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Monday, September 01, 2008

Auditor-General Report: Bakun dam comes under fire

The Auditor-General’s Report 2007 has criticised the construction of the controversial Bakun hydro-electric dam project, which saw its cost ballooned from an initial RM4.5 billion to RM7.5 billion.

AG Ambrin Buang has urged the Finance Ministry and Sarawak Hydro Sdn Bhd (SHSB) - the company tasked to build the dam - to take action to ensure the project is completed on time and not incur any extra cost anymore.

“It is recommended that the Finance Ministry, especially the Finance Ministry Incorporated and SHSB to act more firmly and pro-actively to ensure that the contractor complete the project on time,” he said in the 858-page report tabled to Parliament yesterday.

The AG’s criticism came as a fresh blow to the project, which has already attracted fierce criticism because of its harmful impact on the environment while some 10,000 residents have had to evacuate the project site.

The 2,400-megawatt Bakum dam project involves flooding an area the size of Singapore.

A total of RM3.91 billion, out of the estimated RM7.5 billion cost, has been spent for the project as at the end of last year, according to the report. The project is due to be completed in 2010.

RM510.8m compensation request

In the report, the AG pointed out various financial management weaknesses of the project.

Topping the list is the construction of the main damn, which was awarded to the Malaysia China Hidro Joint Venture (MCHJV) (see chart) and worth RM1.79 billion - the biggest contract in the overall project.

Among the weaknesses noted by the AG’s report include:

- An additional RM708 million was approved by the Finance Ministry although the contract has clearly stated that any risk for additional cost should be borne by MCHJV.

- The package for the building of the main dam should be completed by September 2007 but it was given an extension until June 2010. Among the reasons for the delay was that there were 16 variation orders issued.

- The failure of MCHJV to complete the work on schedule has resulted in the contractors for the electro-mechanical works to demand for a sum of RM510.8 million in compensation. As of Dec 31, 2007, a total of RM100 million were approved by SHSB to be paid to the contractors.

- The failure of SHSB to pay MCHJV according to the formula as stipulated in its contract resulted in SHSB failing to collect RM9.02 million, which was transacted in US currency.

Despite the weaknesses, the AG noted that the construction of the diversion tunnel and cofferdam were carried out according to the terms of the contract.

The construction of the Bakun dam has a long history. The project was initially awarded to Sarawak-based Ekran Berhad and was to be built through privatisation.

However, it was taken over by the Finance Ministry Incorporated in Nov 1997 due to the economic downturn and Ekran no longer keen to carry out the multi-billion project.

In Jan 1998, the cabinet agreed to hand over the project to SHSB, a fully-owned subsidiary of the Finance Ministry Incorporated.

More recent in Nov 2007, the government has issued a letter of intent to Synergy Drive Berhad (now known as Sime Darby Berhad), which is a consortium of Sime Darby, Golden Hope Plantation Berhad and Guthrie Group Berhad to buy a 60 percent stake in SHSB.

Nevertheless, in June this year, Sime Darby had said that it will not take the equity stake in the Bakun project on ground that “the project economics do not fit in with our business strategy”.

Sime Darby however will continue its role as a contractor to complete the damn’s construction.

Source: Malaysiakini

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