The danger in cancelling mega projects
PETALING JAYA: Any decision by the government to terminate a mega project or the contractor of a mega project will have serious repercussions on local companies in the long run, a transport expert said.
Rosli Azad Khan said there was a possibility that local companies participating in government tenders would not get the required support from international suppliers in terms of technology and materials.
This, he said, was due to the “high risk” of the project being called off.
The consultant with more than 40 years of experience said it could drive up the cost of imported materials and equipment as foreign firms would also factor in such risks.
Citing Putrajaya’s decision to terminate the contractor working on the Klang Valley Double Tracking Phase 2 as an example, he told FMT: “Risk evaluation is high on international companies’ agenda.”
The project, also known as KVDT2, has been tied up in a court case after the government cancelled the contract originally awarded to Dhaya Maju-LTAT in early 2018.
KVDT2 involves two tracks between Salak South and Seremban, and between Kuala Lumpur Sentral and Port Klang.
It has been delayed twice. Both the Pakatan Harapan and Perikatan Nasional administrations terminated the award, citing costs.
Dhaya Maju-LTAT’s contract was cancelled in October 2018 only to be reinstated in July 2019 after the PH government conceded there was no basis to terminate the contract. Costs were however reduced in line with a reduction in the scope of work.
Last September, the PN administration cancelled the company’s contract for the same reason, ultimately leading to a dispute that has gone to court.
Rosli went on to say that Malaysia could be included in an “unreliable list” of countries, which would see foreign firms scrutinising the element of uncertainty and other risk factors if mega projects continued to be cancelled.
International companies, he added, would also be afraid to participate in government tenders in the future and might even include clauses in their contracts to shield themselves from the project being cancelled.
“They will not trust government tenders anymore.”
Rosli said the Cabinet should seek the attorney-general’s advice on major contract terminations.
There was also the risk of the government coughing up damages from the “public purse” in the event of them losing the court battle.
“My suggestion is for the government to revisit any such contract and have an opinion from the AG’s office, especially on the high financial implications.”
Carmelo Ferlito, the CEO of the Center for Market Education think tank, agrees, adding that the stability of the nation’s business environment “was at stake”.
Ferlito warned that such practices could further undermine Malaysia’s credibility, which would not bode well in view of declining foreign direct investments.
“It also gives the impression that the political authority of the moment has the freedom to step over awarded contracts,” he said when contacted, adding that the government could be tempted to flex such political muscle in future as it had done so in the past.
Like Rosli, Ferlito said such practices could affect investor confidence while making the domestic private sector more reluctant to work with the government.
“Even worse – the private sector could feel tempted to deliver inferior quality projects in order to try to cover the risk of cancellation.” - FMT
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