Business

Wednesday May 6, 2009

‘Cheap loan’ for water project tied to award of jobs to Japanese

By C. S. TAN


A question of need for the Japanese

PETALING JAYA: The predominance of Japanese contractors in the RM1.3bil Pahang-Selangor Raw Water Tunnel project raises the question of the need for them as well as a large yen loan from the Japanese government.

The whole inter-state water transfer project has been estimated to cost a total of over RM8bil, of which about half would be financed from a “cheap loan” to the Malaysian Government by the Japan Bank for International Cooperation (JBIC).

The soft loan, which would carry an interest rate of about 1%, is understood in the industry as being tied to a condition that Japanese contractors be awarded substantial portions of the project.

Hence, the main contractor for the transfer tunnel is a consortium in which Japanese contractors, Shimizu Corp and Nishimatsu Construction Co Ltd, have an interest of 30% each – a majority of 60% – while IJM Corp Bhd and UEM Builders Bhd have the balance of 40%, that is 20% each.

It is understood that the Government pre-qualified only three consortia to bid for the tunnel contract, and all three were led by Japanese contractors.

While the Shimizu-led consortium won through its lowest bid, it was not through an open tender as the project was designated for Japanese contractors.

The industry expects that Japanese contractors would also lead the bids to construct the RM3bil Kelau Dam in Pahang, a component of the water transfer project, because it will also be financed by a soft loan from JBIC.

Industry sources question the need for the yen loan at a time when the banking system is so liquid.

This is different from the liquidity crunch at the time of the Asian financial crisis in 1998 when the loan was first discussed.

Analysts describe the yen financing as a cheap loan.

It, however, exposes the Government to unfavourable movements in the exchange rate of the yen.

Furthermore, while the loan may be “cheap,” the construction cost may be high because the major jobs will be bid exclusively by Japanese-led consortia, rather than an open bid by qualified Malaysian contractors.

Analysts, however, point to the heavy financing required for the Government’s stimulus programmes.

Kenanga head of research Yeonzon Yeow said the loan would be of such long tenure it would be akin to a foreign direct investment or FDI.

In addition, Shimizu has the tunnel boring machine whereas Malaysian contractors would have to buy it if the Japanese were not involved. “It’s a difficult job that’s not been done by Malaysians before. The Japanese are needed anyway for their equipment and expertise,” he told StarBiz yesterday.

An industry source said the yen loan was agreed on a government-to-government basis during the Asian financial crisis period “and it will not bring goodwill to say we don’t need it now.”

It is understood the water treatment plant that will be sited in Selangor will be financed locally and as such, Japanese contractors will not be involved.

This is also a sizeable element in the water transfer scheme, with the plant estimated to cost over RM4bil.

Notwithstanding various views on the contract award, analysts are hopeful the award of the transfer tunnel job is indicative that the new Cabinet will accelerate construction job awards under the stimulus programmes and the Ninth Malaysia Plan.

Not least, Selangor may face a water shortage in a few years if facilities to transfer raw water from Pahang are not put in place.

Construction of the transfer tunnel is a step towards averting that.

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