This article first appeared in The Edge Malaysia Weekly, on February 29 - March 6, 2016.

THE construction of the Pan Borneo Highway that stretches across Sabah and Sarawak will need ample supply of cement. Being the largest cement producer, Cahya Mata Sarawak Bhd (CMS) is well expected to get the lion’s share of the pie. But it may have to share a big portion of it with others, possibly its peers in the peninsula or even foreign producers.

It is understood that previously, CMS was the nominated supplier of sand, cement and aggregate for the Sarawak portion of the highway, spanning 1,089km, from Telok Melano to Merapok. However, according to the newly amended tender documents by Lebuhraya Borneo Utara Sdn Bhd (LBU), tenderers are to submit “proposed sources of aggregate, sand and other critical raw materials for the works along with the monthly capacities”.

This means that construction companies are allowed to source cement elsewhere.

It is listed as Item 25 in the Notice to Tenderers for package contracts for Bintangor junction to Julau junction and Sibu airport to Sungai Kua bridge, including Batang Rajang bridge, as sighted by The Edge.

The tender closed at noon on Feb 16.

Cement industry executives opine that CMS and other Sarawak-based cement manufacturers may not be able to handle such a large-scale job and will require supply from their counterparts in the peninsula.

Other than the possible capacity shortage, the Sarawak cement players could also have difficulty sourcing limestone to produce such large amounts of cement. At present, limestone is imported from the peninsula or Taiwan.

While the cost of the Pan Borneo Highway is pegged at RM27 billion, the Sarawak portion, according to analysts, could cost about RM16 billion.

According to one construction industry executive, about 50% of the RM16 billion price tag could be for materials such as sand, cement and steel bars. He estimates another 20% will be for machinery and the remaining 30% for labour.

However, the quantum depends on many factors such as the amount of elevation the highway requires, the number of bridges to be built and the general composition.

Another construction industry player pegs the material cost at 70% and attributes his higher percentage to Sarawak having peat soil, which is soft, and will, thus, push material cost up.

To recap, CMS’ granite, aggregate and microtonalite businesses are parked under wholly-owned CMS Quarries Sdn Bhd and 60%-controlled CMS Penkuari Sdn Bhd. The two companies operate five quarries in Stabar, Penkuari, Akud, Sebuyau and Sibanyis with a combined annual rated capacity of 3.15 million tonnes per annum.

For the nine months ended Sept 30, 2015, CMS registered a net profit of RM163.56 million on revenue of RM1.28 billion. Its earnings per share was 15.41 sen.

Another company that stands to benefit is Quality Concrete Holdings Bhd, which is headquartered in Kuching. Quality Concrete has a wholly-owned subsidiary, Agrowell Sdn Bhd, that has quarry operations and sells aggregate.

For the nine months ended Oct 30, 2015, Quality Concrete suffered a net loss of RM9.86 million, or 17.1 per share, on the back of RM113 million in revenue.

Meanwhile, under the Shin Yang group, there is Hollystone Quarry Sdn Bhd, which has operations in Batu Gading, by the Baram River, easily accessible by tugs and barges. However, only the shipping arm of the group — Shin Yang Shipping Corp Bhd — is publicly traded.

The combined annual production capacity of Shin Yang’s crusher plants is 1.5 million tonnes.

There are also other players such as Paragon Concrete Sdn Bhd.

Cement players across the South China Sea could be eyeing a slice of the pie.

Industry executives highlight Lafarge Malaysia Bhd as one of the possible beneficiaries following the new notice as the company has a plant in Langkawi and can use the Teluk Ewa jetty to transport cement to Sarawak.

An industry executive opines that cement produced in Langkawi could be transported to Sarawak without it deteriorating.

In late October last year, Lafarge Malaysia CEO Thierry Legrand said the company was looking to set up a concrete plant in Sabah or Sarawak and participate in the building of the highway.

Among the problems with concrete — made from broken stones or gravel, sand, cement and water — is that it has a curing time of two hours. Therefore, the plant will have to be set up next to the project site.

Previously, Lafarge owned three concrete plants in Sabah and Sarawak, but divested them a few years ago.

Apart from Lafarge, the other large cement players are Cement Industries of Malaysia Bhd (controlled by Khazanah Nasional Bhd),  YTL Cement Bhd and Hong Leong group’s Tasek Corp Bhd.

To recap, LBU is the project delivery partner (PDP) for the Sarawak portion of the Pan Borneo Highway. Privately held company Maltimur Resources Sdn Bhd has 55% equity interest in LBU while Jalinan Rejang Sdn Bhd owns the remaining 45%.

Jalinan Rejang is 40%-controlled by Sharifah Noor Ashikin Sy Aznal. The other shareholders are Mohd Khalil Dan (30%), Muliana Munir (20%) and Abang Abdul Rahim Abang Ali (10%). Maltimur’s shareholders are Zaidi Abang Hipni (40%), Safuani Abdul Hamid (30%) and Tan Sri Abang Ahmad Urai Datu Abang Mohideen (30%).

When LBU was appointed the PDP in the middle of last year, there was a change from previous years as CMS did not bag the large-scale job.

CMS, controlled by the family of Yang di-Pertua Negeri of Sarawak Tun Abdul Taib Mahmud, was often the beneficiary of large lucrative contracts from the state. Therefore, the new Notice to Tenderers came as a surprise as CMS was initially the nominated supplier of sand, cement and aggregate for the highway project. The reversal of the nomination seems more in line with the current situation.

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