Bumpy road ahead for CZBUCG’s RM6.3b project

KUALA LUMPUR (Dec 15): The road ahead for Consortium Zenith BUCG Sdn Bhd’s (CZBUCG) RM6.3 billion integrated infrastructure project in Penang is riddled with uncertainty, and this is taking a toll on the company’s financials.

CZBUCG chairman Datuk Zarul Ahmad Mohd Zulkifli (pictured) admits that the project — which includes three expressways and an undersea tunnel linking Penang island to the mainland — is “stuck” but insists this is not the company’s own doing.

Initially scheduled for construction in March 2017, Phase 2 of the project comprising the paired road between Tanjung Bungah and Teluk Bahang has been delayed for another six months after the Department of Environment ordered that a Detailed Environmental Impact Assessment (DEIA) be conducted.

The DEIA, said Zarul, must include input from forums conducted along the 12km alignment, and the first discussion with residents was carried out a month ago.

CZBUCG hopes to see Phase 2 kick off in the second half of 2017 after dealing with land acquisitions, both federal and private, and appointing the contractors for the job.

“The project will go on as the agreement is binding,” Zarul told The Edge Financial Daily. “Since the day we were awarded the project, we have not had a smooth time. This project has been going on for more than two years.

“When we signed the agreement, we looked at all possibilities [and] made a conscious decision to go ahead with the project. We won’t turn back despite a lot of people sabotaging us.”

From the outset, the project faced a slew of politically charged allegations, including doubts on its costings and CZBUCG’s credentials. More recently, it encountered another challenge with the withdrawal of project partner Beijing Urban Construction Group Co Ltd (BUCG).

The China state-owned group reportedly removed itself from the equation in early September following a fatal crane incident involving its company in Jalan Raja Chulan, Kuala Lumpur on Aug 25.

This has raised questions over the consortium’s ability to carry out its tasks of building a 4.2km bypass from Gurney Drive to Lebuhraya Tun Dr Lim Chong Eu, a 4.6km bypass between Lebuhraya Tun Dr Lim Chong Eu and Bandar Baru Air Itam, a 12km paired-road from Jalan Tanjung Bungah to Teluk Bahang, and the 6.5km Penang-Butterworth sea tunnel.

Zarul said both companies parted amicably with Zenith Construction Sdn Bhd taking over BUCG’s less than 1% equity interest in the consortium (Contractor Juteras Sdn Bhd owns the remaining stake of about 4%.)

“Initially, when the consortium started, BUCG was supposed to hold 10% of the shares in the consortium but when there were capital calls, they could not get the approvals from their headquarters in time.

“That’s why their shares reduced in terms of paid-up capital but when we parted, we did so in an amicable way; we are still friends. There is no material impact on us [with its departure] although we really wanted to be with them,” he said, adding that it would change the name of the company soon.

Moving on, Zarul said CZBUCG was committed to completing the job with China Railway Construction Corp Ltd (CRCC), its engineering, procurement and construction contractor for the entire project.

“We still have CRCC with us, a big construction company in the world. And I am a director of CRCC Malaysia. So it is not an issue because the day we signed the agreement with the [Penang] state, the chairman was here to sign for CRCC. They were committed to be with us till the end, so not an issue,” he said.

However, Zarul said the project’s delay is affecting CZBUCG due to the absence of revenue.

“There is most certainly an impact on our financials. We have to hold back our financing and wait until the time we require it. With the current situation, we don’t know if there would be higher interest rates.

“Even material costs could go up but as far as the state government is concerned, we will try as much as possible not to request for additional claims unless we genuinely cannot make money,” he said.

To date, the Penang government has transferred 1.5ha of land to CZBUCG for the milestones it completed, including the preliminary impact assessment studies which translate into about RM135 million.

“It would be different if we were paid by cash but because we are given land [which] we have to convert into cash [and] under current market situation, it is not easy ... [it is] very challenging,” said Zarul.

To make matters worse, the RM800 million City of Dreams project by Ewein Zenith Sdn Bhd, which is owned 60:40 by Ewein Bhd and CZBUCG, has yet to start as a result of a court case initiated by 12 residents of Seri Tanjung Pinang in Tanjung Bungah.

"But Ewein is with us all the way because they want to develop the 20.2ha of land [given by the state government in lieu of the project]," he added.

On the undersea tunnel’s feasibility study, which is 85% complete, Zarul said there is no urgency to start construction work because it was slated for completion in 2025 following a three-year construction.

“We target the tunnel study to be completed in first quarter of 2017 but to be honest, we are also dragging our feet because the tunnel is only required to be completed in 2025,” he said.

On talks that the tunnel may be replaced by a bridge, Zarul said the consortium would still proceed to complete its study.

This article first appeared in The Edge Financial Daily, on Dec 15, 2016. Subscribe to The Edge Financial Daily here.