Five prequalify for MRT tunnelling

KUALA LUMPUR: Five companies have prequalify to bid for the mass rapid transit (MRT) tunnelling project, with tender documents slated to be given to the companies today, sources say.

The Edge Financial Daily understands that the Gamuda Bhd and MMC Corp Bhd joint venture (JV), China’s Sinohydro Group Ltd and South Korea’s SK Holdings have been prequalified. The other two parties which have been shortlisted are from Japan and China.

Details are scarce with the officials involved in the shortlisting keeping information close to the chest.

According to sources, the local authorities are giving the five companies three months to come up with their submissions for the tunnelling works, which are estimated to be worth about RM7 billion and form the biggest portion of the RM20 billion project. The Sungai Buloh-Kajang line is the first phase of the MRT project and is expected to cost more than RM40 billion in its entirety.

“The prequalification was strict; other Malaysian companies did not make the cut. Now it’s for the authorities to award the job, balancing the interests of having a local company do the job or awarding it to a foreign company based on lower costs,” the source said.

It is learnt that other Malaysian companies that had expressed interest in the tunnelling portion included IJM Corp Bhd and companies under the UEM Group.

Considering the Swiss Challenge mechanism being utilised, the Gamuda-MMC JV could have a leg up because it is a local company. As the proponents of the MRT project, Gamuda-MMC have a price advantage of up to 7.5% as it is an entity with 50% bumiputera equity.
MMC-Gamuda JV is the only local company
with the expertise in massive tunnelling works
such as the SMART Tunnel project

The other bidders are also accorded a price advantage of between 2.5% and 5% depending on the level of Malaysian equity in the company bidding for the job.
The main competition for the Gamuda-MMC JV will be Sinohydro, which will be eager to bag the job since its shares were floated on Oct 18 in Shanghai.

“While the Gamuda-MMC JV is looking at utilising machinery such as grout machines from Germany, the Chinese parties will use their own machinery, which costs only a third the price of their German competitors … this could nudge the local companies’ cost higher.

“Machinery and equipment is a large part of the cost. For example, the winning bidder is likely to utilise eight to 10 bore machines, these machines alone will cost quite a bit,” the source tells The Edge Financial Daily.

While certain quarters have been urging the government to award the job to the lowest bidder, which would be cost-effective, others highlight the need for local companies to be given the job.

“In most countries there are mechanisms to prevent foreign bidders from winning jobs, or even bidding. But don’t look at Hong Kong and Singapore, they have different economic models,” an industry player said. The barrier to entry for foreign companies can take many forms, from simple methods such as work permits or visas to more complex mechanisms.
In the European Union (EU) for instance, only EU-based companies are allowed to participate in EU Cohesion Fund projects.

It is the same for Japan International Cooperation Agency (JICA) loans, where it is understood that only Japanese companies will benefit from this funding.

Thailand requires that all tenders for the Bangkok MRT Blue Line are 51% led by local contractors.

“In China, a company must be incorporated there, in China, and must have completed at least three jobs. This is a chicken and egg situation. It would be great if local companies gain the expertise and can take their expertise abroad, much like the building of highways,” an industry player said.

While its fate with the Klang Valley MRT is still uncertain, Gamuda is also looking at participating in the US$45 billion (RM141 billion) Doha MRT project in Qatar and has expressed interest in bidding when the chance arises.

The Malaysian government in awarding the jobs will have to weigh whether to go for the cheapest bid or for a higher one by a local player.

“There is no right or wrong, it’s just a matter of priorities,” the industry player said.