Sunday, July 21, 2013

"Private Sector Initiative" Not Justification for Direct Negotiations


Earlier this week, I have questioned the award of the RM1 billion Johor commuter train project to Metropolitan Commuter Network (MCN), a subsidiary of Malaysia Steel Works (KL) Bhd (Masteel) by the Malaysian government without open tender.

Masteel has responded via a press statement to say that “other bidders had not been prevented from submitting their bids to the government”.  It added that “it was a private sector initiative, as opposed to a government-driven project”.

Let me first make it clear that it is the right for any private company to submit any number of unsolicited bids for any types of projects to the Government.  However, the unsolicited bids by these companies do not in themselves justify direct negotiations between the Government and these companies.

The Federal Government, in this case represented by Public-Private Partnership Agency (UKAS) in the Prime Minister’s Department, must still place emphasis on transparency and accountability in the award of any contracts. And the best mechanism to ensure that the interest of the public are fully protected especially in projects such as this, is via open, transparent and competitive tenders.

What is more, this RM1 billion project involves the provision of a 20-year RM700 million soft loan to the concessionaire.  The question that needs to be asked to the Prime Minister’s Department is, if the Government has to fund 70% of the project, why bother privatising it in the first place to a 37-year concession?

As admitted by Masteel CEO, Datuk Seri Tai Hean Leng himself, MCN will take “12 to 13 years to recover its costs”, which means that the concessionaire will have the remaining 24 to 25 years to make lucrative returns for their project.

Masteel has also defended itself in our claim that the company is mainly involved in steel manufacturing, and has no prior experience in train services.  The company argued that it has “experience in complex mechanical and electrical hardware and automation” which gives them “the relevant experience in operating trains are trains are relatively simple mechanical system compared to steel mills”.

It is not my place to judge the competence of Masteel and whether it will be able to manage rail systems despite having no prior experience in such projects.  However, based on the company’s own reply that “experience in complex mechanical and electrical hardware and automation” is sufficient, then I am certain that scores of other companies would be equal to the job.  Certainly in this case, there would then be little justification for a direct negotiation because the project apparently requires very little specialised expertiese as “trains are relatively simple mechanical systems”.

Therefore given Masteel feedback, the direct negotiations must stop immediately and the Prime Minister, Dato’ Seri Najib Razak himself must insist that the project be tendered openly and competitively.

Despite news articles being posted on Masteel on website entitled “Masteel Gets Nod for Iskandar-Singapore Rail Link”, the company has now clarified that “at the time of writing, MCN is still undergoing the process of obtaining the necessary approvals fro various ministries and has not been granted full approval to undertake the project.”

This clarification is welcome as we can now call upon the Government to ensure that this RM1 billion project which has yet to be awarded, be tendered openly instead of being directly negotiated.  It is only by ensuring that all projects awarded by the Government are at the best value, can the interest of the commuters and Malaysians be protected – e.g., the commuter fares will be at the lowest possible.

In the open tender exercise, we would strongly encourage the Government to invite Masteel to take part in the tender to prove that it is the most competent party offering the lowest prices to implement the project.
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