This article first appeared in The Edge Financial Daily on April 5, 2019

RAWANG: The dispute between Prasarana Malaysia Bhd and Scomi Group Bhd, which dragged on for years, has finally ended with the signing of a settlement agreement yesterday.

The new deal supersedes the previous RM494 million contract awarded to Scomi Group’s wholly-owned subsidiary Scomi Engineering Bhd in December 2010 in respect of the Kuala Lumpur Fleet Monorail Expansion (KLFME) project that was terminated in 2016.

Loss-making Scomi Group said in an announcement to Bursa Malaysia that the execution of the settlement agreement may be earnings accretive and contribute positively to the group’s future earnings and earnings per share but with conditions.

Under the KLFME project, which started in 2011, Prasarana and Scomi Group’s unit Scomi Transit Project Sdn Bhd (STP) agreed to the acquisition of 12 sets of four-car trains, build a new depot and upgrade facilities at the monorail stations. The deal, however, did not go well.

As a result, Prasarana had on June 2016 terminated the contract — sparking the first Scomi Engineering lawsuit against Prasarana — after Prasarana alleged it had failed to deliver 10 sets of the new four-car trains, including seven sets for revenue service by Dec 31, 2015, which was stipulated in the second supplemental agreement.

Yesterday, Transport Minister Anthony Loke (pic) announced that Prasarana and STP entered into a settlement agreement to resolve the disputes between both parties in relation to the KLFME project contract agreement.

For the settlement agreement, STP has to repair five sets of four-car trains that have stopped operating since January last year and Prasarana would acquire seven new four-car train sets for the Rapid KL Monorail route.

The refurbishment contract for five sets of train costs RM181 million and is expected to be completed within six months.

Meanwhile, the new train sets cost RM122 million and are targeted for delivery within 30 months from the signing date.

Loke noted that the cabinet meeting on Jan 9 this year had decided to settle the dispute with Scomi and continue the project with the new agreement.

“To settle the issue, the first thing for Scomi is to repair five-set monorail trains, which have been grounded at the KL Monorail depot in Brickfields, within the next few months to ensure those monorail trains resume operations,” he told the media at the signing ceremony held at Scomi’s Engineering, Technology & Innovation Centre here.

“The next thing is when the refurbishment is completed, we will proceed to buy seven new monorail trains set from Scomi,” Loke added.

“With this new agreement, the previous legal suits will be withdrawn. No more court action will be taken. This agreement is to solve all the disputes earlier,” Loke stressed, giving the assurance that Prasarana will work together with Scomi.

As such, Loke said the agreement will help to address the issue of the monorail’s declining ridership via improving the monorail service going forward.

According to him, the ridership has fallen significantly by 54.9% to its current daily average of 32,000 passengers from its peak of 71,000 riders per day in 2015, due to factors such as fewer trains in operation and ageing train conditions.

Meanwhile, Scomi said in a statement to Bursa Malaysia that STP will receive RM181mil from Prasarana to undertake the remedial works to put five four-car monorail trains into service and to pay STP’s lenders, employees and creditors.

“STP and Prasarana are entering into the settlement agreement for the purpose of amicably determining the legal proceedings between them while concurrently moving forward with the completion of the project,” it said.

“The settlement agreement will be effective upon fulfilment of the conditions precedent (effective date) whereupon the parties fully, finally and forever release each other in respect of all claims, obligations and liabilities arising from the contract in connection with the project,” Scomi added.

Scomi has been in the red for 11 consecutive quarters. In its nine months ended Dec 31, 2018, the group’s net loss narrowed to RM75.55 million from RM90.58 million a year ago. Revenue fell 26% to RM421.85 million from RM571.7 million previously.