This article first appeared in The Edge Malaysia Weekly on August 28, 2023 - September 3, 2023

LAST Wednesday, after over a week of trying, The Edge finally got hold of Pestech International Bhd managing director and CEO Paul Lim Pay Chuan. Lim and Pestech have been the talk of the town since Malaysia Airports Holdings Bhd (MAHB) terminated the RM742.85 million aerotrain contract that the engineering outfit had bagged with Alstom in December 2021.

Insiders say MAHB was unhappy after Pestech racked up more than 260 days of delay in the contract, which has a duration of three years. Pestech has said it will fight the “misconceived and invalid” termination, but prefers to seek an amicable resolution with MAHB.

The termination by MAHB almost coincided with another Pestech milestone — construction giant IJM Corp Bhd looking to take up a 44.83% stake in the company via an issuance of 800 million shares for RM124 million or 15.5 sen each, a figure considered to be wanting by some as Pestech’s net asset value per share as at end-March was 53 sen.

In a 40-minute phone conversation, Lim shares Pestech’s side of the story on what transpired, and the details of the termination.

Here is an excerpt from the interview:

So, what went wrong with the aerotrain project?

We got it (the aerotrain project) in December 2021, and then we got the notice to proceed from March 2022, and in the first month we were asked to establish the work programme, [and] that was approved. Subsequently, we found that there were some errors and we alerted MAHB about it and submitted a mitigation plan … we had to change the work programme. We had many discussions with MAHB.

There was also subsequently a full closure of the (two) track(s) because the original programme was to have one train continuously running because MAHB wanted to maintain one of the old trains running until July 2024. So, we could only work on one track based on the original programme, but then subsequently the second train was decommissioned, and we could work on a full closure of both tracks.

We submitted a new programme based on the full closure [in] June this year to MAHB to show them that the contract could still be completed within the contractual dates, July 2024, and March 2025 for the second train.

All this while, we have been telling MAHB that they have been referring to the wrong programme (the first programme) … if you look at this project, it is a three-year project, it is unimaginable to have a 260-day delay.

The critical part of the project is the train, which is supplied by Alstom, and Alstom confirmed that the train will come in February 2024. They need three to 3½ months to do testing, so in July, we can catch up and run the first train — the scheduled services. So, the critical part is intact.

Then why did MAHB terminate your contract?

We are also puzzled. [In] January this year we did have financing and drawdown issues, but after our case (with the Malaysian Anti-Corruption Commission) was dropped, we told them (MAHB), it was cleared, and after we announced that IJM was coming in as a major shareholder of Pestech, we (will) have no more financial issues.

Anyway, the contract has a remedy — LAD (Liquidated Ascertained Damages, which covers any losses occurring as a result of a project being delayed) if we cannot complete it on time.

With all the resources and procurement done, and we think the best opportunity to complete the project on time is by giving us an opportunity to come (back) in, and we have shown that in order to give confidence we have also procured a major shareholder coming into Pestech. We are on a better footing to deliver.

What does this termination mean to Pestech?

It’s a missed opportunity for us to deliver this project of national interest. This is really a missed opportunity, but we will try, we are saying the termination is unlawful and misconceived because we are looking at a possible delay that has yet to happen, we still have 11 months to go, to deliver this project and with the main critical part of the train coming from Alstom, a reputable supplier giving confidence and guarantees that the train will be coming [as planned].

Based on the mitigation plan of the programme we are giving, we can complete by the contractual date.

MAHB is saying the delay is 260 to 270 days, but how many days’ delay is it in your book?

If they allow us to work on it, there is no delay in the project — we are going to complete it.

On our scope of work, we are about 7%, in total about 18% or 19% [delayed] but 12% or 13% is contributed by Alstom. But the Alstom delay is academic, it is just documentation differentials, it is not about the actual progress at the factory. Alstom keeps promising us there will be no delay in the delivery of the train.

So your work done is up to the mark, there is no delay?

Actually, we have an opportunity for full closure. Both tracks are available for us to work. Initially we were supposed to have one train continuously running, so we (now) have an opportunity to add resources, and we have a new equity partner that is coming into Pestech, so we definitely have a very high chance to increase resources, and the financiers for this project are still giving us support letters, saying that they are behind us.

You said in your Bursa announcement that you are looking at an amicable resolution.

Of course, we are still happy to discuss and happy to talk because this is a finance project, MAHB has not paid us a single sen.

You seem to have had a lot of problems with a lot of companies, there’s a lot of litigation.

Not really, some companies owe us money, there are variation orders, and we are trying to resolve it with some, but nobody likes to go to court if you can resolve it on a person-to-person basis, right?

Have you tried to talk to MAHB to resolve this?

We are open, of course, we are going to protect our rights, but we are open to an amicable solution, we know that the project is of national interest, we want to support this.

We understand that Alstom is already manufacturing the train, about 30% to 40% done, and all our civil works we are targeting to be completed by November or December (this year), and all the equipment that is supposed to be replaced other than the Alstom portion, is already procured and is coming latest by January 2024, we have been in full swing since August.

So, you are not aware of any reason why MAHB is terminating your contract then?

Number one, they think we are very late based on the programme that we told them is wrong, ever since late 2022. If you give us full closure we can be faster … we can even bring the completion of the full project forward from March 2025 to December 2024 or January 2025.

But they are not satisfied with what we can do, they want to bring forward the July 2024 date (when the trains will be delivered by Alstom), which we cannot because of the limitation of the testing time (of three to 3½ months) required, when the train arrives in February.

So we can really catch up, really accelerate in whatever delay we may have.

What is Alstom’s reaction to your termination?

We had to write a letter to them to suspend [the job]. They are saying that the best opportunity to achieve or to deliver the project is still with us (Pestech), which is by July or August 2024.

Are you planning to take an injunction against MAHB or anything like that?

We are exploring all possibilities, of course, we will discuss things with our lawyer, the injunction is towards using our design and all that because we have not been paid a single sen for this project.

How do you feel about MAHB negotiating with the companies that you beat in the bidding?

Of course, that is their right but we are puzzled as to how it is possible for anyone, with 11 months left, to be able to deliver the project successfully still on the same timeline.

Can the new winner use what you have built, your structures?

It could be a potential contractual issue. We feel that it is impossible [to complete], if they want to introduce a different train, a different system, or different supplier, they will be going through design, going through a lot of review of the civil [works] they may have to do new civil [works], and I do not know how long the tender process will take, maybe one month maybe two months, I mean time doesn’t wait for us, right?

How are we as a nation going to see a train by July or August 2024? Do you think what you are trying to do may be too little too late?

No, it is within the time they asked us to show a remedy ... We didn’t know they were going for a termination. We were working on site, we have to start delivering equipment by November, and finish the delivery of the last equipment in January. You can imagine we will have to mobilise and do the work.

The Edge heard that Pestech’s contract was going to be terminated … but you didn’t know?

No, when they sent us a letter of default, we knew there was an intention already. We even met MAHB with our partner, future shareholder, to show them added confidence, we will let IJM come with us in order to deliver the job.

During the meeting, did MAHB ­respond?

During the meeting, things were amicable. We were terminated without any discussion.

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