The news about cost over run for Sime Darby Energy ‘jewel project’, the Bakun Dam, was out in the MSM today. The accumulated losses is RM 1.7 billion, which is the same contract sum calculated when the original award was given in 2010.
Starbiz has the report, which says it all:
Wednesday May 5, 2010
Sime’s Bakun losses balloon to RM1.7bil
By RISEN JAYASEELAN
risen@thestar.com.myPETALING JAYA: Sime Darby has incurred around more than RM1bil in total cost overruns from carrying out the civil works contract for the Bakun hydro-electric project, sources said.
One estimate puts the total cost overrun figure in the region of a whopping RM1.7bil, almost the same size as the Sime Darby’s actual Bakun contract of RM1.8bil that it had secured back in 2002.
When contacted, Sime Darby did not deny or confirm this.
In an emailed reply, the company merely said that it had made provisions to the tune of RM130mil for its share of the cost overruns in the Bakun project.
The discovery of the more than RM1bil cost overrun in the Bakun project is believed to be among the findings of the special taskforce within the group that was set up late last year to probe losses in its energy and utilities division.
The taskforce is also looking into the reasons for the cost overruns and whether there were lapses in internal audit and whether other improprieties occurred.
It is understood the Government has agreed to reimburse Sime Darby for around RM700mil, leaving Sime Darby with around RM1bil to be dealt with, by some estimates.
Sime Darby’s energy and utilities division recorded an operating loss of RM110mil in the second half of its financial year ended Dec 31, 2009, compared with a profit of RM56.3mil previously. But within this division, its oil and gas and engineering divisions’ losses alone totalled RM201mil.
However, Sime Darby said this loss was due to overruns from another project, namely its RM2.1bil Maersk Oil Qatar (MOQ) project.
“Sime Darby recognised a project loss for MOQ amounting to RM210mil (including the impact of foreign exchange losses). As a result, the oil and gas segment recorded losses of RM201mil in 1HFY2010,” it said in the email to StarBiz.
Assuming the cost overruns have taken place in the Bakun project, the group will still need to deal with a significant amount of provisioning or expensing, which could seriously dent its profits for FY2010.
When asked if Sime Darby will be providing or expensing any amounts this year arising from the Bakun project, Sime Darby said: “As part of its disclosure obligations, Sime Darby regularly reviews its portfolio of projects and if required, makes provisions in accordance with the Group’s accounting policies.”
Assisting the taskforce in its findings were specialists from external accounting, legal and engineering firms, sources said.
To recap, Sime Engineering, a unit of Sime Darby, was awarded the civil works for the Bakun project in September 2002 at a fixed lump-sum price of RM1.8bil. It has been reported that Sarawak Hidro Sdn Bhd has approved a variation order for RM700mil for the Bakun project. Sime Darby did not confirm or deny this.
“As with all such construction projects of this nature, we have received periodic payments and agreed claims from the Government. In the past, some cost overruns were incurred due to increase in material costs and variations in design but these have been dealt with,” Sime Darby said in the email reply.
Sarawak Hidro is a wholly-owned subsidiary of the Ministry of Finance Inc Malaysia and entrusted to develop and manage the Bakun project since May 2000.
Sime Darby had yet to reply to questions posed to it by StarBiz yesterday afternoon.
But in Sime Darby’s press statement when announcing its first-half results, president and group CEO Datuk Seri Ahmad Zubir Murshid said that there were issues with the energy and utilities division.
“We have faced several challenges with the oil and gas business unit especially with operational efficiency and project management. Nevertheless, with a new management team on board, measures have been taken to increase operational efficiency and improve our project management capabilities,” he had said.
A change in leadership at its energy and utilities division had taken place recently, following the resignation of Datuk Mohamad Shukri Baharom
Mohamad Shukri was replaced by Hisham Hamdan, who was previously the executive vice-president for group strategy and business development.
Sime Darby has also said it has been taking steps to prevent a repeat of the cost overruns, including reviewing and re-evaluating systems and processes in the division.
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This is the second major blunder SDE is facing, with regards to really huge losses. First that struck attention was the RM 800 million losses in the scandalous Qatar project.
This just to show how incompetent those guys who were entrusted to manage the division. Full clean up must be done and those responsible for these debacles must accept and that they had caused great injustice to the company and division. Some heads must be chopped to ensure that the division will not go into wrong and disastrous futile direction.
PM Dato’ Seri Mohd. Najib Tun Razak, who is also the Finance Minister must instruct a full blown investigation really fast. Sime Darby Bhd., now a huge conglomerate when Synergy Drive Sdn. Bhd. amalgated the three largest plantation and property based PLCs, Sime Darby Bhd., Guthrie Bhd. and Golden Hope Bhd. to the largest merger Malaysia and South East Asia capital market ever saw.
Sime Darby is also one of the mainstay for investments of Amanah Saham Baru and Amanah Saham Nasional unit trust holders. In the past, Sime Darby is one of the major contributor for ASB’s generous dividends pay out annually. The continuous slide of Sime Darby profitability will affect the ASB and ASN in the medium term.
Sime Darby’s blunder is not a good example for PM Najib to woo foreign capital and debt market investors and punters into the Malaysian corporate scene. In fact, it would be counter productive to the ‘New Economic Model’ ambitious agenda to transform Malaysia into a high value economy when the largest listed company keeps falling into ‘bad venture pits’. Of course, the audit must also look into possibilities of ‘hanky panky’ in the procurement of materials and services, which is the major factor of the cost over run.
Two consecutive huge losses must be bad for morale and confidence. Probably it is time that ‘people restructuring’ should take place. They say “Fish gets rotten from the head”. Obviously the perils that SDE faces today is considerably due to poor management and probably controls. Since its spring time here in the northern hemisphere, so the ‘clean up’ should be across the board. There are considerable Malaysians, which include professional Malays with vast MNC exposure to assume positions in the board rooms and management.
*Updated Thursday 6 May 2010 600pm
Sime Dary Bhd. issued this statement explaining a taskforce was set up to look into the issues raised here.
Salam Tuan,
Isn’t it amazing that at a time that one of the largest “eggs” in the basket managed by Khazanah is bleading money, Khazanah added few more “batang kayu” to its top management team? How easy it is to “reward” oneself at Khazanah these days!? One can’t help but wonders what sort of KPIs people at Khazanah follow when even with such dismal performances of the GLCs under its stables, NO ONE GET DEMOTED OR FIRED!? What a safe “heaven”… no wonder the management there just get gloated and bloated, literally!!
Ada terbaca di sana sini yang memberikan “teori” bahawa pembangkang akan berjaya mengambilalih pemerintahan negara ini dengan cara memporak perandakan khazanah negara. Ini salah satu cara yang boleh diambil apabila cara lain nampaknya gagal mendapat sokongan.
Orang Melayu adalah majoriti. Orang Melayu rata-ratanya tidaklah bersifat tamak haloba, seolah-olah tiada benda lain atas dunia ni kecuali duit, duit, duit! Orang Melayu setia pada tanah tumpah darah dan Raja-Rajanya. Susah nak dapat sokongan orang-orang Melayu dengan projek kandang babi, pusat urut, ratu bogel, ularmak tunggang langgang dsb. Orang Melayu juga semakin sempit pilihanya bila yang memerintah tak amik pusing dgn politik wang sehingga negara tergadai, dan ketua negara pula dok asyik apologetik sana sini.
Cuba lihatlah ketua-ketua GLC dua tiga tahun kebelakangan ini. Siapa “orang-orang muda” ini? Apa Najib buat bila ada suara yang menentang kemasukan omar ong ke dlm Petronas? sekarang ni sibuk pasal sheryll pulak. Apa Najib buat kepada Ketua Pemuda yang nampaknya dipilih oleh golongan setiakatwang, bukannya setiakawan?
Nah.. hari ni Bigdog pamirkan lagi Sime Darby. Dulu bising pasal airport ke-3 kat Labu lah, amik alih IJN lah (dengar khabar IJN akhirnya di ambil alih juga? betul ke? jgn tunggu sampai 2-3 tahun macam kes Limbang, baru tertimbul. Itupun mujur ada Che Det yang perasan). Bukanke Sime Darby terlibat dlm pergabunggan konglomerat ladang terbesar, golden hope, island peninsular, guthrie etc. Dah jagi gergasi ke belum?
Dulu Telekom, TNB dan Petronas. Sekarang ni TNB dah nampak macam kering, akan disusuli oleh TM pulak. Orang buat cerita.
Tahun depan, bila TNB dah tunggang langgang, maka tibalah masanya utk menyerahkan balik CEO kepada org TNB sendiri (sebelum tunggang langgang TNB terdedah pada umum). CEO ni akan pening kepala la. Org akan kata, CEO dulu cekap, CEO sekarang hampeh. Tak hampeh macamana, kalau semua dah tinggal hampas.
Depa sekrg ni dok godek Petronas. Apa Najib buat? Proton dah kena godek dah dulu, sampai jual syarikat motosikal dgn harga 1 euro.
So betul ke teori tu? Lingkupkan negara, orang Melayu akan tersepit kiri kanan atas bawah, maka senang sikit lagi utk rampas pemerintahan negara?
In the 90s, SD took over UMBC Bank and rename it – Sime Bank.
SD got the best profit with the biggest pie came form the Banking Group.
A few years later, SD sold the Banking Grp to RHB Bank because ‘banking is not SD bread and butter’ – after Sime Security management blunder and CEO took the blamed instead of the entire BOD who approved the ‘big loans’. Look like BOD will be free from any wrong doing.
Is the same happening in SDE ?
Confidence on SDE has now eroded because of the two scandals, which is bleeding billions of RM. Of course there is a task force been set up.
But then again, this is about confidence. It takes a lot to gain that back.
Clean up is pertinent. Retaining the same SOB and top management will make the public say “How come those who ‘ruined’ SDE’s business are still retained?”
1. Apabila orang baru masuk gantikan orang lama, orang lama tiada sekatan untuk mendiamkan diri.
2. Dan kemudian kita tahu berita ini.
3. Penemuan cost overrun ini dibuat oleh GHO sendiri.
4. Bukan oleh orang luar GHO, atau SD.
5. Dan dihebahkan pada bulan Mei.
BigDog,
You should know the BIG news by now.
If my memory serve me right, when the Bakum project was first conceived in 1990s it was already highlighted that this project will not be practical and uneconomical. Read this article for memory refresher http://www.atimes.com/reports/BJ28Ai01.html
It was the political will that drives the project and now the “cursed” has catch-up with Sime. Would the former CEO Datuk Seri Ahmad Zubir Murshid could stop the project if he wanted to then ? We all know the answer to that.
Now we hear TNB would stop the undersea power cable connecting to West Malaysia citing sufficient power consumption in Sarawak. Yeah we believe you….a very smart man.
good also lah. give chance to other people lah to head the Sime.