PAS MP: Buy China-made EMUs, lose RM500m (at current prices)

TRANSIT took note of this very interesting article, in which a PAS MP is critical of the government’s purchase of 38 Electric Multiple Unit (EMU) trainsets from Zhuzhou locomotive of China.

PAS MP: Buy China-made EMUs, lose RM500m (FMT)

Wed, 30 Jun 2010
By Ken Vin Lek

KUALA LUMPUR: PAS MP Dzulkefly Ahmad today warned that the government risks losing RM500 million if it went ahead with the purchase of Electric Multiple Units (EMU) from Chinese company, Zhu Zhou Electric Locomotive Co Ltd.

Zhu Zhou was chosen out of eight potential bidders who manufacture the EMU for the electric train service.

Speaking to reporters in Parliament, the Kuala Selangor MP said: “It is unfortunate for the people and the country that the offer price is much higher than the price agreed upon by the Ministry of Finance on Jan 4.”
“The people want to know. Why is the cost of each unit much higher than previously proposed even when there was direct negotiations with the company?” he added.

Keretapi Tanah Melayu Bhd (KTMB) agreed to buy 38 units of six-wagon EMUs instead of the initial eight units of three-wagon EMUs after the government decided to fast track this project.

The spike in orders came after Prime Minister Najib Tun Razak placed emphasis on public transportation as one of the National Key Result Areas (NKRA).

Cancel LOA, hold probe

Dzulkefly said that the current price of each EMU is valued around RM35 million taking into consideration the inflation rate.

“The government, however, is paying around RM48 million for each of the EMU which in total results to a net loss of around RM500 million,” he said.

“What ‘fast track’ are they talking about in the NKRA if it is going to consume public funds which should not be spent this way,” he adde

In view of this, the PAS leader urged the government to immediately cancel the Letter of Award
(LOA) given out to Zhu Zhou and to blacklist the company.

“We should not give them a LOA because the same company has jacked up the price of each unit by RM18 million even though we have agreed to buy more units.

“Based on the economy of scale, the price should be cheaper and not otherwise,” he said.

Dzulkefly pointed out that although KTMB representatives went to China to discuss the purchase bill, the total cost went up instead of down.

The PAS leader said an investigation must held over this matter.

TRANSIT Says:

Thank you! Finally, an MP who is seriously questioning a government purchase just after it was made. This is a huge step forward, considering that in the past, the only time a government purchase is questioned is a few years later when the Auditor General finally completes a report.

Kuala Selangor’s question about the government paying RM18 million extra for each train has been cleverly placed – either the government admits that it is overpaying, or the company explains why the cost of the trains is RM18 million higher per EMU.

Either way, the public wins – we get an investigation of procurement, we get lower prices for the trains, and we get MPs who are actually ready to challenge the government on their purchases.

More information about Zhuzhou Electric Locomotive’s products can be found here (scroll down).

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11 thoughts on “PAS MP: Buy China-made EMUs, lose RM500m (at current prices)”

  1. If I’m corrrect and hopefully I am, the reason for the extra cost was to ensure faster delivery of the EMU of 24 months instead of the usual 36 months.

    1. @Anon

      It is very likely that this was part of the reason – but it raises additional questions about how the government is negotiating the purchase of these trains.

      Regards, Moaz for TRANSIT

  2. Pengalaman lalu membeli bas rapidkl daripada China tidak langsung memberi pengajaran kepada kita. Bas rapidkl tersebut dalam tahun pertama pembelian telah pun mengalami pelbagai masalah. Kini bas china tersebut semakin hari semakin bermasalah dan difahamkan rapidkl membayar wang yang banyak untuk menyelenggara bas tersebut. Walaupun begitu bas tersebut masih tidak mampu beroperasi seperti yang dihasratkan.Bas2 tersebut adalah dirasakan perlu dilupuskan walaupun tempoh hayatnya belum tamat.
    Kita dah tahu kualiti barangan cina ni bukan elok sangat. Kat negara mereka pun punya banyak apartment, jambatan, pasaraya yang runtuh tanpa sebab. Ada yang dapat komisen ke…..apa pun syabas kuala selangor.

  3. It is possible that the extra RM500 million include after sales maintenance and the training of KTMB staff to maintain the trains. I may be wrong as I am not familiar of purchases in the raileays industry.

    But seeing that ZZ already manufacture high speed rail trains may indicate that their products are soiund technology. A train is not the same as a bus afterall.

    1. @Hijazzains

      Thank you for your comment.

      Generally, negotiated deals for train procurement already involve the purchase of after sales maintenance and training – hence, those costs should already have been worked into the procurement deal that was made in January.

      It is possible that the extra money is coming from an incentive payment to Zhuzhou to focus their manufacturing lines on building trains for KTM in a short period of time – exclusivity comes at a price.

      Unfortunately, given the nature of government procurement in Malaysia (with kickbacks and overpayments being relatively “normal”) we can imagine that RM500 million is more than the government would have to pay for such exclusivity.

      The other factor that has to be considered is the risk that the trains, if manufactured quickly, may have a greater number of defects that will have to be carefully monitored and corrected, and which may have a negative impact on KTM Komuter services for years to come.

      On the other hand – we may also have 38 trains from Japan to add to the 38 trains from China as well as what is left of the original fleet – which, when repaired, will be around 35 trains.

      Regards, Moaz for TRANSIT

  4. The Ministry of Finance is headed by a controversial Minister after all.But RM500 million is considered little in Malaysia third party transactions anyway..sigh.

    I was kinda surprised that MoF decided to go for China make since we already have 6 car trains from Marubeni. So will we ever see more Marubeni trains for intercity or the Chinese makes will fill in the gap? Hopefully Zhuzhou would just use the marubeni design to cut back time on designing the trains.

    So in the end we’ll practically have EMUs from Africa, Austria, South Korea, Japan and now China!!! KTMB workshops would be producing super railway maintenance engineers in a few years time.

    And any more news regarding with Jap trains, IMO, we’re just inheriting the husks as the we’ll have to replace the narrow gauge bogies with meter gauge ones. And how much is MoF paying to retrofit these Jap trains? [Ed. note: comments removed]

    Even if the KL MRT project is screwed, I am more interested in the expansion of KTM’s fleet network and the LRT extensions. As a former student in Australia, I am reallly impressed with m|Melbourne metro, the metro trains which so is there KTM Komuter use is vast and effcient. When I board a KTM Komuter, I wish we’d use broad gauge as I feel the Class 81-83 are damn narrow .

  5. Saya mencadangkan supaya negara kita mempunyai syarikat pembuat komuter yang tersendiri. Ini akan menjadikan tren lebih murah, kepakaran rakyat boleh ditingkatkan dalam sektor ini, membekalkan pekerjaan kepada rakyat, mudah untuk mendapatkan alatganti dan yang penting tak perlu lagi bising pasal tender terbuka dsbnya. Award saja kepada syarikat tersebut kerana ianya pembuat tunggal komuter di malaysia. Boleh cadangkan kepada GLC dan dapatkan rakan kongsi seperti kerjasama bombardier dan hartasuma sdn bhd untuk rapidkl LRT.

  6. Dear Rapid,
    Maybe the government learnt their lesson .. that all procuring of trainset need to come with well defined specifications that suits our environment and climate. If we look back at existing underperforming commuter trains, the problem actually as a result of poor planning and unwise procurement policy. The moment contracts were signed on the purchases through barter trade…(which put KTMB in the disadvantage of not having enough “say” but to accept the “gift” from the government)…the problem of inventory and technology familiarization were already in the “package”. It does not take long for the problem to surface as the 3 different trains started to show its complexity.. during the 1st 5years of operation..
    Hence, I would like to be positive that this time the government has raised and properly defined the specifications, and as a result.. causing the cost increase. But only time will tell if this is true (and I hope it is)

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