Despite all the headwinds surrounding the economy, one sector which is still growing strong is construction.
According to statistics released by Bank Negara Malaysia (BNM) on economic growth, the construction sector grew by 9.9 per cent in the third quarter of 2015 (3Q15).
This growth rate has outpaced other economic activities for instance, mining which registered a growth of 5.3 per cent followed by manufacturing (4.8 per cent), services (4.4 per cent) and agriculture (2.4 per cent).
Over the past few years, the construction industry has been consistently posted double digit growth rate.
As a matter of fact, Minister of Works Datuk Seri Fadillah Yusof observed that the construction industry, which is one of Malaysia’s fastest growing industries, has recorded double digit growth over the last few years.
“This is expected to continue being an important driver for the economy and a key generator of skilled jobs for Malaysians as we progress towards a high income nation,” he said.
Similarly, Construction Industry Development Board’s (CIDB) chairman Tan Sri Dr Ahmad Tajuddin Ali said, “We are already seeing intense demand for infrastructure development such as in Sarawak and Sabah with the Pan-Borneo Highway as well as for more efficient urban transportation.
“Going forward, major projects planned make construction become even more critical as our country further develops towards a high income status,” he believed.
With the implementation of several mega projects especially the Pan Borneo Highway in East Malaysia, the construction sector is expected to remain vibrant.
Already, tenders for several work packages has been called and come next year, the award of those packages will boost the momentum for the mega highway project.
Eye on Pan Borneo Highway Sarawak
According to Lebuhraya Borneo Utara Sdn Bhd (LBU), the Project Delivery Partner (PDP) of the highway project, work on Phase 1 of the highway is progressing.
After the project was officially launched by Prime Minister Datuk Seri Najib Tun Razak, LBU said the initial construction known as the kick-off project began along a 43km stretch from Jalan Nyabau to Jalan Bakun junctions at Jalan Miri-Bintulu in April 2015.
The company estimated that construction of this portion of the highway will take 30 months until early 2018.
Included in the works is adding another two-lanes to make it a four-lane dual carriageway while some route will undergo re-alignment to avoid existing structures and improving the road gradient and route.
Four old bridges will also be replaced.
LBU chief executive officer Safuani Abdul Hamid said the Pan Borneo Highway Sarawak – when completed in 2021 – will be 1,089km in length from Telok Melano (near Sematan) to Merapok (near the Sabah-Sarawak border).
“Whilst Sarawak’s main trunk road federal route 1 already exists, development and upgrading works on this trunk road will change the mainly two-lane single carriageway of JKR R3 standard into a four-lane dual carriageway of JKR R5 standard design Pan Borneo Highway Sarawak,” he told BizHive Weekly in an e-mail interview recently.
He said road users can expect to travel on 3.5 metre wide lanes, making it a wide 7 metre for each carriageway with a four-metre median separating the traffic travelling in different directions with the R5 standard road – a high standard or category of road.
There will also be five-metre wide pavements on either side of the highway, he added, in which two metres will be paved as an emergency lane. Another two metres remain unpaved before the one-metre verge.
The highway will have a design speed of an average of 100km per hour on flat terrain, 80km per hour on rolling terrain and 60km per hour on mountainous terrain.
As a whole, Safuani described the development and upgrading of Pan Borneo Highway Sarawak consists of the kick-off project from Jalan Nyabau to Bakun junctions (43km), Telok Melano to Sematan (33km), Phase 1 from Sematan to Miri (784km) and Phase 2 from Kuala Baram (Jalan Perlis) to Sg Tujuh, Limbang, Lawas area (96km).
“Next year, 2016 will be a milestone year when we expect to begin works on 10 works packages along Sematan to Miri,” he explained.
“On average, work packages will be between 60-90km in length.
“A key element and desire of the government is to involve as many local contractors, vendors and suppliers in the implementation of this mega project.”
Sarawakians to benefit from projects
Safuani added his belief that Sarawakians benefit fully from this project both directly and indirectly.
“The multiplier effect of a highway on the economy is said to be three to four times. In Sarawak, which still has many rural areas, the multiplier effect maybe even higher.
“Added to this is the fact that a billion-ringgit project of this magnitude and complexity with a tight timeline for delivery by the government means that we have to work with qualified, experienced partners who can ensure delivery of the highway within the specified quality, time and cost,” he outlined.
With the above criterias, Safuani said LBU defined a pool of pre-qualified main works contractors that comply with the technical and financial requirements for the works.
He pointed out that only those who are pre-qualified will be invited to bid for tenders.
Apart from that, LBU also sought to pre-qualify companies for the supply and delivery of major construction materials for instance, pre-mix (asphaltic concrete), ready-mix concrete, crushed aggregates for roadworks, sand-fill for roadworks and steel reinforcement.
LBU has called for requests for proposals (RFP) for utility relocation works which involves electrical power transmission and distribution lines, water pipes, telco lines and cables and gas pipes along the whole route across Sarawak.
In the meantime, the response from the market to the pre-qualification of contractors exercise was well received.
He revealed that the preference was to engage Sarawak companies which met the technical and financial criteria set.
For instance, he said for Category 1, companies needed to have a minimum net worth of RM30 million plus the relevant experience at undertaking large-sized road construction projects.
He noted that few Sarawak companies have all that criteria so joint-ventures (JV) and consortiums with companies from Peninsular Malaysia are allowed.
“However, the Sarawakian company must lead. It must represent at least 70 per cent of the total equity in the JV.
“Some may argue that these are difficult criteria to meet but it is important that we engage qualified partners who can deliver and more so, partners that are Sarawakians,” he said.
Packages in detail
When queried further on works for Pan Borneo Highway Sarawak which will start next year, Safuani said a total of 10 works packages will begin from Sematan to Miri.
He said in the first quarter of 2016 (1Q16), LBU targets to commence work along Serian roundabout to Pantu junction and Bintangor junction to Julau junction as well as from Sibu airport to Sg Kua bridge.
Safuani believes the Telok Melano to Sematan and Phase 1 works from Sematan to Miri are expected to be completed by 2021.
Nonetheless, he disclosed that details of Phase 2 which covers Kuala Baram to Sg. Tujuh Limbang as well as Limbang and Lawas areas are still being scrutinised and have yet to be finalised.
He believes Phase 2 of the highway project will begin in 2018 and is expected to be completed in 2021.
“With a two-year defects liability period, the whole Pan Borneo Highway Sarawak is expected to be fully ready by 2023,” he explained.
Similarly, Najib believed the Pan Borneo Highway would be a ‘game changer’ that serves as a catalyst for development throughout the 1,089 km stretch.
“Connectivity through the highway will enable the people to travel from one point to another faster and at the same time, bring forth economic growth as well as more robust economic activities,” he said.
“I can visualise the impact the Pan Borneo Highway will have on the state with new developments along the stretch that will enable the people of Sarawak to have business opportunities and earn an income that they have never dreamt of prior to this.
“I can imagine that when this project is finally completed, there’s no doubt that Sarawak will be transformed from what it is today,” he said.
More projects in the pipeline
Besides the Pan Borneo Highway Sarawak, a few other road projects are also expected to be implemented and are progressing which will increase the construction job flow over the medium term.
Those include the building of an underpass at Petra Jaya roundabout, construction of a dual-carriageway road linking the E-Mart roundabout in Jalan Matang with Jalan Stapok in Batu Kawah, Kuching and upgrading of Mile 10-15 Kuching-Serian Road.
Fadillah, during a recent launching of the upgrading of Mile 10-15 Kuching-Serian Road said, “The 10th to 15th Mile single carriageway had been bottleneck for many years even though mile 15th road from Kuching to Serian Town had been upgraded to dual carriageway in 2005.
“The upgrading of this project has been long outstanding and its implementation was approved in 2014 by the federal government,” he said.
Fadillah explained that the project took a longer time to start due to many challenges such as the reserve land for expansion was small and the relocation of many utilities infrastructure that had been laid down along the stretch due to rapid development in the area.
He revealed that it was after an in-depth research by state and federal Public Works Department that all problems were resolved and a proper design was drawn for the upgrading in which the site was handed over to the successful contractor on November 10 this year.
Having said that, Sarawak’s Infrastructure Development and Communication Minister Dato Sri Michael Manyin Jawong during the recent State Legislative Assembly (DUN) sitting revealed that the Kanowit-Kapit road project would be completed by 2018.
“We are optimistic that the whole Kanowit-Kapit road would be fully completed on schedule,” he said.
He disclosed that to date, 55.6km of the 101.2km Kanowit-Kapit road has been completed.
Manyin believed the remaining 45.6km is under various stages of implementation under five separate packages.
He noted the Sungai Kanowit Bridge and Approach Roads project involving 2.6km which started on Dec last year is progressing at 23.64 per cent and is expected to be completed by June 2017.
Manyin added Package 1 of the 5.5km Jalan Song or Sungai Yong project inclusive of the 360m Sungai Katibas bridge has commenced on Sept 2014 and targeted for completion by March 2017.
On a large picture, the construction sector in Sarawak is estimated to grow by 6.4 per cent in 2016 with the implementation of the projects under the 11th Malaysia Plan (11MP).
Recently, Finance Minister Tan Sri Datuk Patinggi Adenan Satem when tabling the state 2016 Budget in DUN said RM5.97 billion which is for development expenditure will be used to build roads, drainage, telecommunication, electricity and water supply to improve the livelihood of the rural people.
Some of the major projects which are going to be implemented, he said, include the on-going construction of the Pan-Borneo Highway, the new Mukah Airport, Kuching Waste Water Management System Package 2 and upgrading of Batu Kitang Water Treatment Plant.
RM571.8 million will be for implementing various road and bridge projects to further improve connectivity in the state, he said.
Adenan revealed the projects include Kuala Serupai or Kuala Tatau Road, Bintulu; bridge over Kuala Tatau at Kampung Seberang, Bintulu; road network and drainage system for Samalaju New Township; Sungai Sibuti Bridge and acess road, Bekenu, Miri; bridge across Sungai Bako, Kuching; and Long Lama Bridge across Batang Baram, Miri.
“The state government will continue to extend coverage of water supply especially to the rural population.
“A sum of RM260.7 million is provided in 2016 for the implementation of various water supply projects.
“The projects include Miri Water Supply Source Development; Pipeline Replacement at Lawas Town Area and Sundar or Awat-Awat; Simunjan Raw Water Source Development and Sungai Asap Water Supplies,” he said.
Boost in other related sectors
Adenan added major projects for agriculture development to be implemented consist of crop industry development that encompasses sago, rubber, paddy, coconut, fruits and herbs; construction of Lubok Antu palm oil mill; and various oil palm plantation projects in Sri Aman, Sarikei and Serian.
“To further develop industrial estates, a sum of RM71.7 million will be provided for the implementation of projects such as BioValley Satellite, Miri; Samajaya Free Industrial Zone, Kuching; Demak Laut Industrial Park, Kuching; Sibu Industrial Estate and Samarahan Industrial Estates.
“(Besides), the government targets to build 2,396 units of Rumah Mampu Milik (RMM) and Rumah Mesra Rakyat (RMR) at a total cost of RM231.7 million for the next five years.
“To complement the allocation provided by the federal government in 2016, a sum of RM57.87 million is proposed to carry out several projects.
“The projects include the construction of 236 units of RMM, construction of 148 units of RMR and implementation of 18 Kampung Extension Scheme in Kuching, Sri Aman, Miri, Limbang, Kapit, Samarahan, Mukah and Betong,” Adenan said.
Additionally, Adenan said the state government will step up its human capital development with priority to technical education adding that a sum of RM165.6 million will be set aside to carry out two projects.
He said the projects are the construction of education institutions such as Pusat Pembangunan Kemahiran Sarawak (PPKS) Mukah and Tabuan Jaya and Kolej Laila Taib; and Centres of Technical Excellence (Centex) in Kuching, Lundu, Bintulu and Lawas.
“In line with our continuous efforts to enhance the public service delivery, a sum of RM85.1 million is proposed to build new as well as to replace old government administrative centres, offices and quarters in the state,” he disclosed.
Apart from that, the Education Ministry will be building a total of 42 new schools in Sarawak at a cost of approximately RM1.3 billion under the 11th Malaysia Plan.
Education Minister Datuk Seri Mahdzir Khalid recently said his ministry had taken steps to ensure that suitable lands were identified to build the schools.
He stated construction of new schools was part of his ministry’s effort to increase the number of education facilities in the state.
Mahdzir noted besides being responsible for the construction of new schools, upgrading and maintenance of schools, the Education Ministry also need to ensure that all school throughout the country are equipped with facilities.
Moreover, he said repair works for schools which is in poor condition in Sarawak as highlighted in the final series of the 2014 Auditor-General’s Report would be done in phases
Realising the importance of the construction industry and its multiplier effect, the government has formulated the Construction Industry Transformation Programme (CITP) (2016-2020) to chart its future direction.
Dr Ahmad Tajuddin said the CITP encapsulates the national collaborative efforts required for the continued growth and success of the Malaysian construction industry.
He believed demand for construction in Malaysia is expected to grow further as the country’s economy continues to expand.
“The expected growth is evident in the Eleventh Malaysia Plan (11MP) that estimates the construction industry to expand by 10.3 per cent per annum over the next five year period.
“The growth will come from the increasing demand for housing, especially for the middle income group as well as continued investments into large-scale projects such as new power plants, highways, urban transportation systems, ports and airports.
“These demands will translate into the need to supply better quality homes, more efficient buildings as well as more sophisticated infrastructure especially for our towns and cities.
“We will see a greater number of foreign investors, construction players, professionals and consultants interested in Malaysia – bringing along with them specialised skills and technology.
“We will see the marketplace becoming even more competitive for both local and foreign players,” he envisaged.
Moving on to the 11MP, Najib when presented the plan in May 2015 said the government will build an additional three thousand kilometres of paved roads in the rural areas during the period 2016 to 2020.
He added the government will expedite the completion of a hospital in Sri Aman besides upgrading Miri Hospital.
Najib also said five new schools in Sarawak will be built within the first two years of 11MP for primary and secondary education.
On another development, Communications and Multimedia Minister Datuk Seri Dr Salleh Said Keruak was reportedly said another project that will be implemented in Sarawak is the 1Malaysia People’s Cable System (SKR1M) that involves the construction of a new submarine cable network connecting Peninsular Malaysia with Sarawak and Sabah.
“Four submarine cable links will be built in Mersing, Kuching, Bintulu and Miri starting in the second quarter of next year.
“As for phase two of the High Speed Broadband (HSBB) project to widen the coverage of the high speed broadband with speed of up to 100Mbps un urban areas, a total of 34,566 ports would be made available this year.
“As for the Sub-urban Broadband (SUBB) project to upgrade the broadband acess speed of up to 20Mbps in the sub-urban areas, a total of 21,664 ports would be made available this year,” Salleh said.
He added another 85 telecommunication towers were in the planning stage while a total of 149 telecommunication towers had been built in Sarawak.
Salleh revealed that the federal government through the Malaysian Communications and Multimedia Commission (MCMC) has allocated RM450 million for the construction of telecommunication towers in Sarawak.
Review on projects under 10th Malaysia Plan
According to the Ministry of Works (MOW), there were a total of 34 projects which were being implemented under the 10th Malaysia Plan (10MP) for Sarawak at a cost of RM3.52 billion.
They were 17 projects for road construction including two projects for Pan Borneo Highway at a cost of RM2.32 billion; 15 projects for bridge building (RM730.53 million); one programme for construction of 24 overtaking lanes (RM220 million) and one programe for upgrading of Pan Borneo Highway which involve various scope of works at RM245.5 million.
Besides allocating funds for road construction and bridges, the MOW also channelled funds for repair and maintenance of federal roads and bridges in Sarawak.
The ministry revealed that from 2011 to 2015, the development allocation was RM1.27 billion while for maintenance was RM483 million.
Looking ahead in the 11MP, MOW observed that there are 45 projects which have been submitted for construction in Sarawak.
Out of the 45 projects, 18 projects were to be continued from the 10MP, while there are 26 new projects applied to the federal central agency to be implemented in 11MP and one for the construction of Pan Borneo Highway which consist of 11 work packages.
For 2016, a total sum of RM1.28 billion has been approved for the implementation of various projects in Sarawak from an amount of RM3.47 billion which has been applied.
This include RM1 billion for the construction of Pan Borneo Highway and the remaining RM280 million for the construction of federal roads and bridges.
Under the first Rolling Plan of the 11MP, 15 projects have been approved out of the 18 projects which have been applied.
Nonetheless, the MOW said it has appealed to the Finance Ministry for a few new projects to be given approval under first Rolling Plan of the 11MP.
Those projects include the construction of Batang Rambungan Bridge at Matang which involve a cost of RM130 million, Batang Igan Bridge at Mukah at a cost of RM350 million and a flyover at Jalan Medan-Jaya-Jalan Tun Hussein Onn, Bintulu at a cost of RM120 million.
The MOW stressed that it remains committed to ensure the new projects which include the Pan Borneo Highway construction under the 11MP will be implemented according to proper specifications and guidelines.
Prospects of Construction Sector
Analysts believed the construction sector will be in a ‘sweet spot’ for growth for years to come.
Buoyed by the construction of mega projects worth billion of ringgits coupled with infrastructure development in rural areas, the construction industry could be regarded as the ‘darling’ of growth in the near future.
UOB Kay Hian Reseach, the rsearch arm of UOB Kay Hian (Malaysia) Holdings Sdn Bhd said the national Budget 2016 announcement in October 2015 indicated that the construction sector would continue to be the focus for the government, particularly to fulfil part of the Economic Transformation Programme (ETP).
The research firm in its 2016 Strategy Report recently said potential major contracts are large enough to support earnings growth in the sector for at least another three to four years.
Also, the research firm opined most of the key companies within its coverage still have ample orderbooks, which can be able to sustain earnings should the award of those projects be delayed.
“We expect construction companies under our coverage to report 11-13 per cent earnings growth in 2016 underpinned by healthy construction books.
“So far, outstanding orderbooks for each company stand at healthy levels of RM1 billion to RM7 billion, implying 0.9-4.1 times of their respective last financial-year revenues.
“Although the bulk of construction spending is government-funded, the private sector still plays a somewhat prominent role.
A few notable projects are expected to kick off soon, which would further provide the sector with near-term job catalyst,” the research firm observed.
UOB Kay Hian Research added, “We think the construction sector will continue to be attractive as new jobs are expected to be awarded in 2016 and possible expansion in construction margins as prices of raw materials are at low levels.
“Prime beneficiaries in the sector are mid-sized and large-capitalisation construction companies, which are expected to receive a large chunk of the upcoming orders.
“The solid pipeline of projects should propel strong construction orderbook replenishment going forward, which in turn would sustain and support the construction sector’s earnings growth momentum.
Furthermore, the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) in its 2016 Strategy Update noted the immediate sequential effect from Sarawak’s 2016 Budget would be on infrastructure development for connectivity of road and bridges amounting to RM571.8 million as well as RM260.7 million allocation for water treatment for Kuching and rural areas.
The research firm believed the construction sector will experience a game-changing effect in the application of latest technology and techniques to realise the policies in the ETP and Government Transformation Programme (GTP).
It observed the application of latest technology and techniques include specialised structural steel fabrication for upstream oil and gas, international standard-compliant transit routes and transport infrastructure, railway engineering and sub-structure piling, industrial building system and pre-cast concrete materials.
On top of that, the CITP which was launched in September 2015 aimed to further deepen the application of latest construction technology and standards in Malaysia.
“Thus, we expect the sector to continue to grow higher than the projected economic growth for next year,” MIDF Research forecasted.