Malaysia to cut cost of Klang light rail system by almost $4bn

Malaysia, Slider 19 Jul 2018
Malaysia to cut cost of Klang light rail system by almost $4bn

The 37km Light Rail Transit 3 line (LRT3), which would connect Bandar Utama on the outskirts of the capital to Klang, had risen in cost to $7.8bn from an original budget of $2.2bn, but its budget has now been cut to $4.1bn.

The MoF said it would withhold its support for extra funding unless Prasarana Malaysia Bhd finds a way to slash the total cost of the project.

“The projected total cost of the LRT3 of RM31.45bil due to poor management by Prasarana requires drastic cost reductions to make the LRT3 feasible and cost-effective,” Lim said in an MoF statement.

StarBiz yesterday reported that the construction cost of the LRT3 project could be reduced by RM6bil, back to its initial RM9bil price tag in 2015, should the original design of the project be implemented. Lim, however, pointed out that the cost needs to be reduced by a lot more after the ministry revealed what the total cost of the project had ballooned to.

“The MoF wishes to state that much more than RM6bil must be reduced if the LRT3 project is to proceed,” he said.

In 2015, Prasarana appointed Malaysian Resources Corp Bhd (MRCB) and George Kent (M) Bhd (GKent) as the project delivery partner (PDP) for the LRT3. This comprised RM9bil in construction cost and an allocation of up to RM1bil for land acquisition.

Documents seen by StarBiz showed that the work packages totalling more than RM15bil have been awarded for the LRT3 project.

Lim said Prasarana had previously secured a government guarantee for a RM10bil bond facility to fund the LRT3 project in 2015.

“However, on March 30, 2018, Prasarana requested for an additional RM22bil in government guarantee to ensure funding for the construction and completion of the LRT3 project,” he said.

Lim said the MoF has already requested Prasarana to drastically review the cost of the project to ensure its viability

“The ministry will not support any additional funding required for the project unless the cost of the LRT3 project is significantly rationalised without compromising on the integrity of the rail network as well as the safety and the quality of service provided,” he said.

He said that the LRT3 is a critical project meant to alleviate the issue of traffic congestion along one of the most important and densely populated economic development corridors in the Klang Valley, from Klang to Petaling Jaya.

The new LRT line is expected to serve two million people with the capacity to transport 36,700 passengers per hour each way.

CIMB Research in a report yesterday said that the cost review of the LRT3 project was a negative surprise.

It said the possible downsizing of the LRT3 would impact existing order books and margins of contractors, including Sunway Construction Group Bhd, WCT Holdings Bhd, IJM Corp Bhd and EITA Resources Bhd .

The research house pointed out that the LRT3 project is unlikely to be shelved “as the project has entered the intensive civil works phase”.

It has been said that the cost of the LRT3 project escalated due to changes in the original design of the 37-km track between Bandar Utama and Klang.

For example, some of the 26 stations along the line were upgraded to accommodate new features and a bigger passenger capacity at a substantial increase in construction cost.

It is understood that after Prasarana had signed the PDP agreement with the MRCB-GKent consortium, it then went on to increase the number of stations to 30 from 26.

Reducing the size of the project would help cut down cost. Other options being considered, sources said, included reverting to the turnkey model to complete the project.

The LRT3 project is the first project by Prasarana to be implemented under the PDP model.

But unlike the PDP model that was implemented for the Klang Valley mass rapid transit project, the total cost of the LRT3 was not finalised before the PDP contract was awarded in 2015.

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