Wednesday, May 19, 2010

BAKUN


As posted by Dr. Mahathir Mohamad at Che Det on May 19, 2010 9:30 AM

1. The Bakun hydroelectric project promised to be the biggest power project with the cheapest electricity price. So I was told by the Sarawak Government when I made my first official visit to the State.

2. It could produce 2,400 megawatt, but Sabah and Sarawak needed just about 1,000 megawatts even in the 1990s. The question was what to do with so much electricity.

3. Bringing it to the Peninsular would need 600 miles of undersea cables. This has never been done anywhere . The longest was only 200 miles. It would cost as much as a power station in Peninsular Malaysia. To use in Sarawak we would have to have a power-hungry industry.

4. Aluminium smelting consumes thousands of megawatts of electricity. But to be viable the electricity must be cheap. A hydro project would provide cheap electricity even though the capital cost would be very high. So while I was still Prime Minister an investor was found for both the power plant and the aluminium smelter.

5. Dubal aluminium smelter belongs to Dubai, and uses natural gas from the ground for power generation - very cheap. They were keen to expand and agreed to a 30 per cent stake in the hydro powerplant and a major share in a 300,000 tonne aluminium smelter.

6. Dubal signed an agreement and paid RM90 million as a 10 per cent deposit on their 30 per cent share in the power plant. It was a win-win investment for them. When power price goes up they may make less money from the smelter but the profit from power generation would be greater. If the power price goes down they would profit less from power sales but more from smelting.

7. The moment I stepped down the successor Government gave back the 10 per cent deposit and told the Dubai investors there was something wrong with the investment.

8. The contract to build the plant was given to Sime Darby with a mainland Chinese partner. The price submitted was so low that the Malaysian who was the next lowest bidder was astounded. He simply said it could not be done at that price.

9. I could not intervene for fear of being accused of cronyism as I knew the Malaysian contractor very well. In fact he built the first phase of the project, the coffer dam and the spillway and had completed it without cost overrun as far as I am aware.

10. Sometimes, and I am not saying this of the contractor for the main project; sometimes very low price would be proposed so as to win the contract. Then as the construction is in progress there would be cost overruns and eventually the total cost would be far higher than the price of the bid. The owner of the project would be asked to pay for the new cost.

11. The Bakun hydro project was given to Sime Darby and Chinese partner at RM1.8 billion.

12. Now the CEO has been dismissed because of cost overrun in the Bakun project amounting to RM900 million. But I believe, and Sime Darby can correct me, the overrun is more than that because the Government has already compensated Sime Darby with about RM700 million. So total cost overrun would be almost equal to the bidded price of RM1.8 billion. The price has been doubled.

13. How come the bid is so low? I would think the engineers would know that they would not be able to build at RM1.8 billion.

14. Who are the consultants in Sime Darby? How come they okayed such a low cost for the project?

15. Is it only the CEO who was responsible? Who are the others who were involved with the project and failed to see that the cost overrun was very high and the project has been delayed by almost 3 years. I think responsibility should be shared. I was told of this cost overrun and delay three years ago.

16. Have we, or rather has Sime Darby learnt lessons and have begun to look at the other major projects it is handling? I think the people are entitled to know when a public company loses over a billion ringgit. Proton lost only RM500 million so that is acceptable. Is losing RM1 billion also acceptable?