//Malaysian Road Builder terminates Kerala project

Malaysian Road Builder terminates Kerala project

The Edge   Business Daily, Malaysia,

Road Builder (M) Holdings Bhd has terminated the RM112.4 million contract for the Kerala State Transport Project, Phase One after the Kerala State Government failed to make payments.

The company said on Nov 24 the termination was due to the continued failure on the part of the Kerala government to make the payment. As at Oct 31, 2006, it had completed some 63% of the construction works.

It issued a notice of termination on Nov 22 and in accordance with the contract, the termination will take effect 14 days after the notice date.

Road Builder said it would be claiming for all damages and losses arising from the default of the payment.

In a separate statement, Road Builder's net profit for the first quarter ended Sept 30, 2006 rose 19% to RM22.64 million from RM19 million a year earlier, mainly due to the recognition of profit margin from on-going projects and those nearing completion, as well as gains from disposal of property.

However, the increase was partially offset by the higher finance cost incurred and the provision of staff cost in the quarter.

Its revenue declined 12% to RM241.4 million from RM273.9 million as the completion of several projects by its property and construction divisions resulted in lower revenue.

Earnings per share was 4.35 sen against 3.65 previously.

Revenue from its toll division increased 10% to RM28.3 million from RM25.7 million mainly due to higher traffic volumes. Operating profit before finance and tax increased by 14% to RM20.7 million from RM18.2 million.

Road Builder said that although revenue from its construction division fell 25% to RM104.5 million, its operating profit before finance cost and tax increased by 81% to RM20.2 million from RM11.2 million a year ago.

Operating profit before finance cost and tax for its port operations increased by 20% to RM9.4 million from RM7.8 million while revenue saw a 6% improvement to RM23.8 million from RM25.2 million during the period under review.

The property division’s operating profit before finance cost and tax increased by 9% to RM18.7 million from RM17.1 million despite a marginal fall in revenue to RM81.8 million from RM83.9 million.

Resume KSTP work, Malaysian firm told

The Hindu, Nov23, 2006

Finance Minister: The Government is not responsible for road project delay.

THIRUVANANTHAPURAM: The Government has warned the Malaysian company that has been executing major stretches of the World Bank-aided Kerala State Transport Project (KSTP) to resume work unconditionally or get ready for renegotiation on Government terms. It has also decided to take a look at the entire project to identify how there was slippage in work execution and who were responsible for it.

Finance Minister T.M. Thomas Isaac told a news conference here on Wednesday that there was no basis for the charge that the delay in the completion of the project, which had assumed a sensational dimension following suicide by the local manager of the contracting firm, was on account of the Government's failure in acquiring land in time and releasing payments promptly. The Government had so far spent Rs.817 crore on the project, which has a total estimated cost of Rs.1,600 crore, but which would require at least Rs.3,000 crore for completion.

Although there was some delay in land acquisition initially, the Government had made up for it by putting land acquisition on the fast track. Currently the land needed for the entire project, save that at some junctions and some Government land, had already been handed over to the company. The real problem lay in the poor finances of the Malaysian firm, Pathy, which had bid for the work in association with the Bhageeratha group. A World Bank review team had stated that the slow progress could be attributed to low cash flow mobilisation by the contractor.

The Bank had also made it clear that if the situation did not improve in three months, it would carry out a unilateral inspection of the firm's bank account. Earlier, the consultants appointed by the World Bank and the State Finance Department too had come to the same conclusion, Dr. Isaac said adding he was fully with the Finance Department and the Principal Secretary (Finance) in all matters relating to the road project.

He said a study of the relevant documents would show that there were serious flaws in the tendering process and one could not help suspect that the contractors had bid for the project work as a cartel. This had resulted in the Government being forced to accept bids that would result in excess payment to the tune of Rs.788 crore. 


Finance Department's intervention a crucial turning point for KSTP

C. Gouridasan Nair, The Hindu , 25 Nov 2006

Thomas Isaac has put the ball in the major contractor's court

# PWD has failed to respond to the demands of the ambitious project
# Enough evidence to prove foul play at a higher level

THIRUVANANTHAPURAM: The decisive intervention by the Finance Department appears to be a crucial turning point in the implementation of the World Bank-aided Kerala State Transport Project (KSTP), which is already behind schedule by roughly a year. Finance Minister T.M. Thomas Isaac has put the ball in the court of the major contractor PATI BEL, a joint venture between PATI of Malaysia and Bhageeratha Constructions, with a take-it-or-face-the-consequences kind of ultimatum.

What comes across as one takes a close look at the project implementation is the manner in which the Public Works Department (PWD) failed to respond to the demands of the ambitious project and the mysterious manner in which payments due to the contractors got delayed. One middle-level IAS official has already paid somewhat of a price for it, but there is enough circumstantial evidence to suggest foul play at a higher level.

It is clear that the State Government, particularly the PWD, was not prepared in terms of attitude or logistical capabilities for a project of this magnitude. As approved by the World Bank, the total project cost stood at 336 million U.S. dollars (Rs.1,613 crore) of which 24 per cent or 81 million U.S. dollars (Rs.388 crore) was to be borne by the State Government. The delay in completion of the project is almost certain to take Kerala's share to Rs.2,000 crore, something that the State Budget cannot bear, as had been pointed out by the Finance Department in late 2005.

There are two main reasons for the delay, the failure on the part of the State Government to make the necessary extent of unencumbered land to the contractors on time and the cash flow management problems that have dogged the contractors. While this may, on the face of it, make one think that the Government and the contractor are to share the blame for the delay equally, the fact appears to be otherwise. As recent incidents suggest, the fault might lay more on the part of the Government and the PWD than on the contractor. The Government has still not handed over the total extent of unencumbered land to the contractor, but that does not take the blame away from the latter because there was some sincere attempt on the part of the Government in mid-2005 to address this issue and sufficient land to carry out the work was handed over to the contractor by November last year.

The problem lay elsewhere and it had to do with making prompt payments to the contractor. Although the PWD under the United Democratic Front (UDF) regime had no hesitatio
n in granting extension of the deadline for completion of the project, it defaulted in making payments to the contractor. This resulted in the contractor putting the Government on notice under terms of the contract for possible stoppage of work. This happened not once, but several times, the latest such notice taking effect on November 16. How and why the PWD failed to make payments on time and whether this part of a design, as is being suspected by even some within Government, is the stuff that any detailed examination of the project's future would have to take into account. The World Bank is clearly annoyed by the manner in which the State Government has handled the project.

With little initiative coming from the PWD, the Finance Department may well have to step in decisively to straighten out matters because it will have to find the money to pay up the bills as and when they come home. But it will be able to do so only if it is able to keep the PWD on its side, particularly given compulsions of coalition governance. The road ahead does not appear to be straight or smooth for the Government and it might call for tact, a little bit of guile and tremendous amount of determination to see the project through.