Malaysia

Tony Pua warns of MRT cost overruns and failed targets

By Clara Chooi
March 03, 2011

KUALA LUMPUR, March 3 — DAP MP Tony Pua warned today that Malaysia’s most expensive transport project — the Mass Rapid Transit (MRT) — would likely suffer major cost overruns and fail to meet bloated targets, much like other mega-infrastructure rail projects around the world.

The Petaling Jaya Utara MP revealed in a statement today that a UK-based study in 2009 had shown that a majority of mega rail projects in several nations had hit similar stumbling blocks, largely due to “political and organisational pressures”, resulting in “overestimated costs and underestimated benefits”.

The study, called the “Survival of the unfittest: why the worst infrastructure gets built — and what we can do about it”, was conducted by Oxford professor Bent Flyvbjerg and was published in the Oxford Review of Economic Policy (2009).

Flyvbjerg considered 258 “mega-infrastructure” projects across 20 countries and found that nine out of every 10 rail projects suffered from an average of 44.3 per cent of cost overruns.

Early estimates have placed the Klang Valley MRT project, a three-line system, at a cost of RM36.6 billion but regulators Syarikat Prasarana Nasional Bhd and the government’s Land Public Transport Commission (SPAD) have insisted that the figures were not final.

In his study to measure the inaccuracy of travel demand forecasts, Flyvbjerg considered 208 projects in 14 nations on five continents.

“He (Flyvbjerg) found that rail projects not only suffered from an average of 44.3 per cent of cost overruns but actual passenger traffic is 51.4 per cent lower than forecast traffic on average,” Pua (picture) said in his statement.

In the Sungai Buloh-Kajang (SBK) line for the first phase of the MRT, SPAD has targetted to ferry up to 40,000 passengers per hour per direction (PPHPD).

According to the Environmental Impact Assessment (EIA) for the project, the SBK line is also estimated to have a daily ridership of 442,000 passengers in its opening year, expected to be in 2016.

The figure has however been questioned by transport advocacy group Transit who claimed that this target was impossible to achieve with the MRT’s fleet of just 58 trains travelling the 90-minute route.

“Other statistics found in the study were also no less encouraging — 84 per cent of rail passenger forecasts are wrong by more than ±20 per cent, and nine out of 10 rail projects have overestimated traffic,” Pua said.

He added that Flyvbjerg had also found that cost overruns in the order of 50 per cent were common for major infrastructures while overruns above 100 per cent are “not uncommon”.

“Also, he found that demand and benefit forecasts that are wrong by 20-70 per cent compared with actual development are common,” he said.

Most worrying in Flyvbjerg’s study, said Pua, was the underlying reason behind the construction of mega-projects across the globe that were similar to Malaysia’s MRT and the consistency of cost-overruns and bloated targets in the project outcomes.

“He (Flyvbjerg) claimed that ‘planners and promoters purposely spin scenarios of success and gloss over the potential for failure’ as the key cause of the over-promise and under-delivery,” he said.

Pua pointed out this could be the case in Malaysia’s “MRT rush job”, with Gamuda-MMC as the project delivery partner.

In his study, Flyvbjerg said that project proponents oftentimes made sure that the initiative looked highly-beneficial on paper despite having exaggerated its benefits.

“Competition between projects and authorities creates political and organisational pressures that in turn create an incentive structure that makes it rational for project promoters to emphasise benefits and de-emphasise costs and risks.

“A project that looks highly beneficial on paper is more likely to get funded than one that does not,” said the professor.

This, he noted, eventually leads to a special formula to secure projects — “underestimated cost + overestimated benefits = funding”.

Quoting from Flyvbjerg, Pua said: “Using this formula, the outcome is ‘the survival of the unfittest’ where ‘it is not the best projects that get implemented, but the projects that look best on paper.”

“And the projects that look best on paper are the projects with the largest cost underestimates and benefit overestimates.

“Therefore, the projects that have been made to look best on paper in this manner become the worst, or unfittest projects in reality, in the sense that they are the very projects that will encounter most problems during construction and operations in terms of the largest cost overruns, benefit shortfalls and risks of non-viability.

“They have been designed like that, as disasters waiting to happen,” he concluded.

Pua sounded warning bells that the MRT would likely repeat the same mistakes highlighted in Flyvbjerg’s study, citing Malaysia’s present rail system as an example.

He explained that in the past, the government had to bail out the failed Star LRT (RM3.3 billion), the Putra LRT (RM4.5 billion), the KL Monorail (RM882 million) and privatised bus service operators (some RM200 million).

“This has resulted in Prasarana, a wholly-owned subsidiary of the Finance Ministry, holding debts in excess of RM9 billion which it is unable to service, even the interest,” he said.

The MRT, said Pua, should not become another “disaster waiting to happen” as a result of private sector promoters like Gamuda-MMC spinning “scenarios of success and glossing over potential for failure”.

“And our government agencies like SPAD, Pemandu and Prasarana are swallowing them hook, line and sinker, rushing to ensure that the project gets funded and started in the shortest possible time, without proper independent checks, audit and competition,” he said.

Since the MRT’s SBK line was put on display for public viewing, much doubt has been piled on the multibillion rail project.

The MRT system is an entry point project identified for the Greater Kuala Lumpur/Klang Valley National Key Economic Area (NKEA) and aims to increase public transport modal share from 18 per cent to 40 per cent by 2020.

With the 40 per cent public transport modal share, the government hopes that at least four million trips of the estimated total of 10 million are made via public transport.

The remaining six million trips will continue to be made via private vehicles.

The MRT EIA is up for public viewing until March 15 at all DOE offices nationwide and several public libraries.

The SBK alignment map is also up for public viewing until May 14 at seven locations across the city.

They are Kuala Lumpur City Hall, Petaling Jaya City Council, Shah Alam City Council, Selayang Municipal Council, Kajang Municipal Council as well as the Bangsar LRT station and the SPAD office in Menara Dayabumi.

The public can provide their feedback on the project via email to feedback@kvmrt.com.my or through the SPAD toll-free line at 1-800-82-6868.