Saturday, August 13

‘Kuching ART, Pan Borneo Highway not affected’

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According to Mustapa Mohamed, only projects that have not started the procurement process and not been advertised would be shelved, and this does not include projects such as the Pan Borneo Highway and Kuching ART projects.

 

KUCHING: Projects such as the Kuching autonomous rapid transit (ART) and Pan Borneo Highway will likely not be affected by the federal government’s austerity measures to optimise public expenditure by deferring or cancelling development projects that have yet to commence, analysts opine.

AmInvestment Bank Bhd (AmInvestment Bank) highlighted in its construction sector update that the eroding operating profit margins is a result of elevated building material cost and potential delays or cost revisions of mega projects.

“The government’s fiscal position has been weighed down by the economic impact of the pandemic and massive relief spending to cushion the consequences,” the research firm noted.

“The Finance Ministry projected that consumption subsidy expenditure will reach RM77 billion this year, exceeding the RM31 billion allocation approved in Budget 2022.

“To reallocate financial resources for the subsidy bill, the government is currently taking austerity measures to optimise public expenditure by deferring or cancelling development projects that have yet to commence. So far, 30 projects worth RM100 million have been identified.

“According to Datuk Seri Mustapa Mohamed, Minister in the Prime Minister’s Department (Economy), only projects that have not started the procurement process and not been advertised would be shelved.

“As such, we believe that projects such as the MRT3, Kuching ART, East Coast Rail Link, RTS and Pan Borneo Highway would not be affected.”

Also, as the national debt remains elevated, AmInvestment Bank believed the rollout of public infrastructure projects will most likely adopt a private funding initiative.

The research firm noted that this would reduce the immediate capital outlay from the government.

“However, this would also mean that the main contractors would be required to take on higher risks to participate in the funding of projects.”

On raw material prices, AmInvestment Bank believed that it would remain high due to global economic uncertainties and geopolitical conflicts.

The research firm noted that although steel bar price fell nine per cent to RM3,205 per metric tonne (MT) in July 2022 from a peak of RM3,525 per MT in April/May 2022, it is still 19 per cent higher than RM2,700 per MT in January 2021.

“Meanwhile, cement price has risen by one per cent year to date (YTD) in central peninsula, eight per cent in Kota Kinabalu, and 14 per cent in Kuching since January 2022.

“The government had reintroduced the variation-of-price (VOP) clause, which helps contractors manage rising building material costs for government contracts. However, most private projects do not have such provisions.

“While contractors are able to incorporate the rising cost for new tenders in the form of increased contract values, the higher cost would still lead to lower operating profit margin and higher working capital requirements.”