THE proposed RM27 billion Pan Borneo Highway, which runs through Sabah, Brunei and Sarawak, seems to be facing some obstacles.

Construction companies in Sabah want a piece of the action — building the portion of the highway in their state — but the state government has not been able to identify a candidate for it.

A source familiar with the project tells The Edge that for the Sabah stretch, there will be a project proponent — probably a consortium comprising UEM Group Bhd, MMC Corp Bhd and a Sabah-based company to be appointed by the state government.

For the Sarawak portion of the highway, local companies will undertake the job. Construction is expected to start this month and to be completed by 2022 at an estimated cost of RM14.5 billion, mostly financed by private parties.

However, it remains unclear when work on the Sabah stretch will begin as the local companies do not appear too pleased, knowing that the concession is likely to be awarded to UEM Group and MMC Corp.

“This is not a normal project, as funding has to be obtained by the project proponent, and it is not through the government. And funding can only be obtained if UEM Group and MMC Corp (fundamental: 1.0, valuation: 2.4) know who the third party is,” the source says, adding that the proponent will then appoint main contractors and subcontractors for the project.

“The main contractor, it seems, has to be a Sabah-based company, and considering the stretch is more than 700km, it would require more than 100 subcontractors.”

However, he adds, no candidate has been named yet.

When contacted, UEM Group says it is unable to comment on the project at the moment. The group has the experience of building the North-South Expressway in Peninsular Malaysia.

The Pan Borneo Highway — 727km in Sabah and 936km in Sarawak — will connect the two states with Brunei. Its construction is expected to take more than 10 years.

 Sarawak-based companies, including Cahya Mata Sarawak Bhd, Hock Seng Lee Bhd, Naim Holdings Bhd and Zecon Bhd, as well as the privately held OBYU Holdings Sdn Bhd, controlled by Tan Sri Bustari Yusuf, are potential candidates for the highway jobs.

According to Works Minister Datuk Seri Fadillah Yusof, the government has agreed that no toll will be imposed on the Sarawak stretch. As for the Sabah route, the matter has yet to be finalised.

Members of parliament Jimmy Wong Sze Phin (Kota Kinabalu) and Stephen Wong Tien Fatt (Sandakan) have demanded that Sabah-based companies be part of any consortium that builds the Sabah portion of the highway.

However, local players seem reluctant to become subcontractors of the peninsula-based consortium, which is reportedly the front runner to secure the Sabah job. Hence, before a three-party partnership is formed, it is very difficult to see the start of construction.

Industry players opine that Sabah construction firms should be given an equal chance, but not preference, to participate in the project.

Master Builders Association Malaysia former president Kwan Foh Kwai says in any project, there should be fair competition and transparency.

“If the Sabah companies know the local environment and costing better, why not [give them a chance]? It’s all up to which contractor can give the best offer. If you think you can, by all means, [please go ahead],” he says.

Kenanga Investment Bank Bhd research analyst Mohd Iqbal Zainal says the government has to ensure that the chosen candidates can deliver the project within the stipulated time and cost. “At the end of the day, it is a matter of pricing and track record. As long as it is economically viable with ultimate commercial value, I have no issue with that,” he adds.

An executive of a construction firm points out that unlike in Sarawak, there are very few established construction companies in Sabah.

“If the government cannot find the right contractor there, naturally, it will have to give the job to others,” he says, citing examples of the Kota Kinabalu International Airport, Universiti Malaysia Sabah and Kota Kinabalu-Sulaman coastal road built by peninsula-based companies WCT Holdings Bhd, Ekovest Bhd and Bina Puri Holdings Bhd respectively.

“Yes, Sabah companies should get a slice of the pie and they have every right to be unhappy. But bear in mind that the concessionaire has to raise substantial funds.”

The cost of the Pan Borneo Highway was revised from RM22 billion in 2010 to RM27 billion under Budget 2015. The initial estimated cost was based on the Highway Network Development Plan, but was then revised to fast-track the project, which comes under Unit Kerjasama Awam Swasta (Ukas) of the Prime Minister’s Department.

Fadillah was quoted as saying that under the Ukas initiative, the private sector will fork out the money to build the highway within an agreed period of time and the government will pay back the cost upon the completion of the project.

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This article first appeared in The Edge Malaysia Weekly, on March 23 - 29, 2015.

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