This article first appeared in The Edge Malaysia Weekly on February 24, 2025 - March 2, 2025

THE multibillion systems contract for the Penang Light Rail Transit (LRT) project is expected to favour bids that incorporate a strong public private partnership (PPP) proposal to lessen the government’s financial burden.

The tender document, released last month, requires bidders to propose options for leasing and maintaining the systems. They must provide two financial models with transparent breakdowns for leasing and maintenance over 15 and 30 years.

This is in addition to the capital expenditure (capex) for the systems, including train sets and signalling. Tenderers must also include a seven-year maintenance service support (MSS) plan as part of the capex.

“This is the first time [that] MRT Corp requires bidders to include details for leasing and maintaining the systems. There are two financial models, for 15 years and 30 years. This is on top of the MSS requirement for seven years,” says an industry official. “Previously, contractors were required to build the system and provide the rolling stock with warranties. After the project is completed and fully functional, the obligations are significantly reduced. Now, contractors must also maintain it for seven years after delivering the systems work.”

The components that bidders must disclose in their financial models include the principal cost, financing cost, fees and foreign exchange rate.

The industry official says bidders are expected to base their financial models on lump-sum annual payments from the government for predictable cash flow. “It cannot be based on ridership or availability of the trains and the system. It has to be annual payments and guaranteed by the government. With payments from the government, the leasing and maintenance proposal is financially viable.”

The Penang LRT is a federal government project and managed by Mass Rapid Transit Corp (MRT Corp), which has previously stated it was looking at PPP proposals to reduce government spending on large projects.

This leasing and maintenance model is a new approach, not previously used in any Malaysian railway projects such as the Klang Valley LRT and Mass Rapid Transit (MRT).

MRT Corp encourages proposals that come with PPP elements. “We welcome any proposal that reduces the financial contribution of the government,” it says in response to questions from The Edge.

The tender document collection period closed in the last week of January, with about 20 companies picking up the forms for the systems package, which is estimated at between RM3.5 billion and RM5 billion. They include Gamuda Bhd (KL:GAMUDA), MMC Engineering Sdn Bhd, Malaysian Resources Corp Bhd (KL:MRCB), YTL Group, Dhaya Maju Infrastructure Asia Sdn Bhd (DMIA), IJM Corp Bhd (KL:IJM), WCT Bhd (KL:WCT), Berjaya Rail Sdn Bhd and several foreign rolling stock and signalling providers.

The Penang LRT, a 29.5km line with 21 stations, will connect the Penang South Reclamation (PSR) island to the Penang Sentral station in Butterworth.

The systems tender, closing in April, is divided into two segments. The primary tender covers train sets, signalling and train control systems and track works. The second segment includes power supply systems, telecommunications, rail computerised systems and ticketing.

The mandatory technical and financial requirements ensure that only the big boys in the industry with experience and deep pockets would qualify to bid for the job (see box).

For example, bidders must have successfully delivered a railway systems project as a contractor or subcontractor in the past 10 years. They must also have been awarded railway systems contracts with a cumulative value of RM500 million over the same period.

Financially, bidders must have shareholders’ funds of at least RM100 million and available unutilised credit facilities of RM100 million.

Only Gamuda, MMC Engineering and YTL Group have proven track records of completing urban railway transport systems. Gamuda and MMC Engineering were the key players in the Klang Valley MRT phase one and two projects. YTL Group was involved in the extension of the Express Rail Link (ERL) to KLIA2.

Other companies such as MRCB, IJM and DMIA are currently involved in ongoing railway projects. MRCB is leading the LRT3 project while IJM is part of the consortium undertaking the aerotrain works in KLIA. DMIA is the main contractor for the Klang Valley Double Track rehabilitation project.

Based on the requirements, contractors would need to team up with smaller players that have delivered jobs related to railway systems to bid for the Penang LRT works.

On the specific technical requirements, MRT Corp says they would be addressed during the “tender clarification process”. “This is a question that relates to elements in an ongoing tender exercise which can only be answered through a designated tender clarification process.”

It is learnt that to comply with the technical requirement of having completed urban railway systems projects, the bidders are teaming up with local and international companies with relevant track records.

Gamuda, which has already been awarded the civil works for phase one of the Penang LRT line worth RM8.3 billion, is likely to team up with Australia’s DT Infrastructure Pty Ltd. MMC Engineering has an exclusive tie-up with Hyundai Rotem, which provided train sets for the MRT2 project. Hyundai Rotem assembled the train sets at SMH Rails Sdn Bhd’s plant in Rawang.

MRCB is said to have teamed up with Hartasuma Sdn Bhd, which is experienced in delivering rolling stock for railway projects. DMIA is partnering with a unit under its subsidiary, Pestech International Bhd (KL:PESTECH), which has a track record of delivering power supply systems for urban rail projects.

IJM is likely to team up with Alstom, the main partner for the KLIA aerotrain. YTL Group is said to be teaming up with CRRC Corp Ltd of China. CRRC has a plant in Batu Gajah providing services to Keretapi Tanah Melayu.

Berjaya Rail, a newcomer, has partnered with Emrail Sdn Bhd, which carried out track works for the MRT1 project. As for WCT, it has teamed up with Lion Pacific Sdn Bhd and two China companies: Guangzhou Metro Consortium and China Harbour Engineering Co.

Among the contenders, only MMC Engineering has secured an exclusive partnership with an international player — Hyundai Rotem — that has delivered jobs in Malaysia. It is learnt that Hyundai Rotem, if it wins the job, will likely invest in its own assembly plant in Malaysia to train the local workforce.

Industry executives say other international companies that provide rolling stock and signalling systems, such as Alstom, Siemens and Hitachi Rails, have not formed any exclusive partnerships. “All three companies are taking the stance of working with any company that wins the bid for the systems job. They do not want to go into a direct contract with the government because of the upfront financial obligations,” says an industry executive. “Even CRRC has not gone into any exclusive partnership with any of the contractors.”

Among the three, Hitachi Rail, which has taken over Ansaldo of Italy, is considered the strongest. It is learnt that Hitachi Rail is working on providing its costing to all the major players and avoiding exclusive tie-ups.

The systems contract tender closes on April 14. Until then, construction companies will be jostling to come up with the best bids.

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