Friday, March 04, 2011

MRT Runaway Train?

Political-economic factors risk major cost-overruns and a failure to meet over-sized targets in the MRT rush-job

Based on available and non-available information since the MRT project was put up for public feedback, there have been strong concerns voiced over its viability and the cost and benefits. The public transport advocacy group, TRANSIT has questioned the Land Public Transport Commission (SPAD) forecast of 40,000 passengers per hour per direction (pphpd) when the proposed 58 train sets to be purchased can only ferry a maximum capacity of 24,000 pphpd.

Concerns raised by residents at various proposed stations such as Taman Tun Dr Ismail and Kajang pointed towards poor design and planning of the stations to cope with managing traffic flow and volume. S. Piarapakaran, president of the Association of Water and Energy Research Malaysia (Awer) found out from the EIA report that traffic studies have yet to be carried out on the respective stations.

Questions are also raised over the poorly integrated stations with other existing public transport networks such the LRTs and bus terminals. I have raised criticisms on the fact that the MRT system is being forged ahead without first reviewing the holistic public transport framework where bus services form the other critical public transport pillar.

Despite the fact that the project is only put up for feedback last month, SPAD, the regulatory body and Syarikat Prasarana Bhd, the project owner have already awarded the project to Gamuda-MMC joint venture as the “project delivery partner” and announced the fact that the tender for the various sub-contract works will commence in April and awarded by June 2011.

All of the above and more, points towards the fact that the RM46 billion MRT rush-job is a runaway train the Government has set in motion with brakes already disabled, regardless of the obstacles in its path.

A study by Bent Flyvbjerg “Survival of the unfittest: why the worst infrastructure gets built—and what we can do about it” published in the Oxford Review of Economic Policy (2009) looked at 258 “mega-infrastructure projects” across 20 countries. He 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.

In fact, the other statistics found are no less encouraging - 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.

He concluded that “cost overruns in the order of 50 per cent in real terms are common for major infrastructure, and overruns above 100 per cent are not uncommon. Demand and benefit forecasts that are wrong by 20–70 per cent compared with actual development are common.”

What’s perhaps more revealing and of greater relevance for our very own MRT rush-job is the underlying reason for such consistent outcome of major infrastructure projects. He claimed that “planners and promoters purposely spin scenarios of success and gloss over the potential for failure” as the key cause of the over-promise and under-delivery.

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.”
Flyvbjerg’s extensive study on a few transit projects in the UK and US support the view
that “promoters and forecasters intentionally use the following formula in order to secure approval and funding for their projects:

underestimated costs + overestimated benefits = funding

Using this formula, the outcome is “the survival of the unfittest” where “it is not the best projects that get implemented, but the projects that look best on paper. And the projects that look best on paper are the projects with the largest cost underestimates and benefit overestimates, other things being equal… Therefore the projects that have been made to look best on paper in this manner become the worst, or unfittest, projects in reality, in the sense that they are the very projects that will encounter most problems during construction and operations in terms of the largest cost overruns, benefit shortfalls, and risks of non-viability. They have been designed like that, as disasters waiting to happen.”

Malaysia have had its share of “disasters” in terms of public transport infrastructure privatisation projects, where the Government had to bail out the failed STAR LRT (RM3.3 billion), Putra LRT (RM4.5 billion), KL Monorail (RM882 million) as well as the privatised bus service operators (~RM200 million). This has resulted in Syarikat Prasarana Bhd, a wholly-owned subsidiary of Ministry of Finance, holding debts in excess of RM9 billion which it is unable to service even the interest.

The Government must not let the MRT project be another “disaster waiting to happen” as a result of private sector promoters like Gamuda-MMC spinning “scenarios of success and gloss over the potential for failure” while our government agencies like SPAD, PEMANDU and Prasarana are swallowing them hook, line and sinker, rushing to ensure that the project gets funded and started in the shortest possible time, without proper independent checks, audit and competition.

About Bent Flyvbjerg:

Bent Flyvbjerg is the first British Telecom (BT) Professor and Chair of Major Programme Management at Oxford University. He is founding Director of Oxford’s BT Centre for Major Programme Management.

Before Oxford, Bent Flyvbjerg was Professor of Planning at the Department of Development and Planning at Aalborg University, Denmark. He is Doctor of Technology and Engineering (Dr.Techn.) and Doctor of Science (Dr. Scient.) from Aalborg University and holds the Ph.D. in Urban Geography and Planning from Aarhus University, Denmark.

He was twice a Visiting Fulbright Scholar to the USA, where he did research at the University of California at Los Angeles and Berkeley and at Harvard University.

Bent Flyvbjerg's most recent books in English are Megaprojects and Risk: An Anatomy of Ambition (Cambridge University Press, 2003), Making Social Science Matter (Cambridge University Press, 2001), and Rationality and Power: Democracy in Practice (The University of Chicago Press, 1998).

Bent Flyvbjerg has two decades of practical experience from working as a policy and planning adviser to more than 40 public and private organizations, including the EU Commission, the United Nations, national and local government, auditors general, banks, and private companies.


Anonymous said...

It is running now from 36.6 b to 50b.

Anonymous said...

Hi Tony,

Only you can be so diligently and honestly trying so hard to explain.

Have no idea whether what you do will be in vain as the master plan to save Malaysia but all the best to you.

Anonymous said...


batugajah said...

pua.. come with a practical solution not just to criticize..

Nehemiah said...

Hi Tony,

I have not read Bent Flyvbjerg's reports but as an economist, I can appreciate the enormous labour productivity gains arising from raising public transport usage to 40%-50% from current levels of 15%-20%(?).

You need to enter a clear-cut intellectual debate with the government on this issue of productivity as well as the risk of cost overuns (which you have highlighted in your blog).

Productivity = value of output/value of inputs.

When Malaysian urban workers use less petrol, less cares, and take less time to get to work, the denominator falls. Assuming conservatively that the value of output remains constant, labout productivity and efficiency goes up.

If this tecnhically correct, then what are the risks that cost of building will overun and exceed the benefits to the economy?

The Malaysian public deserve to know the entire truth as well as the exsorbitant tax on foreign cars and the oligopoly of the toll concessionaires on our lives.

Anonymous said...

Wait till oil spike and steel spike, the cost will hit RM70-80 bil. Anyone that think they are not going to pay for it, is a bloody idiot..

This whole idea of real estate to pay for MRT - I want to know who came up with the theory that HK built their system that way. I helped finance the HK MRT. It was not financed by real estate. The HK MRT system was built by pushing the limits of density and efficiency first and foremost. The real estate was significant but hardly the main reason for the HK MRT success.

Secondly, who think real estate will pay for a RM50bil project is a freaking idiot. Name me one company that earns RM50bil over a decade.

There is only one way to pay for this and that is by hook and by crook from every sources - The govt got to write off RM10-20bil, then tax every car entering the city and put the money into the MRT. Then charge a high enough ticket price to cover expenses and yes, probably the real estate added to it. The other lines have to be delayed so that some cashflow from existing operation pays for the other line.

What does that mean - it will be a commuter nightmare for a decades for residents of KL if you don't live near an MRT station.