By P Gunasegaram

RECENTLYFinance Minister Lim Guan Eng announced that he had saved RM3.1 bil by terminating the Pan Borneo Highway Sarawak project delivery partner (PDP) agreement. The project was to have cost RM21.9 bil.

That immediately raises the question of whether a lot of money can be saved from the termination of the PDP for the RM46 bil Penang Transport Master Plan (PTMP) – perhaps more than double the RM3.1 bil to over RM6 bil given the cost of the project is more than twice that of the Pan Borneo project. Lim was the moving force behind the PTMP project when he was chief minister of Penang from 2008 to 2018.

“The estimated financial implications to the government with the previous involvement of the PDP company amounted to RM21.9 bil while the estimated financial implications after the termination of the PDP agreement would amount to RM18.8 bil,” he said on the Pan Borneo project.

That is a massive 14.2% reduction from the original cost which Lim said was RM21.9 bil. If you do away with the PDP, the savings should be just 6% of the project cost because that’s what the usual PDP charges.

Predictably, Lim’s figures were promptly challenged by officials from the former government but his reply still did not explain fully how the savings were achieved. It is important that he does.

If we assume the same level of savings can be achieved for the PTMP, then the savings from dismissing the PDP for the PTMP project can be as high as 14.2% of the project cost or a massive RM6.5 bil.

In his reply over the Pan Borneo figures, Lim said: “Under the PDP model, the overall cost not only involved construction costs but also payments to PDP companies including reimbursable payments and PDP payment fees (5.5% of the construction cost),” he explained. But that would be pretty much the arrangement for all PDPs.

Lim himself, then Penang chief minister, announced the appointment of the PDP for the PTMP (then estimated to cost RM27 bil before rising to RM46 bil later) in August 2015. 

“The SRS Consortium comprises well-known names in the engineering and construction and property development industry, namely publicly-listed Gamuda Bhd (60%), and Penang-based Loh Phoy Yen Holdings Sdn Bhd (20%) and Ideal Property Development Sdn Bhd (20%),” Lim said in a press statement.

But really, the latter two are Penang-based companies with little or no experience in large-scale construction and certainly not as PDPs in any massive infrastructure project the way Gamuda has been.

Interestingly, the finance ministry has a proposal, which appears stalled, for the purchase of a series of toll road concessions owned by the Gamuda group of companies for RM6.2 bil.

Gamuda is likely to start the PTMP soon and would probably welcome the injection of cash and the reduction in debt from the purchase by a finance ministry special purpose vehicle which it can then use to kick-start the PTMP.

The PTMP is a hugely complex and controversial project which has been vehemently opposed by civil society groups in Penang such as the Penang Forum, which says it won’t ease congestion, is costly and highly risky. 

Briefly, it has been proposed that Penang will start the PTMP via the issue of bonds (figure not disclosed) which will be guaranteed by the federal government. In the longer term, it is anticipated that the entire RM46 bil will be financed from reclamation of 1,818ha (4,500 acres) of land from the sea which is supposed to be sold for RM70 bil.

But details are rather scant on this. You really can’t introduce 4,500 acres or 196 million sq ft of prime land into a city area and not expect it to depress land prices for years and years. At a price of RM70 bil, the average price per sq ft works out to about RM357 per sq ft.

Considering that the reclaimed land will involve housing and factories it is terribly uncertain whether that kind of price can be obtained. Also, no costs for land reclamation have been projected. 

The success of the PTMP hangs by a thread – getting a hefty net profit from the sale of reclaimed land even after paying off PDPs, land reclamation costs and others which will exceed the PTMP cost of RM46 bil. 

Remember, this project spans 30 years and therefore the costs could easily double and if the price of reclaimed land does not keep up, then this project will go underwater. 

The Penang government should not only terminate the PDP immediately but undertake a comprehensive review of whether the PTMP should be undertaken which at a cost of RM46 bil rivals the cost of the Kuala Lumpur LRT/MRT system of some RM50 bil which serves some eight million people, some nine times the number of people on Penang island.

That should already be a very clear indication that the PTMP is just too large and too expensive for the number of people it serves. Remember, too, that more than half of the people in Penang live in Seberang Perai on the mainland and to concentrate so much of funds on the island will severely distort future development in favour of the islanders, many of whom don’t want the PTMP anyway. – Feb 18, 2020

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