When contractors asked for compensation and more time to complete the RM17 billion Bakun Dam project in Sarawak, the project manager could not say ‘No’, the auditor-general has been told.

As a result, the Finance Ministry agreed to pay RM431.59 million to the two main contractors - France's Alstom and Argentina's Impsa - for electro-mechanical works, as compensation for delays in civil works. Their original claim was for RM1.02 billion.

The ministry had paid the companies RM375 million as at last December, states the Auditor-General’s Report 2012.

The report noted that Alstom and Impsa had received contracts valued at RM450-460 million each for the main electro-mechanical works. These contracts are now worth RM615 and RM769 million respectively.

NONE Bakun Dam project manager Sarawak Hidro Sdn Bhd (SHSB) further told the auditor-general that the contractors had asked for 555 to 1,403 days more to complete work.

"We are very careful in imposing late charges because of the impact it will have on progress of work ...,” SHSB replied the auditor-general.

“If the contract is ended, it can cause the project to be further delayed and SHSB will suffer an even bigger loss as a result of not fulfilling its power purchase agreements."

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The auditor-general noted that SHSB has not pushed for late charges that could amount to RM1.3 million a day.

"As a result, the contract after Oct 8, 2011 is under the 'time is at large' condition," the report states.

It is estimated that SHSB may have incurred a loss of RM555.1 million up to December 2012.

SHSB has spent RM4.177 billion thus far on the project, which has seen the cost escalate by 45.5 percent due to work alterations and delays.

The project is being mainly backed by money from the Employees Provident Fund and Retirement Fund Incorporated, which have lent RM5.75 billion to SHSB, according to the report.

‘Business still not sustainable’

After raking through its financial statements for 2009-2011, the auditor-general has found that Bakun Dam is still far from reaching a sustainable business status.

As much as 95 percent of its yearly income of RM20-28 million was derived from interest earned through short-term deposits of its long-term loans.

sarawak corridor of renewable energy score project 110208 data map However, SHSB started selling power from August 2011 to Sesco Bhd to supply the Sarawak Corridor Renewable Energy industrial area (right) and this helped generate a higher income of RM48.23 million for that year.

SHSB then projected that it could earn RM783 million from selling power by 2016. However, depreciation costs went up in 2011, and its profits shrank as a result.

The auditor-general also faulted SHSB for not asking for an extra completion bond as required from the contractors due to higher project costs.

In response, SHSB vouched again for the companies.

"We are confident that the contractors will not leave their jobs halfway through ... for the sake of their name and reputation internationally. Besides that, all equipment needed has been ordered and much of it (over 90 percent) is already on-site," SHSB said.