By RISEN JAYASEELAN
MRT Co CEO Azhar believes the project will work out fine despite the on-going obstacles
One-and-half months into his job as CEO of the newly-set up MRT Coand Datuk Azhar Abdul Hamid does display some signs of fatigue. That's hardly surprising. Over the last few weeks, Azhar has been tirelessly working towards solving one of the thorniest issues of the ambitious project: dealing with the landowners affected by the mass rail transit's (MRT) alignment.
“I've been doing so much talking over the past few weeks my throat hurts,” he tells StarBizWeek at the end of a two-hour interview at MRT Co's temporary office in Damansara. Azhar is calm and articulate in handling the barrage of questions. The Klang Valley MRT which is renamed My Rapid Transit, has not failed to evoke emotions, controversy and even excitement among some stock market punters, from the word go.
After all, it is going to be the most ambitious and expensive infrastructure project in the country, cutting through the core of the city, providing the much needed connectivity, raising Kuala Lumpur's living standard and possibly productivity of its residents.
Azhar's appointment to spearhead such a project did surprise many quarters. Having established himself as a high ranking corporate official, spending a number of years as head of Sime Darby Bhd's plantation division (which is of some significance considering that the conglomerate is the world's largest listed oil palm company), one wonders why Azhar took up the offer.
Some say it was a call to national service which he couldn't turn down. But Azhar says he wouldn't have taken on the job if he didn't believe it is going to work.
His agitated throat is likely caused by this: From the early stage of assuming his job, Azhar has been actively engaging the affected landowners in the city centre, particularly those from Jalan Sultan, Bukit Bintang and Jalan Inai although not always with success.
“It was becoming a frenzy. Land ownership was at stake, always a sensitive issue. I said, there must be a better way of doing this,” he says. He has set out to get the advice of the Attorney-General and the Director-General of Lands and Mines. Time wasn't on his side, as the process of land acquisition by the Government had already began, even before the setting up of MRT Co.
Azhar managed to get that process “frozen” until he implements a “realistic” approach by reducing land acquisition where possible or working around it.
In a nutshell, this is the new approach:
Land owners in the prime property of city get to keep their property, as far as possible.
Building the MRT underneath those properties (the first line of the MRT will be underground for 51 km, from Sungai Buloh to Kajang, out of which 9.5 km will be underground.)
Compensating the land owners for their loss of business and related costs when having to vacate their premises when the work begins and which is expected to last for about six months.
MRT Co will pay for all legal fees needed to draw up the agreement on this.
“My approach has always been to only revert to the law as the last resort. There are many other ways in solving the issues and one needs to look at them from all angles, especially from the perspective of the affected land owners. Since they didn't want to give up their properties, we worked on that premise,” Azhar says.
Time will tell if this approach will work although Azhar is confident that a majority of landowners are inclined to accept this offer.
Limited property play
The plan is for the construction of the MRT's first 51km line from Sungai Buloh to Kajang to start by the middle of next year and be completed by mid-2017. The initial completion date has been pushed back from 2016 to a year later due to delays stemming from the land issues.
Contrary to speculation that the MRT may take on the Hong Kong-model of having property development as the means to make it a viable or even profitable venture, that isn't the case for the MRT here.
The MRT is going to be entirely government-funded. A Finance Ministry unit called Dana Infra will be issuing government-backed bonds to raise the money for the MRT.
Hong Kong's MRT Corp Ltd is a hugely profitable listed company and a full-fledged property developer and owner, maximising all possible outlets to make money such as leasing, advertising and consultancy.
This approach though can't be replicated in its full form here. And that's because of legacy issues. Firstly, Hong Kong had the fortune of planning and building its MRT in the 1970s. The tracks were also built on largely government-owned land.
“I would love to follow the Hong Kong model. Unfortunately, I can't. Hong Kong and Singapore have specific laws that facilitated the development of the MRT we don't. I am still relying on a 1960 Act for land acquisition and I do not have a masterplan that existed 20 years ago that said KL would have an MRT.”
That isn't to say there will be no opportunities for property development. There will be areas such as Sungai Buloh and KTM Bhd where some level of development will take place. (See page 20)
But can the Government afford to fund the MRT its most expensive infrastructure project to date?
It still isn't clear how much the entire project is going to cost. Initial reports had tagged the total cost at some RM50bil, but that was for all the three lines and even so it is believed to be an outdated cost as prices of materials have risen.
The Government has decided to only start with the first line, from Sungai Buloh to Kajang. There are some suggestions that this will cost RM30bil. Azhar reckons he will have better idea of costing once all tenders are called for all the major parts of the project.
Back of the envelope accounting, the Government could be increasing its debt levels by about RM5bil every year for the next six years, assuming the RM30bil figure is spread out the six-year period. Can the Government afford to do that?
Economist Dr Yeah Kim Leng reckons so. “Assuming the RM30bil cost is funded through borrowings, it will raise the government debt-to-GDP ratio by 3.9 percentage points to 57% based on the 2010 GDP figure. When compared with the debt situation of many advanced economies where the debt levels are either close to or above 100% of GDP, the Malaysian government does have the borrowing capacity,” said Yeah, who is RAM Holdings' chief economist.
He adds that assuming the entire amount is funded through the bond market, the bond issuance of RM30bil would raise the fiscal deficit by an estimated 0.2% of GDP. “This will necessitate either a cut-back in spending on other areas or raising revenue through means such as asset sales or tax increases, in order to achieve the fiscal deficit target of less than 3% of GDP by 2015.”
On a positive note, Yeah adds that the MRT project will “boost the economy by adding jobs and crowding-in investment which will have the desired effect of enlarging the GDP, thereby contributing to either stabilising or lowering the debt-to-GDP ratio”.
The good news is that there will be some savings from the reduction in land acquisition, following Azhar's approach.
Another promise by Azhar is that procurement will be done in a transparent and effective manner. “We have implemented a unique tender procurement process,” Azhar says. He explains that there will be tender committees chaired by different people depending on the amount involved. For contracts of up to RM50mil, the committee will be chaired by the secretary-general of the MOF while for contracts to the tune of between RM50mil and RM300mil, the Second Finance Minister and for amount above that, the Prime Minister will chair the decision-making committee.
The rationale and hence “pay back” of the MRT project is espoused by discussions in the labs of the Performance Management and Delivery Unit: Kuala Lumpur is going to get congested by 2020 and hence, something needs to be done about urban transportation and like all big cities in the world, the MRT is an ideal solution.
“The MRT is the Government playing a social obligation role, to make KL a more liveable place. Integrating with existing systems, the MRT will help make KL a complete city and thereby more competitive,” Azhar says.
But the expected pains during the construction period is getting KLites worried. Still, all major cities that have an MRT system have had to endure the construction process. Azhar uses the Penang Bridge to illustrate his point. “When it first started, the public lashed out saying the Government was wasting money and taking away people's land. But now, if I have a magic wand and make the bridge dissappear, I think there will be a riot,” he chuckles.
The expected ridership of the first line of the MRT is 300,000 people on an average weekday. The second and third lines may start while the first line is being built to avoid lengthening the time of public inconvenience.
Gamuda-MMC as PDP
Another issue that had concerned some quarters is the choice ofGamuda Bhd-MMC Corp Bhd, the joint venture that first mooted the MRT, as the project deliver partner (PDP). Gamuda-MMC is also bidding for the tunneling part of the first line of the MRT, a significant portion of the project at about 40% its total cost.
To date, five group of companies, including the Gamuda-MMC JV, have been shortlisted for the tunnelling job.
If Gamuda-MMC wins the tunnelling job, it would step out of the PDP role relating to that part of the project.
On why it was given the PDP role in the first place, Azhar says: “If not for them this project would not have started. They did the ground work and technical feasibility studies, took it to the Government and struck a deal to jointly manage the project and that's how they have come to be appointed as PDP. They also have experience in tunneling.”
MMC-Gamuda are also in an advantageous position in the bid for the tunnelling job. Under the Swiss Challenge system, MMC-Gamuda will have the first right of refusal to do the job at the lowest bid plus a small 2.5% to 7.5% margin.
Curiously, this has not stopped other parties from making a bid.
“Take note that the other bidders for the tunneling job are made up of two Chinese, one South Korean and one Japanese company. Aren't they also able to have advantages of economies of scale and possibly government funding on their part?”
Azhar is now backed by a small but growing team of 25 people. One key person from that team is Briton Marcus Levon Karakashian, who had been hired by Prasarana for the MRT project before MRT Co came into being. Levon has been involved in the implementation of major rail projects over the past 30 years including Singapore MRT downtown, northeast and eastwest lines as well as London's Jubilee line extension.
Besides leading the MRT project Azhar faces many challenges ahead including the outcome of the meeting with the land owners to be held next week. There's always a chance that things could go awry and no meeting of minds is achieved and protesters take to the streets again. “I'm prepared for anything,” quips Azhar.
Another concern is whether Prasarana will do a good job of running the MRT system. The MRT is structured this way: MRT Co oversees the project. Another MOF company becomes the asset owner (but reports to MRT Co) while Prasarana will manage the asset, via a concession agreement that will be signed with the Government.
Judging from its past track record, Prasarana has room for improvement. Hopefully the recent management changes at Prasarana will help it achieve that.
Azhar, who is on a three-year contract, remains unfazed by the challenges and confident the project will be a success.
“It's different from overseeing an palm oil business, but it's fun, in its own way,” he quips.
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