Despite the raging controversy and uncertainties, it is business as usual for the two known parties who were initially promised the multi-billion ringgit two-parcel railway project spanning the peninsula as their letter of intent has not been revoked by the government.

According to industry sources, Indian Railway Construction Co Ltd (Ircon) and the Chinese consortium comprising China Railway Engineering Corp and China Railway Telecommunications Centre (Cret) are continuing with detailed on-site work such as soil testing, design planning and land clearing.

"Ircon is going ahead with soil investigations and other detailed work, similarly with the Chinese contractors. They are proceeding with the job as per the letter of intent which has not been revoked by the government," said the sources when met yesterday.

The companies' bids were derailed by local infrastructure consortium Gamuda Bhd-Malaysian Mining Corporation Bhd (Gamuda-MMC JV), who announced on Oct 21 that it had been awarded the lucrative contract - the country's biggest infrastructure project.

Its winning bid was RM14.5 billion, lower than the RM17 billion estimated by government consultants.

But the announcement raised eyebrows as to whether Ircon and Cret were given the chance to match the bid.

'Hasty and mysterious

'

Sources said the announcement was "premature and hasty" as well as "shrouded in mystery" because on that same afternoon, the Transport Ministry (project proponent) was negotiating with Ircon and Cret in an attempt to lower their bid.

"The government should have given both companies a final opportunity to match Gamuda-MMC's bid before making the award," they stressed.

Ircon, with a required 30 percent local partner DRB-Hicom/Emrail and Japanese engineering giant Mitsui & Co, were supposed to handle the northern grid of the railway project (Ipoh-Padang Besar) while Cret, together with the same partners, was to work on the southern grid (Seremban-Johor Baru).

However, all those involved in the double-tracking project were taken by surprise by Gamuda-MMC's sudden announcement through a letter dated Oct 21 to the Kuala Lumpur Stock Exchange, with a copy to the Securities Commission.

Since then, the, part of the multi-billion dollar 5,500-km trans-Asia railway line linking Kunming in China with Singapore through Malaysia, has been mired in a series of controversies.

The government has also repeated its statement about the letters of intent being a non-legally binding document.

On Wednesday, Prime Minister Abdullah Ahmad Badawi was quoted as saying that although the contract has been awarded to Gamuda-MMC, the government was still working out the details of the agreement.

A letter of intent is issued by the project proponent to a recommended contractor based on an evaluation of the bids submitted by the companies.

Such a letter, issued to ensure smooth negotiations during work-in-progress, stipulates certain conditions which all parties involved must abide by.

For this project, the proponent (Transport Ministry) had issued a letter of intent each to Ircon and Cret in mid-2002 after receiving the nod from the Treasury, which will later issue a letter of award to the ministry upon completion of preliminary works.

"In this case, it is not clear who issued the letter of award to Gamuda-MMC. Was it the Finance or the Transport Ministry? No one has asked or answered this questions, which remains vague.

"In this case also, there was no open tender. It was a straightforward negotiated contract between government-to-government," said the sources.

Japanese company

The sources also revealed that the government had also issued a third letter of intent. It was to a Japanese company - Mitsui - to handle the system and signaling works for the project.

This company has somehow managed to escape the media glare that has dogged Ircon and Cret over the last few weeks.

Industry sources said Mitsui's share amounted to 30 percent of the total estimated cost.

"Why then are Ircon and Cret getting blamed for tendering a high bid when the single largest component in the project is held by Mitsui for system works and supply of railway material?"

According to the sources, last week Mitsui was asked to re-submit a lower bid from the initial RM5.9 billion but had instead asked for a one-week extension.

The first combined bid by Ircon and Cret was RM40.997 billion last September, followed by a second submission on Jan 16 this year.

The third was for RM23.5 billion while the final bid, said to have been submitted the morning of Gamuda-MMC's announcement, was RM19.7 billion.

Sources explained that the gradual downward revision of the bid was due to a change in plans by Cret, who had initially wanted to bring in 20,000 workers from China.

"Being new to the Malaysian business scene, they were not familiar about sourcing local sub-contractors who can get the job done at a much lesser cost.

"But the Chinese were dead serious about the project, which is why they were willing to revise the figures, leaving Mitsui with the single largest cost portion."

Sometime late last year, both Ircon and Cret had been asked to incorporate bumiputera concern for a 30 percent stake but Mitsui was exempted from it.

This is believed to be due to the high level of expertise - not available locally - that's needed for the specialised system works that was to be undertaken by Mitsui.

Colossal losses

Sources also believed that due to the number of contractors, sub-contractors, highly-paid technical experts and consultants involved in the project, the estimated losses could easily run into tens of millions of ringgit.

Informed sources said companies involved in the project are losing or have lost tens of millions of ringgit due to the high costs incurred for consultants' living expenses, such as the 50 consultants brought in by Cret for site inspection, preliminary design and planning.

"A local consultant would probably be paid between RM10,000 and RM12,000 per month but foreign consultants are usually paid about RM90,000 a month, plus other expenses.

"You can just imagine the cost that would have been incurred by a contractor or sub-contractor in the case of a delay in any component of the project.

"The consultants are sitting around waiting for others to complete their job," the sources added.

Although unable to provide a ballpark figure for losses incurred by Ircon and Cret, sources said losses for the former would easily fall around RM10 million for 18 months of investigative work, not to mention the consultants who did preliminary work.