MAHB terminates Pestech as KLIA aerotrain contractor, citing non-performance

16 August 2023

Malaysia Airports Holdings Bhd (MAHB) has terminated the RM742.95 million contract awarded to Pestech International Bhd to undertake the new aerotrain project or automated people mover (APM) at the Kuala Lumpur International Airport (KLIA), confirming a report by The Edge that the airport operator intends to revoke the deal.

MAHB terminates Pestech as KLIA aerotrain contractor, citing non-performance

“The termination is due to, amongst others PTSB’s (Pestech Technology Sdn Bhd) non-performance, compromising significant project milestones and risking delays to deliver the project within the required deadline.

“PTSB has been found to be in material breach of its obligations under the contract and had failed to remedy the same within the specified time period,” MAHB said in a statement to Bursa Malaysia on Wednesday (Aug 16).

Earlier on the same day, The Edge reported that MAHB intended to terminate the contract given to Pestech after the latter failed to meet the timeline. Citing sources, it wrote that the decision came after the progress of the project was more than 250 days behind schedule.

AHB said its wholly-owned unit Malaysia Airports (Sepang) Sdn Bhd (MA Sepang) issued the notice of termination of the automated people mover (APM) or aerotrain project to Pestech’s wholly-owned subsidiary Pestech Technology Sdn Bhd (PTSB).

The airport operator said the decision was taken in adherence to its principles of governance and based on rigorous monitoring of the progressive development of the APM project by the group’s management and its independent consultants.

PTSB was appointed by MA Sepang as the design and build contractor for the KLIA Aerotrain Replacement Programme on Dec 14, 2021, through an open tender process. MAHB was scheduled to obtain new trains by 2025 under the programme.

Following the notice of termination, which was preceded by a notice of default to PTSB, MAHB said MA Sepang can proceed to recommence and complete the works through the engagement of other relevant parties, with a focus on ensuring the project is completed on schedule.

“MAHB remains committed to assign the necessary resources in order to minimise any potential delays to the APM project. With immediate effect, MA Sepang will expedite consultation and discussions with all existing stakeholders who are presently involved in the APM project for continuity and to mitigate any delays,” the group said.

This includes working closely with all relevant parties involved in the replacement project of the train’s tracks and system, as well as identifying an experienced and credible third-party contractor to ensure consistent progress of all project components, it said.

MAHB has suspended its aged aerotrain service since March this year until further notice, amid a public backlash over frequent breakdowns. In the latest incident on March 1, 114 passengers were stranded mid-way on the tracks after the aerotrain broke down and had to walk from the main terminal building to the satellite building. A second train dispatched to rescue them also broke down.

In mid-June, Transport Minister Anthony Loke said one of the two aerotrains is expected to start operating next year, and that his ministry had instructed MAHB to ensure that works to upgrade the system would be completed on schedule or earlier.

Pestech warns of ‘unfavourable financial effects’ as it seeks legal redress

Separately, Pestech, in a filing to Bursa Malaysia on the same day (Aug 16), said it will seek legal redress after being terminated as the contractor for the APM or aerotrain project at the KLIA.

“Pestech is currently consulting its legal adviser and will seek appropriate legal redress under the contract,” the group said in a bourse filing on Wednesday (Aug 16).

“The termination of the project is expected to pose unfavourable financial effects to the group,” it added.

When Pestech was awarded the aerotrain job in December 2021, the troubled engineering outfit said the contract included financing as well as operation and maintenance of the facility from March 14, 2025 to Feb 11, 2034.

The aerotrain contract was the biggest win for Pestech since its listing on Bursa Malaysia. It is understood that Pestech agreed to a deferred payment scheme that is over 15 years. With this, MAHB would not incur front-loaded large capital expenditure for the aerotrain service.

Shares in Pestech closed down 2.5 sen or 7.94% to 29 sen on Wednesday, valuing the group at RM282.95 million. Meanwhile, MAHB settled unchanged at RM6.89 with a market capitalisation of RM11.5 billion.

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