Wednesday November 5, 2003 - The Malaysian government's intention to dealdirectly with the Indian and Chinese governments in the controversy overthe award of its double-track rail project will not jeopardise theposition of the MMC-Gamuda consortium, in terms of proceeding with theRM14.5bil job.

Industry sources familiar with the deal told StarBiz yesterday that theremoval of any party given such a contract by the government would beunprecedented and although the MMC-Gamuda consortium had yet to sign acontract agreement with the government, the letter of award (LoA) itselfwas a legally binding agreement.

The award of the LoA to MMC-Gamuda on Oct 21 has stirred up a storm ofcontroversy, with various parties claiming that they have beenshort-changed over the deal.

The most aggrieved party is probably India-based Ircon International Ltda company that is much smaller than Gamuda in terms of turnover, profit,order book and net worth and has brought its unhappiness over the awardof the contract to MMC-Gamuda to the attention of the Indian government.

China Railway Engineering Corp (CERC), which is several times larger thanGamuda in terms of turnover, has been relatively quiet.

Industry sources point out that the government had been fair in itsdealing with both Ircon and CERC, saying they were offered the right tomatch MMC-Gamuda's RM14.5bil price tag to construct the railway before thejob was given to MMC-Gamuda. Both parties, however, declined the offer.

Ircon and CERC had originally told the Malaysian government that it wouldcost about RM42bil to build the railway, and subsequently lowered it toRM30bil just before MMC-Gamuda lodged their RM14.5bil bid with thegovernment.

The price quoted by the foreign companies was later cut to RM23bil, andafter being given two more chances to cut their price, they lowered it toRM19.7bil.

The government's statement of needs throughout the negotiations, however,did not change.

Sources say the government, which had a non-binding letter of intent withIrcon and CERC, notified both parties that it would be awarding theproject to MMC-Gamuda a day before the LoA was issued.

Even though the government gave the contract to the MMC-Gamuda consortium,Ircon and CERC were given the first right of refusal to be appointed assub-contractors.

MMC-Gamuda, after the Deepavali weekend, gave those companies three daysup to noon Oct 30 to accept its terms as sub-contractors, a timelinesources said was sufficient for them to make a commercial decision, giventhe familiarity of the project to those companies.

Ircon and CERC could have sealed the job if they had agreed to build therailways at a discount of slightly less than 10% to MMC-Gamuda's RM14.5bilprice, sources said.

Industry sources say Ircon and CERC had acknowledged receipt of the offerfrom MMC-Gamuda and had 14 days to put an earnest deposit with MMC-Gamudaif they had accepted the sub-contractor's job.

Although government consultants said it would cost about RM17bil tocomplete the double-tracking project, sources said MMC-Gamuda was able toquote a lower price because it understood the market conditions and justhow much it would take to build those tracks.

The risk of MMC-Gamuda not completing the double tracking project withinthe stipulated time is huge, as the consortium would have to pay a penaltyof RM95mil for every month the project is delayed.

The contract between the government and MMC-Gamuda is expected to besigned within the next few weeks.

Industry sources also said a new lower bid from another Malaysianconsortium was probably just for the civil works aspect of the project,and may not have included the cost of system works.