27 November 2008

Japan, Malaysia tussle over water project contractor

From Malaysia Insider

KUALA LUMPUR, Nov 27 – The Pahang-Selangor water transfer project hangs in the balance over the question of whether the Malaysian government or Japan has the final say on which consortium is awarded the lucrative contract to bore a 45km tunnel through the Titiwangsa Range.

At stake also is a RM2.5 billion soft loan from the Japan Bank for International Cooperation (JBIC).

The Malaysian Insider has learnt that the Cabinet and officials from the Ministry of Energy, Water and Communications are resisting attempts by the Japanese International Cooperation Agency to influence the choice of the successful bidder for the contract.

Government officials have been tight-lipped about the behind-the-scenes wrangling but Datuk Joseph Salang Gandum’s comment in Parliament last week gave a hint of the seriousness of the issue.

When asked to give an update on the soft loan from Japan Bank for International Cooperation (JBIC) and the status of the water transfer project, he remarked: “Malaysia is a sovereign country and will not sell its dignity and name…the government already has plans if the money is not channelled to us due to certain reasons.”

Checks show that three bids for the project were received from: Shimizu-Nishimatsu-UEM-IJM; Taisei-HRA Teguh and Kajima Construction.

From the start, the government made it clear that tender for the water transfer project should be a benchmark for open tenders in the country.

The Ministry of Energy, Water and Communications came up with an international competitive bidding scheme to select a international consultants who would scrutinise the bids. It is understood that two of the bidders submitted conditional bids.

Under the international tender process, any company or party that submits a conditional bid should be disqualified. This is because the price quoted in the conditional bid could change substantially.

For example, the lowest bidder for the 45-km tunnel job submitted a conditional bid that was based on a particular rock strength of the tunnel. But independent reports obtained by the government suggest that the rock strength is higher than what the cost estimates are based on.

As such, the government believes that it could be saddled with a variation order of several hundred million ringgit if it awards the contract to the consortium with the lowest bid.

It is in favour of awarding the contract for the project to the company which had submitted the second lowest bid, which was also the only bidder who did not submit a conditional tender.

But JICA is insisting that the contract be awarded to the lowest bidder.

The Malaysian Insider understands that the Cabinet was briefed on the stand off and supports the decision of the Energy, Water and Communications ministry to award the contract to the second bidder.

A government official told The Malaysian Insider: “The terms in the bid documents state clearly that we are not bound to accept the lowest bid but must take into account all factors in the tender. Accepting a conditional bid could be disastrous for the government. Based on our research, there is every chance of a variation order between RM200 million to RM400 million.”

It is understood that the difference between the lowest and second bid is RM150 million.

JICA has apparently asked the government to negotiate with the party with the lowest tender and get them to remove the “variable component” of the bid.

Government officials believe that going down this path could lead to suits by the two other companies that took part in the tender process. The reason: there is a clause which states that no party can alter, correct or withdraw anything from their bid documents once it has been opened and evaluated.

So the standoff continues. But it is learnt that government officials are willing to forego the Japanese loan.

“This is an issue of sovereign rights. Malaysia will be a joke if we have a open tender but don’t follow the rules of the game.”

It is unclear how the government plans to raise the RM1.5 billion for the tunnel project if the loan falls through.


A Q&A with Tian Chua