Tuesday, May 20, 2008

Bigger budget for rail line sought in Bangkok

17% increase reflects higher material costs


The Mass Rapid Transit Authority of Thailand (MRTA) has asked the Transport Ministry to lift the reference price for the new Purple rail line by 17% to reflect the rising cost of steel, concrete and building materials.

Prapat Chongsanguan, the MRTA governor, said the agency proposed raising the construction budget for the 23-kilometre elevated line from Bang Sue to Bang Yai by five billion baht to 35 billion.

Twenty-seven tenders have been submitted for the contract by firms from Thailand, Japan, Italy, China and Korea.

Mr Prapat said the prices would be revealed in August, with construction to begin by the end of the year.

''We have to accept the fact that costs have surged, due to the rising prices of construction materials,'' he said, adding that budgets for the other new transit projects were also being reviewed. ''We need to accelerate work on these projects. The longer we delay, the higher the cost will be.''

The Purple Line, with 16 stations, is due to start service by 2012.

Finance Minister Surapong Suebwonglee acknowledged that expenses for infrastructure megaprojects would increase due to higher material costs and oil prices.

''If we had started building the nine routes three years ago, the construction cost might have been just 500 billion baht, instead of an estimated 700 billion today,'' he said yesterday. ''Basically, we can't wait much longer [to invest].''

Dr Surapong plans talks with the Budget Bureau and the Transport Ministry to discuss whether budgets need to be revised upward. ''We need to be realistic. Otherwise, no one will bid to undertake these projects.''

He said that while the government wanted to accelerate the bidding process to maximise the economic benefits of the investments, authorities were also committed to maintaining full transparency and disclosure.

Chula Sukhamanop, a spokesman for the Transport Ministry, agreed with the increased reference price.

''The higher reference prices could make the government's megaproject scheme more realistic [for bidders]'' he said. ''Higher prices would make more contractors more willing to bid for the projects. If they can't compete [because of] rising costs, nobody would join the race.''

Contractors welcomed the news

''Higher reference prices cannot totally offset the higher cost that contractors have shouldered, but it is better than doing nothing,'' said Anukool Tuntimas, an executive vice-president of the contractor Ch. Karnchang Plc, one of the 27 Purple Line bidders.

Mr Anukool said steel bar prices, for instance, had nearly doubled from August 2007 to nearly 40 baht per kilogramme.

State officials say the Finance Ministry would likely seek cabinet approval to raise the preliminary budgets for the mass transit projects to create a buffer for future price increases.

If no budget increase was approved, a project would face considerable problems if contractors' bids failed to come under the approved budget.

The nine mass transit projects envision new investment of 770 billion baht over seven years for civil work.

Joseph Tisuthiwong, a project finance specialist at the Bangkok office of the law firm Clifford Chance, said Thailand should look to partnerships with the private sector to help develop the megaprojects.

''Not only infrastructure projects in Thailand, but all over the world, including China, have been affected by higher costs driven by high oil prices,'' he said. ''But the government has to go ahead with these infrastructure projects, not only to cut fuel consumption but also to serve the country's growing population.''

Concession terms of 20 to 25 years could be offered to developers, with the infrastructure operated on a revenue-sharing basis with state agencies, he said.

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