Double trouble for gov't in rail contracts

Nigel Aw 10:45AM Oct 16, 2012

The government faces the risk of footing heavy losses because the agreements it has signed for the double-tracking project limits the compensation that can be claimed from contractors who fail to meet deadlines.

"An audit found that the cap on liability borne by the contractor... for the Ipoh to Padang Besar (double-tracking) project is fixed at 10 percent of the contract value or RM1.25 billion," notes the Auditor-General’s Report 2011.

This, it explains, does not bode well because an exact cap for the Rawang to Ipoh segment of the project forced the government to pay RM882.01 million in compensation.

Elaborating on this, the report states: "In 2000, the electric double-tracking project between Rawang and Ipoh was carried out by the (Transport) Ministry. The audit done in 2008 found that the government suffered an estimated lost of RM1.14 billion when the contractor failed to complete the project.

"However, the full amount could not be claimed from the contractor because, according to the (terms and) conditions, the maximum liability that can be claimed is limited to 10 percent of the contract value or RM257.99 million only.”

The more recent contract signed with MMC Gamuda Joint Venture Sdn Bhd (MGJV) has similarly failed to protect the interest of the government, states the report.

"The cap on the maximum liability does not take care of the government's interests because (it) will be forced to bear the losses if the contractor fails to complete the project according to the schedule.”

The report further questions the 0.15 percent processing fee imposed on the government by the project's lead lender, Bank Pembangunan Malaysia Bhd (BPMB). This amounts to RM10.05 million for interim payments made to MGJV.

"The audit is unable to determine the justification for the fee amounting to RM10.05 million (for BPMB) to process interim payments which were in fact handled by the project consultant, Keretapi Tanah Melayu Bhd and the (Transport) Ministry," it said.

It also notes that the deadline for the project, which is to be completed by Jan 7, 2013, has been extended to Nov 7, 2014, and that this is likely to incur additional costs.

To date, the RM12.485 billion project has cost already cost an additional RM3.608 billion due, among other reasons, to land acquisition and compensation for squatter relocation.

'Cause of flash floods'

Similarly, the audit report states that the government was again on the losing end for the southern leg of the double-tracking project between Seremban and Gemas as a five percent liability cap was imposed in the agreement.

The RM3.45 billion project contracted to IRCON International Ltd was to have been completed on Jan 17 this year, but has been extended to July 31, 2013, incurring an additional cost of RM184.47 million.

The audit has found that non-compliance with the Environment Impact Assessment study and failure to ensure that the project did not obstruct the flow of irrigation systems, had led to floods in 2010 and 2011. Among the areas affected were Air Kuning in Gemencheh, Gemas and Batang Melaka.

The Sungai Gadut train station has been constructed below the flood level, making it vulnerable to flooding.

However, the audit report confirms that, unlike the Seremban-Gemas project, the Ipoh-Padang Besar project was not the cause of flash floods in Kedah and Perlis in 2010 as previously speculated.

"The audit is of the opinion that the floods in Kedah and Perlis were not caused by the Ipoh-Padang Besar project as it had prepared large sewers. It was the irrigation system of the state authorities that could not accommodate the excessive flood waters," it adds.