Focus View
MRT Corp must convince critics
None | 17 Nov 2017 00:30
Mass Rapid Transit Corp (MRT Corp) said switching from a project delivery partner (PDP) model to a turnkey model for the MRT3 project can help save billions of ringgit.
 
The turnkey model will enable it to seek the best financing option. The project is estimated to cost RM35 bil to RM40 bil with 80% of works comprising boring and tunnelling.
 
However, critics said the turnkey model might eventually turn out to be more expensive, besides squeezing out local companies which are not large enough to provide the financing. 
 
At this juncture, it is difficult for ordinary Malaysians to understand the merits and demerits of the PDP and turnkey models as they involve many technicalities. And comments by politicians have added to the public confusion.

The government had earlier said the MRT2 project, using the PDP model and carried out by local companies, was completed ahead of time and under budget.

Under the turnkey model, a main contractor will be responsible for the entire project. There is also no need for a PDP, which typically earns a 6% fee on the project cost.

The MRT3 turnkey contractor will be selected through an open tender exercise with the successful bidder expected to be known in mid-February. But one factor is likely to exclude many Malaysian bidders – companies must have a paid-up capital and shareholders’ funds of not less than RM5 bil.
 
This is large by any standards but, given the estimated project cost, is not entirely surprising. The financing will be for at least 30 years with a financing margin of not less than 90% of the project cost. It is not known why MRT Corp decided to opt for this type of financing and why it is cheaper.

Responding to critics, MRT Corp said local companies not large enough or without the necessary technical expertise can team up with foreign players. But what if this is not possible? 
 
There must be clear and compelling arguments why MRT Corp is opting for the turnkey model. It should detail the cost savings and other advantages.

After all, didn’t the PDP model work well before? Why reinvent the wheel?