Newsbreak: Prasarana seeking to replace George Kent in LRT3?

TheEdge Mon, Dec 21, 2020 04:00pm - 2 months ago

PRASARANA Malaysia Bhd, the agency entrusted with the development of the light rail transit (LRT) and intra-city public bus systems in major cities in Peninsular Malaysia, is said to be seeking to replace George Kent (M) Bhd as the joint-venture (JV) partner for the turnkey contractor package of the LRT3 project.

MRCB-George Kent Sdn Bhd (MRCB-GK) is a JV company between Malaysian Resources Corp Bhd and George Kent that has been appointed by Prasarana to undertake the design and construction work of the LRT3 project.

According to sources familiar with the matter, Prasarana is said to have issues with the performance of George Kent.

“Prasarana is looking to replace George Kent as the JV partner. After the change of government in 2018, and the revocation of the project delivery partner (PDP) contract with MRCB-GK by the government, the project has been held back.

“Among the issues holding back the project is the renegotiation of the work packages with the subcontractors. While this is not exactly the fault of George Kent, Prasarana is looking to have a greater say in the construction of the project,” says one of the sources.

When contacted by The Edge, a Prasarana spokesperson asked that questions regarding LRT3 be directed to MRCB-GK. MRCB-GK did not respond to a question on the speculated departure of George Kent, providing only progress updates on the project.

A George Kent spokesperson also did not respond to queries from The Edge.

Another source close to the turnkey contractor says MRCB is agreeable to George Kent being replaced as its JV partner. This stems from a disagreement between the partners regarding the funding of the construction works.

In August last year, George Kent served a notice of arbitration on MRCB over a dispute on financing requirements for MRCB-GK.

“George Kent and MRCB have a difference of opinion in the interpretation of certain provisions of the shareholders agreement [SHA] with regard to the options for securing of the financing requirements for the JV company,” George Kent said in a filing with Bursa Malaysia on Aug 13, 2019.

“George Kent has, in exercising its rights under the SHA, referred the matter to arbitration to seek certain declarations as to the interpretation of those provisions,” the group said in the announcement.

In an announcement on Aug 15, 2019, George Kent clarified that under the SHA, the working capital requirements of the JV company shall be obtained firstly by the retained earnings of the company.

If the first option is not enough, the JV company can then obtain borrowings and credit facilities from third parties including financial institutions, and lastly by the issuance of new shares or loans by the parties proportionate to each shareholder’s holding of ordinary shares in the JV company.

Since that announcement, George Kent has not provided updates on the arbitration.

MRCB and George Kent signed the SHA on June 8, 2015, setting up their JV on a 50:50 basis. The issued and paid-up share capital of the JV company is RM10 million.

On Sept 4, 2015, Prasarana appointed the JV company as the PDP for the LRT3 project. However, the Pakatan Harapan government revised the PDP contract worth RM16.63 billion to a fixed-price contract worth RM11.4 billion, which was signed by MRCB-GK on Jan 25, 2019.

Since then, MRCB-GK has been renegotiating the work packages with the main contractors of LRT3. The main work package contractors include Sunway Construction Group Bhd (SunCon) and Gabungan AQRS Bhd.

Some officials who are close to the work package contractors say the renegotiation took too long. A revised contract was only signed between MRCB-GK and SunCon in August this year, although SunCon continued with the construction even while the contract was being renegotiated.

Some contractors have found the revised work packages no longer profitable or attractive enough for them to continue, say the sources.

Meanwhile, MRCB-GK project director Patrick Hwang Chee Leong says the overall construction progress for LRT3 was at 43.24% as at Nov 30.

“During the Movement Control Order (MCO) from March 18 to May 3, all non-­essential business activities, including LRT3 construction activities, were disrupted. With the implementation of the Conditional MCO, the project’s operations resumed on a more limited scale.

“Assessing the new normal’s overall impact on the project is an ongoing effort. We are still working towards the project’s scheduled completion in 2024,” says Hwang in response to questions sent by The Edge last Friday.

LRT3 is not the first public rail transport project undertaken by George Kent. In August 2016, a JV between George Kent and China Communications Construction Co Ltd won a work package for the Mass Rapid Transit Putrajaya Line worth RM1.01 billion.

In July 2012, Prasarana awarded George Kent-Lion Pacific the engineering, procurement, construction and commissioning contract for the LRT Ampang Line extension project.

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