Sime Darby Bhd, the lead contractor of the Bakun Hydroelectric Dam project, has put in a claim of RM700 million in relation to the project, say sources.
This is in addition to an earlier claim of RM708 million which has been mostly disbursed to the company.
If the claim is approved, the total cost of the civil works portion of the Bakun project will rise to RM3.2 billion from the original RM1.8 billion. This does not include the electrical and mechanical works and other related works such as land clearing prior to the flooding of the dam.
In total, it is learnt that the cost of building the dam is about RM8 billion. Sources say Sime is also requesting that the government drop all associated costs incurred pursuant to the delayed delivery of the project to its owners.
The owner of Bakun is Sarawak Hidro Sdn Bhd, a unit of the Ministry of Finance. It was mandated to manage the construction of the dam after the government took over the project from Ekran Bhd in the late 1990s.
Because of the delay in delivery, Sarawak Hidro has the right to claim up to 20% of the original project cost from the contractors. The project was awarded to the Malaysia-China Hydro joint venture (MCH JV) for RM1.8 billion in October 2002.
Thus, the maximum amount Sarawak Hidro can claim from the MCH JV, which is led by Sime Darby, is up to RM360 million.
The project was supposed to have been completed by end-2007. But the contractors contended that the soil studies provided by Sarawak Hidro were inaccurate, which then led to the delay.
“The contractors were planning to source the rocks from the bed of the dam but because of the inaccurate soil studies, the rocks had to be sourced elsewhere. Also, the face of the dam became wider … a major portion of the scope changed,” claims an official who is with the contractors.
Because of the delay in the civil works, the mechanical and engineering contractors — for example, Impsa Malaysia and Alstom, the suppliers of the eight turbines for the dam — have put in claims to Sarawak Hidro.
It has been reported that Alstom’s claim is less than RM120 million on its contract to supply four turbines, awarded for RM450 million in 2003. Impsa Malaysia has a claim of more than RM330 million on its contract to supply another four turbines for RM460 million.
Under the terms of the contract, Sarawak Hidro has the option to impose on the civil works contractor led by Sime, a back-to-back claim made by the mechanical and electrical contractors.
However, Sime, in a letter to the government, is seeking to have the back-to-back claim dropped because the delays were beyond its control. “Also, the new completion date that Sime is seeking to hand over the dam is December this year,” says a source.
The previous deadline was June this year, which is next month.
Although Sime is only a member of the MCH JV, it has a lead role by virtue of its 35.7% stake in it.
The MCH JV is between a group of Malaysian construction companies led by Sime and China Hydro Construction Co. The Chinese company, which is said to be a reputed builder of dams, has a 30% stake in the JV while the remaining 70% is held the Malaysian companies.
Sime’s subsidiary Sime Engineering is a 51% shareholder of the Malaysian consortium. Some of the other members are WCT Engineering Bhd, Ahmad Zaki Resources Bhd and MTD Capital Bhd.
In 2006, Sime Engineering was awarded an additional RM708 million for the project. Following the merger of all plantation companies under Permodalan Nasional Bhd in 2007, Sime Engineering became part of the enlarged Sime Darby.
The business of Sime Engineering was largely housed in Sime’s utilities and energy division, which has interests in oil and gas fabrication projects as well as power plants and is responsible for the Bakun project as well.
Since January this year, the division has come under scrutiny because of huge losses in its oil and gas project in Qatar. This resulted in a change in management, with Datuk Mohd Shukri Baharom being replaced by Hisham Hamdan. Shukri left some nine months before his contract expired.
A committee headed by Tan Sri Andrew Sheng was formed to look into the depth of the losses and to do an audit trail to ensure the mistakes are not repeated.
In March this year, The Edge reported that apart from Sheng, the other members of the committee are Norzilah Megawati Abdul Rahman, Raja Tan Sri Arshad Raja Tun Uda and Hisham. The committee also engaged accounting firm Deloitte and Singapore legal firm Ashurst LLP to assist in its probe.
It was also reported then that Hisham was seeking to write off RM300 million of Bakun project losses before he officially took over.
Last week, a local newspaper reported that Sime’s loss from Bakun was about RM1 billion and could go up to RM1.8 billion.
Sources say using the strictest accounting rule, the loss could be as high as RM1 billion. This is on the basis that all of Sime’s claims are thrown out by the government.
“But because Sime is claiming RM700 million from the government and wants all claims against the company dropped, the losses could be contained within RM300 million,” says a source.
But the problem Sime will face is justification as Sarawak Hidro officials have contended that there is no basis for the additional RM700 million claim.
“There is no justification for additional claims. The project was badly managed by Sime and that is the reason for the cost overruns,” says a source.
This article appeared in Corporate page, The Edge Malaysia, Issue 805, May 10-16, 2010.