Far Eastern Economic Review
March 22, 2001

On February 28, 2001, Malaysia’s cabinet gave the controversial Bakun Dam project, shelved after the Asian financial crisis, the go-ahead.

Its output will be confined to the East Malaysian states of Sabah and Sarawak — perhaps extending to Brunei and Kalimantan — and will not include the undersea cable to peninsular Malaysia originally proposed.

It will be state funded to an estimated tune of 9 billion ringgit ($2.4 billion), down from the original 16 billion ringgit, but no less heroic. A 205-metre wall will dam a reservoir the size of Singapore, to produce 2,500 megawatts of electricity to be transmitted along as much as 800 kilometres of cable to the remotest parts of Borneo.

Piece of cake, right? Tell that to infrastructure concern Ekran, the original promoter of the project, and its controlling shareholder, Ting Pek Khiin. Ekran’s shares trade at a disconsolate 69 sen a piece — down from over 10 ringgit per share in early 1997. Ting owes Ekran over 700 million ringgit for a “refundable” deposit he took but didn’t refund for reasons too complicated to get into here.

Meanwhile, at least 20 environmental groups think that the restoration of the project is a catastrophe. But was the project ever terminated? The government took over the project from Ekran in 1997 but work went on quietly. People were resettled and continuing work on river division, by a Korean company Dong Ah Construction, will finally be completed by early April.

Indeed, since the project was initially shelved in October 1997, close to 2 billion ringgit may have been spent on it if one tots up all the costs of river division and settler compensation to equipment purchases and on-site works.

What comes next is the real meat. First will come the building of two 30 million to 50 million ringgit coffer-dams, temporary structures that can hold back the water long enough for a dry place to be created for the building of the main dam, and ancillary facilities. Total cost: at least 7.3 billion ringgit.

Shroff understands that four companies have been approached to put in project proposals. Only one has put in a complete proposal, while others have put in partial proposals. It isn’t clear, however, if the government will widen its net to include more companies. The four include:
· Muhibbah Engineering, a listed construction company that’s been in the limelight recently, having won several contracts for projects that has been privatized. Although it isn’t reflected in company records, many analysts speculate that control of the company has shifted over to close associates of Finance Minister Daim Zainuddin, at the time of writing, it wasn’t clear which part of the project it has bid for.

· DRB-Hicom, a listed transport and property company that used to own Proton, the national car maker, until it sold to Petronas last year. Having lost its core business, DRB-Hicom may be looking for new businesses, though it isn’t clear if it actually submitted a firm proposal on Bakun.

· Global Hydro Corp., a private company based in Kuching, that analysts believe to be linked to Ting Pek Khiin.. In his second bite at the Bakun cherry, Ting’s tied up with German construction company Philipp Holzmann and is understood to have submitted a proposal for 1.5 billion ringgit worth of civil works.

· Kelana Stabil, a private Kuala- Lumpur based company that’s tied up with some of the biggest names in global dam construction and electro-mechanical engineering. That includes Italy’s Impregilo, Spain’s Dragados, and France’s Dumez-GTM for the civil works and Germany’s Siemens for electromechanical input. The consortium is the only one so far to have submitted a reasonably comprehensive proposal.

Why is the government pushing Bakun? One, the sheer size of the project will do much to jump-start the construction industry and utilize excess capacity in factories turning out products from steel to cement. Two, the ecology of the area has already been so badly damaged that the project cannot do further harm. From Kuala-Lumpur’s perspective, producing excess and cheap power in Sarawak will, in turn, induce energy- intensive industries to relocate there.

Currently, the costs of generating a unit of power in Sarawak is 15-19 sen.while the cost in Sabah is even more expensive at 19-22 sen. That’s why Sabah’s energy utility is loss-making, while Sarawak’s barely turns a profit.
Kuala Lumpur hopes to reverse this. According to estimates, Bakun-generated power will cost only 7-9 sen per unit because of the project’s economies of scale.

Which company will get the nod isn’t clear, but since the government will probably fund construction through an overseas bond, reputable names will help ease financing costs. From that perspective, Kelana Stabil has partners with strong balance sheets. That may be one reason why Prime Minister Mahathir Mohamad gave Kelan’s executives four hours to make a presentation in mid-February.