‘Govt takes over Pan Borneo Highway, removes PDP’

This article first appeared in The Edge Financial Daily, on March 21, 2019.
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KUALA LUMPUR: The federal government has decided to ditch the project delivery partner (PDP) model for the entire RM29 billion Pan Borneo Highway project in favour of the turnkey contractor model, sources with knowledge on the matter told The Edge Financial Daily.

Sources said the works ministry will take over the project and turnkey contractors will be hired to replace the PDP to complete the remaining construction works for the 2,324km Pan Borneo Highway project.

It is understood that the decision was made in light of cost overruns under the existing PDP structure. The decision is in line with the government’s intention to stop awarding infrastructure projects through the PDP model, which contractors are not being incentivised to be cost-efficient.

PDP contractors usually earn a certain percentage of a project’s cost, but do not have to bear the full brunt of cost overruns and delays. This compares with the turnkey model, in which the project cost is fixed from the beginning.

A recent example is how the overall cost for the mass rapid transit Line 2 (MRT2) project ballooned to RM56.93 billion from an earlier estimated cost of RM28 billion due to additional expenses under the PDP model. In the case of the MRT2, the government switched to a turnkey model and revised the scope of work for the above-ground portion, which helped reduce the portion’s cost to RM17.42 billion from RM22.64 billion previously.

It is unclear whether the existing PDPs for the Pan Borneo Highway will be shortlisted by the government as candidates for the turnkey contractors moving forward.

The Edge Malaysia weekly reported that the Sabah state government, led by Sabah’s infrastructure development ministry, is said to have submitted a proposal to take over the implementation of the Sabah portion of the project.

Borneo Highway PDP Sdn Bhd (BHP) is currently the PDP for the 706km Sabah portion of the highway, whereas Lebuhraya Borneo Utara Sdn Bhd (LBU) is the PDP for the Sarawak portion.

BHP is 60%-owned by Warisan Tarang Construction Sdn Bhd, with the other 40% held by a joint venture between UEM Group and MMC Corp Bhd.

The Edge Malaysia weekly reported that Warisan Tarang is perceived to be connected to Sabah Umno and former chief minister Tan Sri Musa Aman.

Meanwhile, LBU is seen as being linked to controversial businessman Tan Sri Bustari Yusuf, a media-shy tycoon closely linked to former prime minister Datuk Seri Najib Razak. The toll-free Pan Borneo Highway was launched by Najib in March 2015.

The Sabah portion spans 706km and is divided into 35 work packages, which are expected to be completed in 2023. According to media reports, 12 out of 35 packages for the first phase had commenced construction as at December last year.

Meanwhile, the 1,060km Sarawak portion has seen 11 project packages handed over to contractors, with works expected to complete in 2021.

On March 13, Deputy Works Minister Mohd Anuar Mohd Tahir reportedly told Parliament that the Sabah portion had reached 12.4% completion with RM609 million spent as at February this year. Mohd Anuar was quoted by the media as saying that the federal and Sabah state governments are now studying the execution mechanism of the highway project, and will discuss its future direction with the cabinet by end-March.