2nd Penang bridge deal has variable cost clause

2nd Penang bridge deal has variable cost clause
The Star
26 June 2008

KUALA LUMPUR: The building cost of the second Penang bridge is expected to be higher than the estimated RM4.3bil, as the agreement includes a variable cost clause which accounts for possible increase in building material prices. According to UEM World Bhd chairman Tan Sri Ahmad Tajuddin Ali, the RM4.3bil price tag was based on building material prices as at end-December 2007 and included the cost of land acquisition and design. Since January, international prices of steel and cement have escalated close to 50%. Locally, the Government has also liberalised both the sectors by removing the ceiling prices of certain-related products.

Managing director and chief executive officer Datuk Ahmad Pardas Senin said, however, having the clause did not mean that the group “would be irresponsible to allow the project cost to increase. This project won't be completed next month but will last until 2011. Today, the prices are up but we don't need to buy all the steel and concrete unless we're so conservative to assume that the uptrend will continue for the next two years,” he said after the company AGM yesterday.

Saying that construction was likely to pick up speed in the “next couple of months,” Ahmad Pardas added that the group could leverage on its subsidiary, Cement Industries of Malaysia Bhd, to manage part of the material cost.

Ahmad Tajuddin noted that the Government planned to open the tender for the concession to operate and maintain the bridge. “The bridge will be owned by the Government, which will determine the toll rate later,” he said, adding that UEM World intended to submit a bid for the concession.

Ahmad Pardas said the group saved about 25% in procurement cost for its Nusajaya project, thanks to e-bidding and pre-buying strategies. Despite the current challenging economic conditions, UEM World is determined to achieve its key performance index of 13% growth in revenue and return on equity (ROE) of 13% for the year ending Dec 31, 2008. This would be driven by its engineering and construction, healthcare and property development businesses, Ahmad Pardas said. Last year, UEM World's revenue grew 46% while generating a ROE of 41%.