PRASARANA Bhd may have to invite a retender for the rolling stock of the third light rail transit line (LRT3) after receiving only one bid for the package last month. The tender for 42 six-car light rail vehicles (LRVs) is estimated to be worth at least RM840 million (based on 2014 LRT rolling stock procurement).

According to industry sources, a total of five bidders took part in the tender. Only the consortium of CRRC Zhuzhou Electric Locomotive Co Ltd, Siemens China and Tegap Dinamik Sdn Bhd made submissions by the Nov 23 deadline. CRRC Zhuzhou is the largest train maker in China.

Since tenders usually require a minimum of three bids to proceed, Prasarana now has the prerogative to call for a retender or decide if the single bid will suffice. The company declined to comment when contacted by The Edge.

Malaysian Resources Corp Bhd and George Kent Malaysia Bhd are the project delivery partners for LRT3, but a decision for a retender falls to Prasarana.

The other four consortiums that were pre-qualified but did not submit bids are: Hyundai Rotem Company-Apex Communications Sdn Bhd, Alstom Transport SA-SMH Rail Sdn Bhd, CAF-Labuan Shipyard Sdn Bhd and Mitsubishi Heavy Industry-Sumitomo Corp.

Industry sources tell The Edge that tight deadlines and the demanding nature of the tender made it difficult for some of the bidders to participate. In fact, it is understood that two consortiums, led by Japan’s Mitsubishi and France’s Alstom, had formally notified Prasarana of their intention not to participate in the tender long before the closing date.

“Mitsubishi has plenty on its plate, with a lot of orders from the upcoming 2020 Tokyo Olympics to keep it busy. The Japanese simply felt they did not have the capacity to fit in another order of this size based on LRT3’s delivery schedule,” explains one industry executive.

It is understood that Alstom pulled out because the commercial aspects of the tender were not attractive enough.

Strictly speaking, that left only three real contenders for the project prior to the closing date. However, South Korea’s Hyundai Rotem and Spain’s CAF chose not to submit bids at the eleventh hour.

“It is an international tender, every bidder has the same timeline and opportunity for submission. In fact, the closing date of this tender was extended four times from the original closing date of Oct 14,” an industry executive tells The Edge, stressing that there was nothing out of the ordinary for this tender.

Instead, he labels the last-minute withdrawal by Hyundai Rotem and CAF as mischievous.

Nonetheless, the lack of bids will trigger an enquiry into the tender specifications and process by Prasarana to determine if there is a problem that prevented bidders from participating.

One problem could be the risk involved in the project.

“The contract is in ringgit, this passes the forex risk to the contractors. But rolling stock’s imported content is very high. Combine that with the falling ringgit and the bidders would have a real concern about the risk they are taking on,” says another industry veteran.

“The margins on these projects are slim. One wrong swing in the currency could kill you. The payment schedule is also loaded to the tail end. The later the payment, the more the forex risk for the bidders. They can hedge [their positions], but the hedging cost is high,” he adds.

It makes sense for the government to pass risks on to contractors in such projects and get the best deal possible. But passing on too much risk to the contractors could also increase costs, which would be passed back to the government.

Now, would a retender make a big difference? Will there be material changes to the specifications to justify a retender?

After all, a retender is costly. It will also delay the entire delivery schedule by about six months. 

At the same time, a retender could be unfair to CRRC Zhuzhou, which has already put its cards on the table.

It is important to note that both CRRC Zhuzhou and Hyundai Rotem are no newcomers to the rolling stock scene in Malaysia. In fact, both have won sizeable contracts in the past few years.

Back in 2014, CRRC Zhuzhou secured a RM1 billion contract to supply 50 six-car electric trains to Prasarana for the LRT line and its extension. Note that the tender also included a five-year option (starting from the completion of the initial project) to procure an additional 28 six-car LRVs. In total, the 78 six-car LRVs would be worth at least RM1.4 billion.

Hyundai Rotem, meanwhile, won the rolling stock tender for the second mass rapid transit (MRT2) project — worth RM1.62 billion — earlier this year. The contract was for 58 four-car trains. Hyundai Rotem’s consortium included Apex Communications Sdn Bhd and South Korea’s Posco Engineering Co Ltd.

In both these projects, Hyundai and CRRC Zhuzhou had to bid against each other.

That said, CRRC Zhuzhou has one major advantage. The group has invested heavily in physical infrastructure in Malaysia — the RM400 million rolling stock assembly and maintenance, repair and overhaul facility in Batu Gajah.

This allows CRRC Zhuzhou to overcome one of the biggest challenges of supplying rolling stock in Malaysia — local assembly. Foreign makers of rolling stock rely on local assembly to meet the 35% bumiputera and localisation requirements. But the recent surge in rolling stock orders in the country has filled what little capacity local companies have.

CRRC Zhuzhou’s local partner for LRT3 is Tegap Dinamik, which is 49%-controlled by Ahmad Lazri Long Ahmad Zainal Abidin, 30% by Rosmanira Junoh and 21% by Mohd Khairuddin Nawawi. Tegap Dinamik does not appear to have any rail experience but it has a sizeable balance sheet with RM94 million in assets.

Hyundai Rotem’s local partner, Apex Communications, was part of the consortium that won the MRT2 rolling stock package. According to industry sources, SMH Rail has also joined Hyundai’s consortium after its consortium led by Alstom withdrew from the tender. SMH Rail was Siemen’s local partner when the Germans successfully bid for MRT1 rolling stock, and has facilities for local assembly. 

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