MRT1. This was continued in MRT2, but later switched to turnkey contract mid-construction under the Pakatan Harapan administration.

Under the first structure, the PDP is required to execute in time and within the budget underlined by project owner MRT Corp, in return for a fee of 6% from total cost. The structure leaves the financial arrangement risk with the government.

One of the contentions with this structure is cost overruns. In MRT1, its PDP MMC-Gamuda KVMRT (PDP) Sdn Bhd had said that the RM21 billion construction cost excluded other associated costs including consultancy fees and contingencies.

Meanwhile, the turnkey structure comes with a price ceiling to the entire project, and the main contractor’s margin can be higher or lower depending on project execution. But as this structure shifts the construction and financing risk to the main contractor, there are few with large enough balance sheets to digest an entire mega project.

For MRT3, MRT Corp’s intention is to have a hybrid project structure, where it seeks private funding of up to 30% or about RM9 billion for the project, while the rest will be financed by the government.

Under the hybrid structure, MRT Corp will be the project owner and manager. Unlike the PDP structure, part of the financing risk is transferred to the contractors, while MRT Corp retains a higher degree of control over the execution compared with the turnkey structure.

In a nutshell, MRT Corp will have to integrate the works between contractors and the systems governing the project. Observers have described this as “difficult, but not impossible”, having been done in other rail projects elsewhere.

The new structure will also reduce some of the financial burden on the government, which needs to prioritise its stretched financials for other socio-economic programmes and assistance packages amid the Covid-19 pandemic.

Notably, the RFI for elevated civil works and stations is open to anyone who has executed one land transport infrastructure project — rail, elevated, bridge, highway — with a minimum value of RM500 million.

Analyst reports underlined companies like former MRT key contractor and tunnelling expert Gamuda Bhd, as well as Malaysia Resources Corp Bhd and IJM Corp Bhd, as potential contenders, owing to their large balance sheets.

Others such as MMC Corp Bhd, Ahmad Zaki Resources Bhd, Gabungan AQRS Bhd, Sunway Construction Group Bhd as well as industrialised building system (IBS) expert Kimlun Corp Bhd are also seen as key potential participants.

If confirmed, the estimated price tag for MRT3 at RM30 billion would be 33% lower than the RM45 billion estimated when the project was first announced to the public. This is despite the indicative route now extended to 50km from 40km previously, with at least 30 stations and with some 40% or 20km of the route underground.

Comparatively, the MRT2 project cost RM30.53 billion with a length of 57.7km and 36 stations. Some 13.5km is underground, which took up RM13.11 billion of the total cost. The remaining 44.2km elevated section cost RM17.42 billion.

MRT3’s competitive costing is supported by the emphasis on building information modelling (BIM) and the IBS method, as well as the smaller, modularised MRT3 stations compared with its predecessors being located in much denser urban areas that the Circle Line will pass through.

The proposed stations include Desa Pandan, HUKM in Cheras, Bandar Malaysia, Old Klang Road, PPUM, Bukit Kiara, Sri Hartamas, Jalan Duta, Sentul, Semarak, Setiawangsa and Ampang Point.

The IBS format will also indirectly help MRT Corp in its effort to reduce its reliance on foreign workers to 30%, from 48% in MRT2. As construction manufacturing involves more work in the factory rather than on-site, it is hoped that it will provide a more conducive work environment that will attract more local workforce, on top of developing a skilled workforce that is able to undertake system integration and final assembly.

Foreign partnerships, if any, must contain knowledge or technology transfer such that local players would be able to undertake the entire project in the future, with a vision to develop the integrated rail systems locally. Other considerations include the need to spread out the project’s supply chain in order to maximise the targeted spillover effect.

The MRT3 project will be executed across five phases split between 10 interchange stations, which will allow each section to operate independently before the entire circle is completed. MRT Corp envisions a spillover effect of 3.5 times, with the project to anchor other transit-oriented developments (TOD) and revamp key urban areas.

While market talk is that behind-the-scenes progress is picking up fast, it will take much effort to manage the super-tight schedule with plans to commence construction in 1Q2022.

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.