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Thursday, November 13, 2008

West Coast highway project deferred

PUTRAJAYA: The RM3.12 billion West Coast highway project, first slated to take off 10 years ago, has become a victim of the credit crunch as its concession holder was unable to get financing to implement the project.

This is the second time the highway project has run aground. The first time was in 1998 when the Asian financial crisis struck.

“The project may be shelved... it may also be opened for re-tender,” said Tan Sri Dr Sulaiman Mahbob, director-general of the Economic Planning Unit (EPU), at a briefing and panel discussion held by the department yesterday.

Sulaiman said the West Coast highway project had been deferred because its concessionaire Konsortium LPB Sdn Bhd could not secure financing for the project.

Konsortium LPB is 60% controlled by Kumpulan Europlus Bhd (K-Euro), which in turn is 25% owned by construction giant IJM Corp Bhd. IJM bought the stake in K-Euro in August 2007 for RM33.1 million, three months after Konsortium LPB signed the concession agreement for the highway project with the government.

The West Coast highway is a key project for K-Euro besides the Canal City property development project in Selangor, which has yet to start.

Analysts said the deferment of the West Coast highway project did not augur well for K-Euro’s prospects. Being a shareholder, IJM may not be able to see good returns from its investment in K-Euro following the latest development.

“But one consolation is that IJM’s investment in K-Euro was not a big sum,” an analyst noted.

The proposed highway, which is the second longest in the country, links Banting in Selangor and Taiping in Perak. It has encountered stumbling blocks ever since it was first awarded in 1998.

Since then the prospects of the project had become cloudy as K-Euro itself had financial difficulties. However, the entry of IJM had raised hope the project would secure the necessary financing and commence soon after the concession was signed in May last year.

But luck, it seems, is not on its side as the US credit crunch contagion has resulted in difficulties for project financing.

In addition, some analysts also have doubts on the viability of the West Coast highway project. While the rise in building materials prices has elevated the costs above the original budget of RM3.12 billion, there are concerns over the likelihood of low traffic volume on the proposed highway.

Commenting on other mega public projects, Sulaiman said that Phase I of the inter-state water transfer project between Selangor and Pahang had already opened for tenders.

“Tenders have been called for the project. It will be financed by bank loans from Japan,” he added.

“The double-tracking project is still on although there are some deferments on certain parts of the project,” Sulaiman said. As for the Second Penang Bridge, he noted that the government was in the midst of finalising the terms with UEM Builders Bhd, one of the main contractors.

Going forward, he said the government would focus on promoting projects that had high local content to drive domestic economic growth.

By The EDGE Malaysia (by Kathy Fong)

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