This article first appeared in The Edge Malaysia Weekly on February 20, 2023 - February 26, 2023

THE government is said to be moving ahead with the Mass Rapid Transit Circle Line, or MRT3, but the funding model has reverted to debt issuances by DanaInfra Nasional Bhd. According to sources privy to the matter, the government is also working towards reducing the cost of the MRT3 — initially planned at RM50.2 billion — by slashing the project management cost, which is now estimated at RM9 billion.

In August 2022, the then finance minister Tengku Datuk Seri Zafrul Abdul Aziz had put the project management cost at RM5.6 billion. This was at the Mass Rapid Transit Corp Sdn Bhd (MRT Corp) level and included the cost of hiring external consultants and other soft costs.

“The government will continue with the MRT3, but right now, it is looking at ways to slash the cost. We expect the government to announce the reduced cost in the upcoming Budget 2023,” says one of the sources.

Initially, the MRT3 was meant to be funded through “hybrid financing”, whereby the winning contractors of each of the civil construction and system works would have to fund the project in the first two years.

While the hybrid financing scheme would have eased the government’s financial constraints for two years, it would still have needed to reimburse the contractors for the cost of keeping the project running for two years.

That would have consequently contributed to a higher financing cost to build the MRT3, as opposed to it being solely funded by government debts or government-guaranteed debts issued through DanaInfra.

“The logic behind DanaInfra issuing papers is the fact that no private entity can borrow more cheaply than the government,” says a source.

The cost breakdown of the MRT3 is still unclear. In March 2022, MRT Corp CEO Datuk Mohd Zarif Hashim was reported to have said that the Ministry of Finance (MoF) had committed to raising RM50 billion to fund the project.

He noted then that the project was estimated to cost RM39 billion, with construction cost taking up RM31 billion and land acquisition estimated at RM8 billion. The rest, that is RM11 billion, was for financing costs.

However, in August 2022, Zafrul said in parliament that the MRT3’s RM50.2 billion cost would comprise RM34.2 billion in construction cost, RM8.4 billion for land acquisition, RM5.6 billion for project management cost and RM1.9 billion of other costs.

There had been no mention of the finance costs to be incurred by the government for the development of the project. This meant that the funding would be done off the government’s books, which is usually the case for most big-ticket infrastructure works.

When asked about the reversion of the funding model to one that would be fully borne by the government through DanaInfra, MRT Corp says there are a number of programmes planned under the MRT3 project and updates would be shared in due course.

According to the Fiscal Outlook and Federal Government Revenue Estimates 2023 published last year by the MoF, government guarantees on debts issued by DanaInfra up to end-June 2022 had stood at RM80.05 billion.

If the MRT3 is funded through DanaInfra-issued debts, government guarantees of DanaInfra’s debts would reach RM130.05 billion — assuming the issuance of RM50 billion debt. Already, DanaInfra constitutes the largest government guarantee.

An analyst The Edge spoke to says the government is keen to move ahead with the MRT3 because it is the only project at the advanced stage of implementation that can still be reviewed and have its costs slashed, if need be.

“There are no other projects that the government can implement to revive the supply chain of the rail construction industry, as well as reinvigorate the construction sector and the economy through its multiplying effect,” says the analyst.

“At the same time, the government through various ministries and agencies is reviewing the cost of the MRT3, as the prime minister has shown that he is willing to put infrastructure projects on hold if there are sketchy aspects to the process.”

The government had put on hold the implementation of RM7 billion worth of flood mitigation projects in December 2022. Later that same month, it announced savings of RM1.8 billion from the revision of RM15 billion worth of flood mitigation projects.

The government had also put on hold RM5.7 billion worth of rural development projects under the Jana Wibawa scheme to review whether they were awarded in accordance with the procurement process and government requirements set by the Treasury.

Meanwhile, the ongoing realignment studies of the MRT3 could also result in reduced costs.

Sources say that MRT Corp is assessing tenders for the civil work packages and the system turnkey contractor package based on a “best evaluated tender” basis.

This means that the winning bids will be the best based on technical and commercial parameters, and not just those that offer the lowest price to implement the job. Heavy consideration would also be given to track record and relevance of the capabilities of the tenderers, the sources say.

They add that Malaysian Resources Corp Bhd (MRCB) has put in the lowest bid for CMC301 — the depot segment as well as a 6km track linking Pandan to Jalan Cheras with some elevated portions — at RM2.9 billion.

However, TRC Synergy Bhd’s bid at RM3.1 billion is favoured to win, considering its track record in constructing depots and associated works for the MRT Kajang and Putrajaya Lines, say the sources. Nevertheless, MRCB’s track record in the construction of the LRT3 as the turnkey contractor is still being considered by MRT Corp.

Meanwhile, for CMC302, Syarikat Pembenaan Yeoh Tiong Lay Sdn Bhd (YTL) has put in the lowest bid at RM10.8 billion, according to the sources. IJM Corp Bhd has put in the second lowest bid which is of RM11.8 billion.

CMC302 is for the construction of above-ground civil works, 27km of elevated structures and 1.2km of underground infrastructure structures.

YTL has no direct MRT experience, though its strength lies in interstate railways through the Gemas-Johor Bahru Double Tracking project. IJM has a stronger MRT track record than YTL, having been among the work package contractors of the MRT Kajang and Putrajaya Lines.

Other bidders for the CMC302 segment are said to be MRCB and Sunway Construction Group Bhd.

For the CMC303 package, the leading contender is the joint venture between MMC Corp Bhd and Gamuda Bhd (MMC Gamuda), which has put in the lowest bid at RM13.3 billion. IJM is said to have submitted a slightly higher bid of RM13.8 billion for the package.

CMC303 is the package for the construction of 10km of underground works with stations, and 6km of elevated sections.

MMC Gamuda has been the leading contender for tunnelling works of mass rapid systems in Malaysia since the implementation of the MRT Kajang Line. The JV also has experience as both the project delivery partner of MRT Kajang Line and the turnkey contractor for MRT Putrajaya Line.

However, IJM has a strong partner with established technical capabilities in China Railway Group Ltd (CREC), which is the major developer of China’s urban rail transit projects.

The revised Budget 2023 that is slated to be tabled in parliament on Feb 24 should shed more light on the much anticipated MRT3 project.

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