What really happened at KLIA2

By Jose Barrock

In the second of our series on Malaysia Airports Holdings Bhd’s new low-cost carrier terminal or KLIA2 we look at what really transpired during the construction of the airport – what caused the delays and the increase in costs from the budgeted RM2 billion to RM4 billion, and most importantly who is to blame for the mess.

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In a chance meeting with KiniBiz sometime back, Malaysia Airport Holdings Bhd (MAHB)’s managing director Bashir Ahmad Abdul Majid was unwilling to say anything about those who have been lambasting him and MAHB for the delays in the construction of KLIA2.

“It is not my style (to talk bad); they are Malaysians too,” he had said about a month ago at a shopping mall.

To date he has maintained his mantra, and declined to be interviewed for this article.

This gentlemanly conduct however could lead to his contract not being renewed, as the knives are out for him for the delay at KLIA2.

One of those very vocally upset with MAHB and by extension Bashir is Tony Fernandes, founder and major shareholder of AirAsia Bhd, MAHB’s all-important client in KLIA2 who has repeatedly voiced discontent over the low-cost airport, present and future.

Aireen Omar, AirAsia’s chief executive officer said at a press conference yesterday, “We are very disappointed with the latest delay. We will work very closely with MAHB so that a new launch date can be set for KLIA2.”

As at press time, Fernandes and AirAsia officials had yet to reply to emailed questions from KiniBiz.

UEM Group — who with its joint venture partner Bina Puri Holdings Bhd — bagged a RM997 million job for the design, construction, commissioning and maintenance of the main terminal building of KLIA2, a satellite building, sky-bridge and piers, has been keeping mum, as MAHB is a sister company 40% controlled by Khazanah Nasional Bhd.

When contacted, an official from UEM declined to say anything substantial but said, “Notwithstanding the issues faced, the JV partners (UEM and Bina Puri) are committed to completing the construction and fulfilling its obligation whilst preserving its rights under the contract it signed with MAHB.”

MAHB officials have officially maintained that they will charge liquidated ascertained damages (LAD), as a result of delays to the construction of KLIA2.

Bina Puri’s executive director Mathew Tee Kai Voon meanwhile has come on record to say that an extension is required to build KLIA2 and that there are valid grounds for the extension.

“We are applying for an extension until the fourth quarter this year. We most probably can complete our work in September or October,” he said yesterday.

Sources say that the UEM-Bina Puri joint venture is also seeking as much as RM200 million in valid variation orders, for additional works done in KLIA2.

UEM Group’s managing director Mohd Izzaddin Idris is likely to play a key role in the talks. Unfortunately Izzaddin did not reply to emailed questions as well.

State controlled investment arm Khazanah Nasional, wholly owns UEM and has a 40% controlling block in MAHB.

Why costs ballooned to RM4 billion

One of the contractors spoke to KiniBiz on condition of anonymity. He does not wish to come on record speaking out could adversely impact his ability to secure future jobs.

“The initial price of RM2 billion…who said it can be done at that price? There is no way it (the KLIA2) can be built for RM2 billion.

“In my contract even, the winning bid was lower than MAHB’s budget… no way it could have been built for RM2 billion, the final costing was below the budgeted sum,” he said.

The contractor added that the mistake made was coming up with so many dates of completion and making them public.

“(There was) no need to say June 28….just say the third quarter of the year…but everyone was trying to impress the politicians, the Government, so now they (MAHB) are embarrassed,” he added.

MAHB officials had in the past explained that the RM2 billion price tag was really only an estimate, which went awry after substantial changes were made to the initial design, mainly to accommodate AirAsia’s specifications.

These included an automated baggage system, which required hacking into structures already put up to accommodate the new system which may have led to “several months” delay, according to sources close to MAHB. Further the terminal had to be redesigned and expanded for transit passengers to cater for long-haul carriers and AirAsia sister company AirAsiaX.

Also, because of AirAsiaX using the terminal, the runway had to be extended from 2.5km to 4km to make it suitable for widebody aircraft used by the long-haul carrier. MAHB also felt that it was necessary to put in a third runway for future expansion and faster turnaround times which could have accounted for as much as RM500 million of additional costs.

Eventually, the terminal was redesigned from two levels to nine levels and the departure and arrival areas as well as domestic areas were kept separate. Further details will be in the next article.

A master plan was drawn up in 2008, after studies by KLIA Consultancy Services Sdn Bhd (KLIACS) and Netherlands Airport Consultants BV, which changed a study done in 1992 by Anglo Japanese Airport Consortium.

“There were many changes in 2008 (from previously) as some of the assumptions in the 90s had changed…it’s not like the delay was intentional, or staged,” a source familiar with MAHB said.

To make matters worse KLIACS’ contract was not renewed when it expired in end August 2011, which resulted in MAHB taking over its functions in January 2012. While some of the contractors complained about MAHB micro managing, an official at MAHB, begged to differ suggesting that because of what airport officials had been through they were forced to take matters into their own hands.

A Companies Commission of Malaysia search indicates that KLIACS is 30% controlled by the Minister of Finance and the remainder is largely held by Jamilus Md Hussin, a former civil servant.

So who is responsible?

MAHB played a role in the building of three airports abroad, New Delhi’s Indira Gandhi International Airport, Hyderabad’s Rajiv Gandhi International Airport and Sabiha Gokcen International Airport in Turkey.

So how is it that MAHB has ventured abroad and been roped in by the likes of GMR Group (controlled by Grandhi Mallikarjuna Rao, among India’s richest individuals), to help in their airport development but can’t seem to get its act at home right?

“MAHB should take responsibility. They (MAHB) are the airport experts…they are in Hyderabad and New Delhi, and other places so they cannot give excuses. (MAHB cannot) say there were delays, or that AirAsia were being unreasonable and changed the design.

“They could have said no to AirAsia… they don’t have to kowtow to AirAsia all the time,” he said.

But then to pin the blame squarely on Bashir’s shoulders does not seem fair.

“Basically, the situation was such… AirAsia changed the plans for KLIA2, MAHB conveyed the new plans to UEM, so UEM was delayed…AirAsia is the client, a large client so MAHB cannot really say no to them either, and UEM had to undo some of what they did, which cost time and money.

“You cannot blame it solely on Bashir,” another source involved in airports said.

The contractor KiniBiz spoke to added, “Perhaps MAHB should have controlled Tony (Fernandes)…if you come to my house and I ask you to take off your shoes, you’d better take off your shoes,” he said.

But the question is can Bashir exert such control over a client like Fernandes and AirAsia who is a handful for everyone, even the Government, when he does not get his way?

MAHB insiders say that the largest beneficiary of the KLIA2 is AirAsia.

An official of AirAsia said, “Of course we benefitted. But isn’t that business. MAHB benefited by getting 25 million passengers for building a shack, the LCCT at RM300 million…but now they built one at RM5 billion?” he asks.

Meeting with UEM this week

This week, officials from UEM Group, are slated to meet counterparts from MAHB to discuss the terminal operator’s claim for liquidated ascertained damages (LAD), as a result of delays to the construction of the KLIA2.

Insiders expect the meeting between the two parties to be fiery.

For MAHB’s Bashir the stakes are high as he could lose his job, in that his contract which expires on June 7 may not be renewed if he is to take the fall for the delay. As for UEM, if they take the blame and agree to pay damages, the pressure will be off Bashir, but on UEM.

“They (MAHB and UEM) have the same parent, in Khazanah (Nasional Bhd), so they should be able to sort things out amicably…the tension stems from someone like Bashir having to take the fall for it,” an insider said when contacted.

Taking a step back, it seems as though all the three main parties involved are to blame for the delay: AirAsia for changing the specifications of the airport and not being sure of what it wanted, MAHB for pandering to AirAsia’s every whim and fancy and the contractors for not sticking to the deadlines.

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Tomorrow: Did AirAsia contribute in a big way to the delay?   

Yesterday: MAHB’s Bashir in a corner