This article first appeared in The Edge Malaysia Weekly on August 21, 2023 - August 27, 2023

AIRPORT operator Malaysia Airports Holdings Bhd (MAHB), which last week terminated the RM742.95 million contract that it had awarded to Pestech International Bhd to build an aerotrain at the Kuala Lumpur International Airport (KLIA), now plans to undertake a closed tender for the project with the shortlisted bidders that Pestech had pipped for the job at end-2021.

Apart from Pestech, which had won the bid at the time via a joint venture with Canadian rail outfit Bombardier, the other bidders were Tan Sri Syed Mokhtar Albukhary’s MMC Corp Bhd in partnership with Japan’s Mitsubishi Heavy Industries; Malaysian Resources Corp Bhd (MRCB) in a tie-up with Leitner-Poma of the US; privately held Hartasuma Sdn Bhd in partnership with Austrian company Doppelmayr Seilbahnen GmbH; and local outfit SMH Rail Sdn Bhd on a standalone basis.

In an email response to The Edge on whether the other four bidders would be called for a closed tender, MAHB says, “Following the termination of Pestech, we are expediting consultation and discussions with all existing stakeholders involved in the project. These include working closely with all relevant parties involved in the replacement of the train, the train tracks and operating system, as well as identifying an experienced and credible third-party contractor to ensure consistent progress of all project components.

“As guided by our procurement governance requirements, this will be done through a tender by invitation exercise to other participants from the previous tender exercise to submit their proposal.”

MAHB terminated Pestech for “non-performance, compromising significant project milestones and risking delays to deliver the project within the required deadline”. Insiders say that the aerotrain project, as at the third week of July, was delayed by 260 days.

While Pestech’s proposal was for a self-propelled aerotrain system, some of the other bidders were said to be looking at cable-propelled or pulley operated models during the bidding. An executive from one of the four companies whose bids were rejected says that unless the pulley model is used, the target completion date of March 2025 is likely to be missed. This view however remains unsubstantiated, and is conjecture at press time.

The Edge emailed Pestech’s partner in the aerotrain project — Bombardier — on the status of its portion of the contract, which is presumably the rolling stock, but it did not reply. It is worth noting that Bombardier’s rail business was sold to France’s Alstom in January 2021.

Some of the bidders, such as Hartasuma, have had a long-standing relationship with Bombardier supplying trains for Prasarana Malaysia Bhd’s Kelana Jaya Line LRT.

Hartasuma is 51%-controlled by Kamariah Othman. Its other shareholders are Tan Sri Ravindran Krishnan and Datuk Aisamar Kadil Mydin Syed Marikiah, who each hold 18% of the company, as well as Dr Abdul Rahman Abdul Halim (10%) and Tan Sri Mohamed Khatib Abdul Hamid (3%). For its financial year ended Dec 31, 2022, Hartasuma generated a profit after tax of RM11.49 million on the back of RM188.92 million in turnover. As at end-2022, Hartasuma had total assets of RM147.17 million and total liabilities of RM107.98 million.

MRCB, in which the Employees Provident Fund holds a 36.21% stake, wholly owns Setia Utama LRT3 Sdn Bhd, the main contractor for the 37km LRT3 project that connects Bandar Utama to Klang.  Other than the LRT3, MRCB also wholly owns Kuala Lumpur Sentral Sdn Bhd, which houses Stesen Sentral, the integrated rail transport centre that links urban and suburban residential, commercial and industrial areas, including KLIA, the federal government’s administrative centre, Putrajaya, Cyberjaya and key areas within the Multimedia Super Corridor.

For its first quarter ended March 31 this year, MRCB chalked up a net profit of RM8.47 million on the back of RM742.24 million in revenue. For the corresponding period a year ago, the company raked in a net profit of RM14.03 million from a turnover of RM810.71 million. As at end-March this year, MRCB had deposits, cash and bank balances of RM854.62 million. On the other side of the balance sheet, it had long-term borrowings of RM1.67 billion and short-term debt commitments of RM906.91 million.

MMC Corp wholly owns MMC Engineering Sdn Bhd, which has expertise in rail jobs, and played key roles in the Mass Rapid Transit (MRT) 1 and 2, and the RM12.5 billion 330km double tracking rail project linking the four northern states of Perak, Kedah, Penang and Perlis. For its financial year ended Dec 31, 2022, MMC Corp registered an after-tax profit of RM700.36 million on the back of RM5.41 billion in revenue. As at end-2022, MMC Corp had total assets of RM26.33 billion and total liabilities of RM14.8 billion.

SMH Rail manufacturers locomotives, wagons, rail axles and undertakes the maintenance, repair and overhaul of rail assets and infrastructure, with a presence in more than 20 countries. In April last year, SMH Rail in a joint venture with Hyderabad-based Medha Servo, was awarded a US$85 million contract to deliver 40 monorail cars for the Mumbai Metropolitan Region Development Authority.

Pestech is unlikely to take the termination lying down. Last Friday in a Bursa Malaysia announcement, Pestech says MAHB’s termination of the RM742.95 million aerotrain project was “misconceived and invalid”, and that “Pestech firmly disputes the termination as contemplated in the termination notice and will enforce its legal rights if necessary but prefers to seek an amicable resolution”.

The company has had a slew of problems, starting with the Malaysian Anti-Corruption Commission charging its top brass in February this year, followed by a termination from a RM399 million subcontract job by Syarikat Pembenaan Yeoh Tiong Lay Sdn Bhd, the main contractor for the Gemas-Johor Bahru electrified double-track rail project in July.

On July 24, construction giant IJM Corp Bhd had proposed to acquire a 44.83% stake in Pestech for RM124 million, or 15.5 sen a share, via subscription to a restricted issue. This was a 47.46% discount to its last traded price of 29.5 sen and only 30% of Pestech’s net asset per share of 53.21 sen as at end-March this year. Whether this acquisition by IJM will be impacted by the termination by MAHB remains to be seen. (See story on Page 14.)

Pestech closed last Friday at 24.5 sen apiece, which translates into a market capitalisation of RM243.09 million for the company. The stock has declined 16.9% from a week ago. 

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's App Store and Android's Google Play.