MRT: Build At Whatever Cost?

Based on a report in the Star yesterday, the “MRT project cost [is] now estimated to reach RM50 billion”.

Land Public Transport Commission (SPAD) chief executive officer Mohd Nur Ismal Kamal said that “the Government was doing all it could to drive down the cost… With land acquisition and rolling stock, it could come up to RM50bil, but it is too early to say… We will know the full picture later…”

In addition, a CIMB Research report highlighted that “based on the average RM353m/km for the line, the entire MRT project (150km) could be worth RM53bil compared with the current estimate of RM36bil,” after the outcome of Syarikat Prasarana Negara Bhd's contractors' briefing last week.

The dramatic escalation of cost estimates for the Klang Valley MRT project before even the expected commencement of works in July this year is both shocking and scary, and it raises big question marks as to whether the project can ever be completed on time, and within budget.

I have issued a statement earlier this week citing a study on major infrastructure projects around the world by Bent Flyvbjerg at Oxford University which found that rail projects not only suffered from an average of 44.3% cost overrun, actual passenger traffic is 51.4 per cent lower than forecast traffic on average. What’s more, 9 out of 10 of suffered from cost overruns; 84 per cent of rail passenger forecasts are wrong by more than ±20 per cent; nine out of 10 rail projects have overestimated traffic.

Flyvbjerg had warned that the main reason for the ugly set of statistics is that “planners and promoters purposely spin scenarios of success and gloss over the potential for failure.”

Flyvbjerg argued that “competition between projects and authorities creates political and organizational pressures that in turn create an incentive structure that makes it rational for project promoters to emphasize benefits and de-emphasize costs and risks. A project that looks highly beneficial on paper is more likely to get funded than one that does not.”

Now that the project has received the “go-ahead”, and the main “project delivery partner” (PDP) contract has been awarded despite the on-going public “feedback” process, it appears that the “cost” of the project are already beginning to see a significant increase.

It is also clear from SPAD CEO’s statement that there is no fixed budget for the project and the Government is adamant on proceeding with the project regardless of what the final bill will be. For example, will the Government continue with the project even if the cost were to escalate to RM60 or RM70 billion? This raises the major concern that the Government has not conducted a thorough cost-benefit analysis to determine the point where the direct and indirect costs may outweigh the direct and indirect benefits of the immediate implementation of the MRT project.

It also makes a mockery of SPAD’s earlier claim that the PDP, Gamuda-MMC joint venture will bear all increases in costs. If the PDP has been awarded the contract based on their own estimates that the cost will be RM36.6 billion, then surely they must be bound by their estimates, and any increases must be borne by them and not by the Government. In fact, if the increase proves to be significant, as highlighted in both the Star and CIMB reports, then surely there needs to be a revaluation of the project on its continued viability and the risks involved.

We once again call upon SPAD to disclose the terms and conditions of the PDP contract with Gamuda-MMC, which it claims to “guarantee” against cost overruns. This is especially since Gamuda-MMC is essentially acting like the main contractor to the MRT project. SPAD must also disclose its detailed cost-benefits analysis of the MRT project for public scrutiny, checks and balances. Given the size of and the high risks involved with the project, “disasters” as described in the Flyvbjerg’s study can only be prevented with greater transparency and public accountability, particularly to prevent vested interest parties like the main contractors from taking both the Government and the public for a ride.