Newsbreak: MRT3 to be revived at half the cost?

This article first appeared in The Edge Malaysia Weekly, on May 6, 2019 - May 12, 2019.
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THE federal government and construction giant Gamuda Bhd are understood to have been in talks over the past few months on reviving Mass Rapid Transit Line 3 (MRT3), or MRT Circle Line, at a much lower price, a source familiar with the matter tells The Edge.

It is perceived that the parties are discussing halving the MRT3’s earlier cost of RM45 billion, or about RM22.5 billion.

To recap, the 40km MRT3 — which is the last of the MRT Lines in the Klang Valley — was slated to pass through areas such as Kerinchi, Jalan Duta, Setiawangsa, Salak Selatan, Pandan Indah and Bandar Malaysia, via underground rail tracks, as it is largely a railway line around the city centre.

However, there are no details of the plans currently being discussed, or what will enable Gamuda to slash the price.

Nevertheless, one source says, “The government is quite receptive to the MRT3 proposal, after the reduced cost.”

Another source says the ongoing negotiations may conclude late this year.

It is also understood that once things are stable, Gamuda might seek a partner to aid in the gargantuan project. Gamuda declined to comment when contacted.

Thus far, Gamuda’s partner for many of its large-scale jobs has been MMC Corp Bhd, a publicly traded company that is 51.76% controlled by well-connected businessman Tan Sri Syed Mokhtar Albukhary.

Gamuda and MMC Corp equally own MMC Gamuda KVMRT (T) Sdn Bhd, which was set up in March 2012 to design and construct the Klang Valley MRT.

“It may be better to firm everything up first, make sure all the angles have been covered before looking for any partner to share in the risk,” the second source says.

The Edge understands that among the reasons for reviving MRT3 include the increased ridership of MRT1, after the government announced an unlimited 30-day RM100 pass, which is available to all users of the LRT, MRT, Monorail as well as Rapid and MRT feeder buses.

The travel pass was announced in Budget 2019 and its usage began in January.

While current ridership details are unknown, as at August last year, MRT1 had an average of 145,000 commuters per day, or only just less than a third of its 450,000 capacity.

However, like most rail projects, the MRT is unlikely to be a profitable venture, it is built for the people rather than to make profit for the government.

That said, there were a number of false starts.

In November 2017, Mass Rapid Transit Corp Sdn Bhd, the company running the MRT rail system, invited local construction and infrastructure companies to participate in a tender process to build, on a turnkey basis, and provide financing for the then 32km MRT3 that was to have 26 stations, of which 19 would be underground. The date of completion for that project was brought forward to 2025 from the initial target of 2027.

But the plans changed when Pakatan Harapan won the general election in May last year. Prime Minister Tun Dr Mahathir Mohamad then announced that the MRT3 would be discontinued due to the government’s burgeoning debt. Other ministers, however, stepped in to explain that the Circle Line was merely postponed and not scrapped.

MRT1 currently operates from Sungai Buloh to Kajang while MRT2, which connects Sungai Buloh to Putrajaya via Serdang, is being built.

MRT1 was built at a cost of RM21 billion and began operations in July 2017 while the construction cost of MRT2 was slashed by 22.4% to RM30.53 billion by the newly elected government.

MMC Gamuda KVMRT was removed as the project delivery partner for the MRT2 when the project was changed into a turnkey model.

It could be that MRT3 is considerably cheaper after Gamuda ironed out issues that are similar to the MRT2, such as a reduction in the number of stations among others.

However, it is also noteworthy that news of the revival of the MRT3 comes after similar plans for the RM44 billion East Coast Railway Line (ECRL) and RM200 billion Bandar Malaysia.

The ECRL, which will be 640km long, is slated to be a double tracking model and will not tunnel through the Titiwangsa mountain range to save costs.

Nevertheless, for Gamuda, the revival of MRT3 would mean a huge shot in the arm for its order book. As at end-July last year, the construction company had an outstanding order book of RM11.5 billion, which should keep it busy for the next few years. The company’s tender book was a massive RM8 billion, largely made up of road tunnelling and building jobs, both locally and abroad.

For the six months ended January this year, Gamuda chalked up net profits of RM345.18 million from RM2.03 billion in revenue. In the corresponding period a year ago, its earnings were RM427.72 million from RM1.77 billion in sales. Aside from a slowing economy, the lower income could be due to Gamuda selling its 40% stake in water treatment outfit Syarikat Pengeluar Air Sungai Selangor Sdn Bhd, as part of a consolidation exercise.

As at end-January this year, the company had RM1.39 billion in cash and bank balances and RM195.45 million in investment securities. On the other side of the balance sheet, Gamuda had long-term borrowings of RM4.44 billion and short-term debt of RM1.60 billion. For its six months ended January the same year, Gamuda paid RM48.50 million in finance costs.

Last Thursday, Gamuda ended trading at RM3.41, translating into a market capitalisation of RM8.42 billion.

 

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