KUALA LUMPUR: Local construction firms are looking forward to further rationalisation of government subsidies, such as RON 95, to spark a new wave of public infrastructure investment.
This initiative may kick off with two major projects in Penang: the expansion of the Penang International Airport (PIA) and the Mutiara LRT Line, CIMB Securities said.
It was reported recently that Malaysia Airports Holdings Bhd (MAHB) has formed a dedicated team to oversee the expansion at PIA.
According to CIMB, optimisation works are scheduled to begin in November 2024, with tender results for the three main packages of the RM1.5 billion airport upgrade expected by the end of the year.
Negotiations for the RM8 billion Mutiara LRT Line are also approaching completion, pending the finalisation of certain technical details and the total project cost.
CIMB notes that while it may be early to identify potential winners for the PIA upgrade, Gamuda Bhd is in a strong position to secure nearly RM5 billion in construction work for the Mutiara LRT, thanks to its 60 percent stake in the SRS Consortium, which will lead the project.
Additionally, another significant infrastructure project anticipated in the 2025 Budget is an internal rail link within Johor Bahru, designed to support the upcoming Johor-Singapore Rapid Transit System Link (RTS Link) service, set to launch on January 1, 2027, with 83 percent completion as of July 2024.
CIMB outlined two complementary proposals: a 30 km LRT initially estimated to cost RM20 billion and a 50 km autonomous rail transit (ART) system projected at approximately RM7 billion.
It said that this rail service is part of an extensive local transportation network that also includes planned expansions of the North South Expressway (PLUS Highway) and the Senai-Desaru Expressway (SDE).
However, the status of the proposed KL-Singapore High-Speed Rail (HSR) and MRT-3 projects remains unclear, although the MRT-3 is currently open for public viewing, the firm said.
"As for private-driven mandates, we expect the 2025 Budget to reaffirm the federal government's commitment towards ensuring the success of the Public-Private Partnership Masterplan 2030 (Pikas 2030). Anchored by a sustainable PPP landscape, Pikas 2030 is designed to address fiscal challenges and drive economic growth through effective private sector participation."
CIMB anticipates that basic infrastructure projects will be prioritised in East Malaysia under the 2025 Budget. Notably, Pansar Bhd announced in September 2024 that it secured a RM777 million contract for Package 4A of the Sarawak-Sabah Link Road (SSLR) Phase 2 project, which consists of eight main packages.
Meanwhile, CIMB's economics team predicts that development expenditure (DE) for 2025 will remain stable at RM90 billion, consistent with projected figures for 2024. In alignment with the government's fiscal objectives, the federal fiscal deficit is expected to decrease to 3.8 percent of GDP in 2025.
In Sabah, 13 contractors recently received Letters of Acceptance (LoAs) under Phase 1B of the Pan Borneo Sabah project, encompassing 19 packages worth a total of RM14 billion. Among these, Ireka Corp Bhd secured a RM1.1 billion contract for the section from Kg. Lumou Baru to Kg. Toupus (WP33).
Furthermore, CIMB expects Gamuda to potentially secure up to RM5 billion in job opportunities from the Ulu Padas Hydroelectric project, which includes additional works for constructing water supply infrastructure, in the near future.
Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said increased allocations for DE could serve as a significant boost for the construction sector.
He pointed out that historically, development expenditure tends to be lower than operating expenditure (OE).
"In light of the ongoing fiscal consolidations, I think that would allow the government to allocate more for DE. That in itself can be a major catalyst for the construction sector because with infrastructure, it will help the countries to improve their productivity," Afzanizam told Business Times.
He said that the multiplier effects from the construction sector extending to other industries are quite visible.
"It makes sense for the government to have a sizable allocation for DE," he added.
Afzanizam explained that with government revenues rising due to the introduction of new taxes and the optimisation of expenditures, it could create additional space for increased spending on development expenditure (DE).