The Auditor General’s Report 2008 (Update #3)

• Update #3 – Public Accounts Committee to investigate KTMB Double tracking project
• Update #2 – Updated with new articles!

TRANSIT takes note of the Auditor General’s Report for 2008, which details issues related to government spending and procurement.

• National (English)
• States (English)

This year, there were three specific mentions of public transport that you should be aware of:

1. The Terengganu government was criticized for their RM10.5 million purchase of 26 buses for the creation of the Rapid Terengganu bus service. [TRANSIT: We criticized them too]

2. Prasarana was criticized for a number of issues including:

• Losses at KL Infrastructure Group (in the take over of the KL monorail);
• Liabilities at RapidKL, which was described as incapable of taking care of the cost of maintaining the buses and rail (routine preventive, predictive, overhaul and refurbishment works) that it is responsible for;
• Issues with the purchase of buses by Prasarana and the quality of those buses;
• Accumulated losses of RM 839 million from 2005-2007

[TRANSIT: Please note that the graphic above which was produced in the Star may not reflect the current structure of Prasarana’s holdings. We understand that Prasarana has merged with the RapidKL branch and that RapidKL Sdn. Bhd. and RapidPenang Sdn. Bhd. are equally subsidiaries of Prasarana. However, this is to be confirmed]

MANAGEMENT OF SYARIKAT PRASARANA NEGARA BERHAD (page 35-36)

Syarikat Prasarana Negara Berhad (Prasarana) is wholly owned by the Government with a paid up capital of RM3.80 billion. The company is responsible to manage the infrastructure of public transportation in Klang Valley and Penang. As at 31 December 2008, Prasarana had issued 8 bonds totalling RM8.47 billion to finance its activities.

The audit revealed that the financial performance and management activities of Prasarana were not satisfactory. It had incurred losses from the year 2005 to 2007 and the accumulated losses as at 31 December 2007 was RM839.81 million. Due to poor cash flow, it is not possible for Prasarana to redeem the balance of the issued bond amounting to RM7.10 billion. In addition, the management of its activities especially procurements, write-offs and record keeping of assets were not satisfactory and key performance indicators were not established. In this regard, the Board of Directors and the management of Prasarana as well as the Ministry of Finance should consider the following matters:

• The Board should ensure that Prasarana has the mechanism to monitor the status of assets being used by its operator to ensure that assets are properly maintained and not exposed to the risk of being lost and misused.
• The management should re-examine the role of RapidKL as the bus and Light Rail Transit operator as well as to determine alternative propositions as a long term plan. This is due to the increasing critical financial position of Prasarana to bear the cost of maintenance of buses and rails amounting to RM10.50 million which should have been borne by RapidKL.
• The Board should ensure that Prasarana’s subsidiaries comply with Government circulars as the Government does have interest in these subsidiaries. The Board should also closely monitor the performance of such subsidiaries to ensure that they operate efficiently and in consistence with their objectives. For dormant subsidiaries, the Board should determine a suitable business plan and if these subsidiaries are not required any more, then steps should be taken to wind them up.
• The Ministry of Finance should closely monitor Prasarana to ensure its finance is being managed efficiently and prudently in order to improve its cash flow and consequently being able to redeem its issued bonds.
• The Ministry of Finance should state clearly the requirement of Prasarana to abide to the conditions of procurement through direct negotiation as stated in its approval letter. In addition, the Ministry of Finance should forbid its officers from approving any procurement relating to a company if he/she is a member of the Board of that company. This is to avoid any conflict of interest.
• The Ministry of Finance should establish an indicator specifically to be used as a basis for bonus payments for companies having social commitments such as Prasarana

3. The Ministry of Transport was criticized for poor management of the Electrified Double Tracking Project between Rawang and Ipoh, including cost overruns, delays in the project and not procuring the trains in time.

MINISTRY OF TRANSPORT (page 21-22)

Electrified Double Track Project Between Rawang And Ipoh

The Electrified Double Track Project Between Rawang And Ipoh was implemented at a cost of RM5.77 billion through 2 packages namely the Infrastructure Package and System Package. The main contractor for the Infrastructure Package is DRB-Hicom Berhad (DRB-Hicom) while Mitsui-MTS Konsortium (Mitsui) is the contractor for the System Package. The audit revealed the objective of the project was not fully achieved due to several weaknesses such as delay in project completion that resulted in an estimated cost overrun of RM1.43 billion, procurement of excess equipments and noncoordination of train procurement with infrastructure development. In addition, there is possibility of the Government bearing part of the losses estimated at RM1.14 billion. This is due to a maximum liability of RM257.99 million that could be claimed from the contractor as stipulated in terms and conditions of the contract between DRB-Hicom (original contractor) and the Government. To ensure Government gets value for money and also to prevent the recurrence of the same weaknesses in other projects, it is recommended that the Ministry of Transport (Ministry), Keretapi Tanah Melayu Berhad (KTMB) and related central agencies consider the following matters:

• The Ministry should impose penalties amounting to RM80.88 million (per day) on DRB-Hicom for failing to complete the project on time.
• Five sets of Automatic Fare Collection System which are still kept in the store should be distributed to commuter stations that require them to avoid wastage.
• The Ministry/KTMB should ensure all defects are rectified by contractors during the Defects Liability Period so that the Government will not incur additional cost for repairs.
• Procurements of related equipments and facilities should be synchronized with the infrastructure and system development. In this regard, equipments and facilities should be procured when the progress of construction work achieved 80% so that the infrastructure could be fully utilised upon completion.
• As stipulated in terms and conditions of the contract, the Ministry should report to the Ministry of Finance to terminate the service of the project manager who failed to perform.
• Central Agencies should allocate sufficient funds to procure equipments/facilitiesthat are components of the project to enable a completed project to function according to plan.

TRANSIT Says:

As you might imagine…when someone says “don’t worry” we start to worry. So please, bear with us as we put our comments together and try to unravel some of the issues in the Ministry of Transport, Government of Terengganu and Prasarana.

More information can be found at these sources:

• Double-track rail job next PAC target (NST)
• Anti-graft body studying report (The Star)
• Auditor-General: Prasarana in danger of not meeting RM7.1b bonds payment (The Edge)
• Other anomalies revealed in Prasarana audit (The Edge)
• RM10mil [Terengganu] buses going nowhere (The Star)
• Big role for Prasarana (The Star)
• Don’t worry, Prasarana Negara bondholders have Govt guarantee (The Star)
• Prasarana Called To Review RapidKL’s Role (Bernama)
• Auditor General’s 2007 Report (BM)