This article first appeared in The Edge Malaysia Weekly on April 18, 2022 - April 24, 2022

EIGHT companies have put in separate proposals to the government for a flood mitigation project in flood-prone areas located in the west of the Klang Valley. The project cost under the various proposals is said to range between RM5 billion and RM15 billion.

At this juncture, it is unclear how the project will be funded. Nevertheless, the federal government did announce in March an additional RM15 billion for flood mitigation projects between 2023 and 2030.

This is a big step up from the RM1 billion that had been set aside for mitigation projects under the 12th Malaysia Plan.

At this stage, the government is said to be evaluating all the proposals, and whether or not the project would involve tunnelling.

The unprecedented floods that took place in Selangor last December and in early January resulted in total losses of about RM3.1 billion.

The eight proposals that were sent in directly to the Prime Minister’s Office include some big names in the construction industry such as Gamuda Bhd, IJM Corp Bhd and Malaysian Resources Corp Bhd (MRCB).

Gamuda is familiar with flood mitigation projects, as it built the 10km Stormwater Management and Road Tunnel (SMART Tunnel) in Kuala Lumpur together with its partner MMC Corp Bhd in 2007 for about RM2 billion.

For this project, which it has dubbed the SMART2 Tunnel, Gamuda has proposed a 22km underground tunnel that includes tributaries, interceptor channels and a pumping system that pumps floodwaters into the sea. Its proposal also includes river improvement works that will increase the capacity of Sungai Klang by 10%.

The flood mitigation project proposed by Gamuda will be done in two phases and cover the flood-prone areas of Taman Sri Muda, Shah Alam, Setia Alam, Bandar Klang and Taman Sentosa.

The proceeds amounting to RM5.48 billion from the recent proposed divestment of all four of Gamuda’s highways to Amanat Lebuhraya Rakyat Bhd (ALR) will come in handy for the company. The divestment will result in an equity value of RM2.33 billion for Gamuda.

Earlier in April, the company received a conditional offer from ALR for its highways — its 70%-owned Kesas Sdn Bhd (Kesas Expressway), 51.6%-owned Sistem Penyuraian Trafik KL Barat Sdn Bhd (Sprint Expressway), 43.2%-owned Lingkaran Trans Kota Sdn Bhd (Damansara-Puchong Expressway) and 50%-owned Syarikat Mengurus Air Banjir dan Terowong Sdn Bhd (SMART Tunnel).

CGS-CIMB Research estimates that the RM2.3 billion equity value for Gamuda would increase its end-January cash by 63% to RM6 billion and this would substantially improve its end-January net gearing of 18% to an estimated net cash position of RM611 million.

This cash will provide the group with extra muscle to finance future infrastructure projects, such as the SMART2 Tunnel.

Another company that is known for its expertise in tunnelling — besides Gamuda and MMC Corp — is IJM Corp. The latter was involved in the Pahang Selangor Raw Water Transfer Tunnel project, which involved the construction of three tunnels measuring 44.6km. The construction was completed in May 2014. The tunnel starts at Karak, Pahang, and runs as deep as 1,200m underground below the Titiwangsa mountain range and hot springs.

IJM, UEM Builders Bhd as well as Japanese companies Shimizu Corp and Nishimatsu Construction Co Ltd were joint-venture partners in the project.

Financially, IJM Corp had a low net gearing of 0.28 times as at end-December 2021. It also has an outstanding order book of some RM4.2 billion. For the third quarter ended Dec 31, 2021, the company recorded a revenue of RM1.27 billion and net profit of RM98.44 million.

Its major shareholder is the Employees Provident Fund (EPF), which holds a 16.9% stake in the company, followed by Kumpulan Wang Persaraan (Diperbadankan) (KWAP), with 9.3%.

As with IJM Corp, MRCB’s major shareholder is EPF, which holds a 33.5% stake in the company.

MRCB also has tunnelling experience. It is the main contractor for the Light Rail Transit 3 (LRT3) project, which will involve 2.2km of tunnelling works from Persiaran Dato Menteri to Stadium Shah Alam. It also has an environment-related business that undertakes flood and erosion mitigation of rivers and coastal areas.

Its balance sheet should not be a hindrance, given that net gearing was at a low of 29.8%, amounting to RM1.25 billion of net debt, as at end-December 2021. The group ended FY2021 with a net profit of RM15.83 million, swinging back from a net loss of RM177.37 million incurred in FY2020.

Sources say there is Selangor state play involved, with the possibility of the winning bidder tying up with Kumpulan Perangsang Selangor Bhd (KPS), a unit of the state-controlled entity, Kumpulan Darul Ehsan Bhd. KPS’s 51% subsidiary KPS-HCM Sdn Bhd is principally involved in general civil engineering and infrastructure works. Its services also include drainage, sewerage pipeline works and deployment of flood mitigation ponds.

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