What’s the policy on PDP?

Changes in Pan Borneo Highway project have put spotlight on Penang’s mega project

IT is easy to fathom why the project delivery partner (PDP) for the Pan Borneo Highway is unhappy about the termination of its mandate for the Rm16.12bil highway project.

The PDP – Lebuhraya Borneo Utara (LBU) contends that it has completed work ahead of schedule and saved Rm1bil so far. LBU expects to save another Rm900mil on the project, with all savings going back to the government. Hence, it sees no reason why the government wants to remove it as the PDP.

In a statement, LBU claimed that speculation on the possible termination of its role since the change of government in May 2018 had impacted work on the 786-km highway. It claims to have completed almost 50% of the work at a cost of Rm19.36mil per kilometre, inclusive of the construction of bridges and interchanges.

The government, on the other hand, contends that it can do without the PDP and wants the job to be handled by the Public Works Department (PWD). Towards this end, Works Minister Baru Bian has said that if the PWD handled the job, the government would save almost Rm1bil.

In the case of the Pan Borneo Highway, the PDP gets 5.5% of the total project cost. Generally, in other projects, the PDP fee is 6%. In return for the fee, the PDP’S job is to essentially ensure that the project is finished on time and within budget.

The role of the PDP in mega-projects has come under scrutiny since the change in government in May 2018.

The mandate of the PDPS for the mass rapid transit phase two (MRT2) and light rail transit three (LRT3) projects were converted to a turnkey contractor basis at a fixed lumpsum contract.

The PDP for MRT2 was Gamuda Bhd, while the joint venture of Malaysian Resources Corp Bhd (MRCB) and George Kent (M) Bhd was the PDP for the LRT3 project. Along with the change in the role of the PDP, the contract sums were also reduced.

The PDP for the Sabah portion of the Pan Borneo Highway – Borneo Highway PDP Sdn Bhd -- was also terminated in April this year. The PDP job was awarded to a consortium of Warisan Tarang Sdn Bhd with 60% and 20% each held by MMC Corp Bhd and UEM Group Bhd.

The privately-held company is reported to be linked to former Sabah Chief Minister Tan Sri Musa Aman.

However, there is one massive project where the role of the PDP seems intact so far. It is the Penang Transport Master Plan (PTMP), which is to be managed by the SRS Consortium that comprises Gamuda Bhd, Loh Phoy Yen Holdings Sdn Bhd and Ideal Property Development Sdn Bhd.

The project involves constructing a highway from George Town to Bayan Lepas and an LRT system on the island linking the town to the airport and onwards to three islands that are to be reclaimed.

In return, the consortium gets to reclaim some 4,500 acres of land that would make up the three islands in the south of Penang Island. A portion of the land would go back to the state government, while some parcels would be sold to finance the LRT and highway projects that are estimated to cost some Rm46bil.

The question that arises now is whether the PDP concept would still be used to implement the PTMP and the reclamation of the three islands? Or is the federal government leaving the decision entirely to the state government, as the PTMP and the reclamation works are generally an initiative taken by the Penang state government?

Or, perhaps, the state government sees a need for a PDP in projects such as the PTMP and island reclamation works because these are long term in nature, require capital upfront and the sale of land to fund infrastructure.

In that case, would the government be agreeable to the PDP concept for any other land-swap deals?

Whatever the case, there has to be some clarity on the role of PDPS so that there is no ambiguity. At the moment, whether the government would consider any PDP role in the future is as hazy as the weather.

What’s perplexing is that even the PDP that had carried out its mandate within time and saved the government money is being axed.

PDPS effectively took over the role of the PWD as the project manager of mega-projects. It essentially is the government using private sector efficiency to build and procure assets for itself.

Prior to the birth of the PDP some 10 years ago, the government faced problems in implementing projects on time and within cost. The PWD was seen as inefficient, being unable to cope with the demands of the work carried out by the private sector.

Eventually, the government appointed project management companies (PMCS) which got a fee for managing the job. However, the PMCS took no risk in seeing that the work was completed on time and within the cost.

Gamuda started the concept of the PDP when it initiated the MRT1 project. As the PDP, it received 6% fees of the project sum and was not supposed to participate in any part of the work. In the case of the MRT, Gamuda was allowed to participate only in the tunnel jobs on a Swiss challenge basis.

Subsequently, the concept of the PDP was used in other projects such as the MRT2, LRT3, and the Sabah and Sarawak portions of the Pan Borneo Highway.

After the change in government, all the projects were reviewed. Among the changes was to do away with the role of the PDP and for the PWD to take over the job, especially highway projects.

In the case of rail projects such as the MRT2 and LRT3, the contracts for the PDP were converted to turnkey contractors.

The PTMP and island reclamation works are massive projects that are poised to take off the ground soon if all approvals are obtained. Before they get going, the government needs to provide some clarity on the role of the PDP.