Construction : OVERWEIGHT

- Additional claims for Bakun?

* A consortium of contractors awarded the contract to supply four turbines to the Bakun Hydroelectric dam (Bakun) project are making additional claims of RM353mil, said TheEdge Weekly in a report. The claim was submitted early last month.

* The consortium - collectively known as the Bakun EM1 Contract Consortium (BEM1-C) - comprises Impsa Asia Ltd, Impsa (M) Sdn Bhd and Muhibbah Engineering (M) Bhd. It is one of only two parties which won the contract to supply turbines to the Bakun project.

* The 2,400-megawatt Bakun project is currently spearheaded by Federal-backed Sarawak Hidro, and will be installed with up to eight hydro power turbines upon its completion. The Impsa-led consortium is one of two parties being awarded the contract to supply four turbines each.

* Latest claim is in addition to early ones submitted by the consortium since 2005. Last year, the Federal-backed Sarawak Hidro is believed to have paid the consortium about RM139mil on an initial claim of RM349mil the latter had filed.

* If the fresh claim were to be approved, the consortium stands to receive total claims of up to RM492mil compared to the original contract value of RM460mil. In total, Sarawak Hidro has had to deal with more than RM1.2bil in additional claims due to work delays at the Bakun project site.

* We do not think the additional claims for the turbine contract will have a significant impact on the funding status of the Bakun project. The Bakun dam - currently being constructed by a joint venture between a Sime Darby-led consortium of local contractors and China Hydro - is on track for completion early next year.

* Furthermore, a consortium comprising Tenaga Nasional Bhd, Sarawak Energy Bhd and the Ministry of Finance - is planning to raise up to RM10bil in bonds over an eight-year period to fund the RM10bil transmission cable portion of the Bakun project.

* We understand that the cable transmission portion is to be funded on an 80:20 debt/equity ratio, with a maturity period of between 20 to 25 years. First tranche of the bonds could be issued early next year. CIMB has been appointed lead arranger for the bond issues.

* More importantly, tenders for cable works - 1,000km high voltage direct transmission line and 680km undersea cable - will likely be dished out by 1Q10. The undersea transmission package will likely go to foreign contractors - given the lack of local expertise. However, we gather that Malaysian Resources Corp Bhd (MRCB) are among the potential candidates interested in the land transmission package of the massive cable project.

* We believe the Bakun project is one of the few cornerstone projects worth a combined RM62bil that the Federal Government could roll-out over next six to twelve months as part of its pump-priming initiatives. This should significantly improve the order book visibility of contractors moving into 2010. In addition, there is also greater margin certainly for contractors as prices of building materials have stabilised against volatile prices in 1H 2008.