Penang tunnel: Award tender, then carry out feasibility study?

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There is something rather unusual about the sequencing of the Penang tunnel project process.

The Penang government wanted this project, then an MOU was signed with China, then the Penang transport master plan was drawn up to include the tunnel, then a tender was awarded and 110 acres of super-prime land was promised in exchange.

In anticipation, the tunnel developer entered a joint venture with another company to develop a portion (3.73 acres) of that promised land presumably to help finance the initial stages of the tunnel project. And only now a feasibility study for the tunnel is to be carried out?

Now we learn that as part of the promised 110 acres, the Penang state government is granting nine acres of land to the tunnel developer worth RM305m to finance the cost of the initial feasibility study, design work and the EIA work for the controversial tunnel.

The RM305m will reportedly fund the following:

  • Feasibility study – RM180m
  • Detailed design – RM92m
  • EIA, etc – RM33m

A few questions arise immediately:

Shouldn’t a thorough feasility study have been carried out before the tender for the mega project was awarded to Consortium Zenith? In this case, the tunnel and highways was something the state government wanted even before work on the Penang transport master plan could be completed.

How can the tunnel developer come up with a feasibility study that is truly independent when it stands to reap enormous profits from the tunnel concession and valuable super-prime land as ‘compensation’? Does this mean the study would be just a formality?

What happens if at all the feasibility study or the tunnel EIA indicates the project is not viable? By then, the state may have already surrendered valuable land to the tunnel developer for property development, and it would probably be too late to get it back. This is the problem with land swap deals. In fact, the tunnel developer Zenith has already entered into a joint venture agreement with Ewein Bhd to develop 3.73 acres of land worth RM133m in the Seri Tanjung Pinang area, and Ewein is required to pay Zenith RM79.8m for a 60 per cent share.

(Incidentally, a mysterious City of Dreams project, developer unknown, advertised that it was open to collecting RM5000 refundable booking deposits for condos priced at well over RM1m in the Seri Tanjung Pinang area.)

Shouldn’t Consortium Zenith have come up wth its own funds to carry out the detailed design work rather than having to rely on land granted by the state just to finance the feasibility study and tunnel design work? Isn’t this supposed to be a company with vast resources and access to capital to carry out such an enormous project? If so, why does it need land from the state to finance the design work? (This sort of reminds me of the Penang government’s sale of the Bayan Mutiara land, where the buyer was allowed a five-year instalment period to pay for the land, and meanwhile the developer is embarking on the first phase of the Penang WorldCity project on the land.)

The Edge published the following report a couple of days ago.

Consortium Zenith gets nine acres in STP1

by Janice Melissa Thean, theedgemalaysia.com

KUALA LUMPUR: Consortium Zenith BUCG Sdn Bhd has been granted some nine acres of land (3.64ha) on Seri Tanjung Pinang 1 (STP1), worth RM305 million, by the Penang government to finance the cost of the initial feasibility studies and detailed design (FSDD) works in the RM6.3 billion Penang undersea tunnel project.

Originally, the company was to get 110 acres for Seri Tanjung Pinang 2 (STP2) from the state government, plus a toll concession on the undersea tunnel, to fund the entire project. However, there has been a delay in the progress of STP2, which is to be reclaimed by developer Eastern & Oriental Bhd (E&O).

“We have spoken to E&O and they believe that the STP2 land will only be available two years from now. Thus, the state government is giving us nine acres on STP1 first,” said Consortium Zenith’s chairman Datuk Zarul Ahmad Zulkifli in a recent interview with The Edge Financial Daily.

He added that this is only a minor tweak to the original funding structure, as the company will still get about 100 acres for STP2, after the nine acres on STP1 were deducted from the amount.

According to Zarul, the nine acres on STP1 are worth about RM305 million, sufficient to finance the cost of the initial FSDD works for the mega-infrastructure project. The remaining RM6 billion is the estimated cost of construction, to build new roads and tunnels on Penang island, as well as the 6.5km undersea tunnel linking George Town and Butterworth which is the main component.

The RM305 million FSDD stage has been broken down into four phases. At each phase the consortium will inject 10% from its own money to fund the costs.

The first tranche of the FSDD will cost RM79 million, meaning Consortium Zenith will have to inject RM7.9 million from its own money. The capital injection was finalised last week, while the second tranche will be due in July and will require another round of capital injection of RM9.4 million.

“For now we have no debts,” Zarul said when asked how Consortium Zenith will finance the capital injection. “We will only start borrowing during the construction stage.”

The bulk of the RM305 million will be spent on the detailed design (DD) portion of the work — which is about 60% or RM180 million. Some 30%, or RM91.5 million, will go toward the feasibility studies (FS) while the remaining 10%, or RM30.5 million, will be used for the detailed environmental impact assessment (DEIA).

The FS is currently underway and Consortium Zenith expects to complete it in April. This is two months ahead of the expected completion in June.

“Once we have completed the FS we will present it to the state government that will have to endorse it. Only then do we call in the design team. The DD takes a long time and could easily take a year,” said Zarul.

Consortium Zenith will then submit the DEIA which could take nine months to a year for approval.

At best, the consortium hopes to be able to begin construction on the major roads on the Penang Island at end-2015 or early-2016, said Zarul.

The first to be constructed will be a 12km dual carriageway from Tanjong Bungah to Teluk Bahang, followed by a 5km road and tunnel from Lebuhraya Tun Dr Lim Chong Eu to Ayer Itam, then a 4.2km road and tunnel from Lebuhraya Tun Dr. Lim Chong Eu to Persiaran Gurney Highway. The final phase will be the 7.2km George Town-Butterworth link of which 6.5km will be the undersea tunnel.

“For the RM305 million FSDD works, the state government has identified two parcels of land in STP1 for us,” Zarul said.

“We are getting developers to come in and forward purchase [the STP1 land for us]. So what we are effectively doing is getting the developers to fund us (in the FSDD phase),” he added.

On Dec 24, Consortium Zenith entered into a joint venture (JV) agreement with Ewein Bhd’s wholly-owned unit Ewein Land Sdn Bhd to develop the first 3.73-acre parcel of land on STP1.

“It is a 60:40 JV, so we will have to come out with 40% of the cash. For the first parcel, that is RM53.2 million on our part,” said Zarul. This is based on the estimated value of the land at RM133 million.

The JV has proposed to undertake a mixed development on the seafront lot in Tanjong Tokong. The development will include high-end residential products, according to Zarul.

“The gross development value will range between RM700 million to RM1 billion for the 3.73-acre plot of land,” Zarul said.

“We are providing a lot of comforts — dedicated lifts, accidents and emergency facilities, sky bar and limousine service among other things. We want to give five-star hotel service to the residents. In fact we are talking to a hotel operator to manage the project for us later on.”

Consortium Zenith has yet to select a developer for the second 5.7 acre parcel on STP1, although it has already received proposals from a few developers.

The construction of the major roads and tunnels on Penang island, and part of the undersea tunnel is to be funded by the 100-odd acres Consortium Zenith is to receive on STP2. The undersea tunnel is also expected to be majority finance by the issuance of bonds backed by future toll revenue.

“We have already arranged to set up a Penang Real Estate Fund. This will be the anchor in which we have a host of local and international developers who will contribute funds for the development of the 100 acres,” said Zarul.

According to him, instead of awarding smaller parcels to individual developers, the participating developers will collectively oversee its development.

“The fund will be managed by a local bank, which will disburse the money according to schedule,” said Zarul. Consortium Zenith plans to launch the fund at the end of the year.

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atila

Anil, is this project really on?
Read in one Fb recently that’s on already.

Anil, seeking your help for updates.
Tq.

Ong Eu Soon

On Oct 2013, the Penang State Government formally signed a preliminary agreement with the Consortium Zenith BUCG to carry out feasibility study on the undersea tunnel. On Jan 24, 2014, Consortium Zenith BUCG Sdn Bhd announced that it expects to complete a feasibility study on the controversial RM6.3 billion tunnel. The report will be released on April 2014. Until today there is no sign of any actual work.No drillship, semi-submersibles, jackup barges, barges, or platform rigs were seen off Gurney Drive. When the state formally signed a preliminary agreement with the Consortium Zenith BUCG to carry out feasibility study on… Read more »

Ong Eu Soon

There is no real feasibility study as there is no cash to start any job. The 9 acres of land can not be converted to real cash. Nothing can be seen off Gurney Drive. If they fake the feasibility study you can only blame yourself for your blind support and partisan stand. Never did we expect the CAT state government to indulge in this type deceiving or hoax. Public safety is no more our main consideration, it is politic. Only politic that is matter,

Ed

Hey, I was just wondering. We have an upcoming massive tunneling project in Singapore too. The Land Transport Authority plans to tunnel under the nature reserve for the Cross Island Line. Even though the local Nature Society here has submitted alternative routes (which basically just follow the borders of the reserve, it’s unlikely plans will change. To put it frankly, I am in favor of it going through the reserve as the tunnel has been promised to be at a very deep depth. That said, what would Penangnites do if the State or Federal Government decides to tunnel under Penang… Read more »

tunglang

Yes, Penangites are environment-sensitive.
This way, the island won’t be rendered unliveable in the longer run, Penangites & future generations will enjoy a better place to live, work & play.
Sometimes, we have to go back the basics of running things & not beholden by any manner of technology, no matter how promising.
If the state don’t have enough money, why go for cosmopolitan hifi kind of development & kowtow to developers’ fancies which many are not sustainable or meet local needs?

Drink more Kopi-O kau kau, thing reasonable sans fantasies.

DSam

deep deep deep tunneling incur heavier expenses.
so i think humans needs (eg cars) supercede the animals on the island wheter ur BN or Pakatan.

tunglang

Pls read: Mass death of fish hits Johor fishermen
http://www.thestar.com.my/News/Nation/2014/02/13/Johor-Mass-Fish-Death/

Any land investment from SingLand causing this pollution?

Islandjoe

The deal is done. The EIA and Feasibility Study is merely cosmetic. The lack of impartiality is in who is paying for the study. That will ensure the findings will be favourable. The difference between BN and DAP is a more transparent process. We can only hope that with REAL commercial arm’s length transactions, we will see a better outcome than the usual BN crony led disasters. I do get the feeling though that because DAP need these projects to get their required funding, they may be forced without taxation autonomy, to be favourable to developers. I still like to… Read more »

Rich Daddy

Aiyah there is no angel gomen lah. I had been mentioned / commented hundreds times in this blog and other sites about this until I also gave up in Penang and so migrate to Selangor. Even now Selangor also in same pathetic situation.

Maybe I just vote any independent candidates next time.

p/s: Where is the usual ‘come and vote PR’ promoter, Kee ??? Close one eye kah kee ??? Some say this is new PKFZ lol !!!

Ananars

Its PR DAP cybertrooper

pengyou

power with DAP is also sama2. they just do it in warp speed.

Yang

This sort of reminds me of the Penang government’s sale of the Bayan Mutiara land, where the buyer was allowed a five-year instalment period to pay for the land, and meanwhile the developer is embarking on the first phase of the Penang WorldCity project on the land.) In this case its even worse. Not only does Zenith do not pay any installment, he get 9 acres of land free first and then use the land to get (funding) for the project. Its just like you ask me to build a factory and then give me a house first to sell… Read more »

tunglang

Yang, what you said about Bukit Gambir LMC is now no more ‘open secret’.

Read: Disgruntled flat buyers want Penang CM to intervene over additional charges.
http://www.thestar.com.my/News/Nation/2014/02/13/Penang-Guang-Eng-Flat-Charges/

One buyer had to kneel down to beg for CM intervention. Can he kautim?

Amy

I have just bought the relaunched copy of The Heat (now cheaper at RM3.60)
It has a list of top bloggers in Malaysia,
I hope Anil could make it to the list soon..

Amy

I have passed on my copy of The Heat to my friend who have lost it.
I suggest other readers buy The Heat (better than The Star!) and reproduce the list.
This issue of The Heat has a good article on the ionic government’s subsidy to IPPs.

DSam

http://www.theheat.my/Article.aspx?ArticleId=2087 The Heat : Political parties tap into student activism By Rita Jong Thursday, 06 Feb 2014, 05:04 PM He stood out from the crowd of a few hundred undergraduates, in a worn-out T-shirt and faded jeans. Photographs of him marching to protest against the University and University Colleges Act 1971 (UUCA), a forty-year-old law that barred university and college students from participating in politics, were posted online. That was five years ago when Adam Adli Abdul Halim was just another student. Today, Adam is a household name among Malaysians as the country sees a rise in the number of… Read more »

Amy

Soon traveling from Butterworth will see The Light at the end of the Penang Tunnel to witness the island’s transition into a WorldCity.

Ananars

Where do you think (the state government) get the money to give the RM100, R200, RM1,000/= to the people. Just the same like UMNO BN, Suck the people first and give it to you. For every LC or LMC not built, the developers must pay 120k into the govt coffer. Worse still LMC are being marked from 72k to over 200k

bigjoe

Where do you propose Penang govt find RM305m for a feasability study when its annual budget is RM1b and estimated revenue only RM600m? and don’t argue against the tunnel as a reply.

bigjoe

That is where you go wrong..The study is useless for quality of life stuff like environment, congestion etc but if its for engineering and financial purposes, its perfectly workable. Sure its only to get the project done..why not if you got the guts to gamble..

tunglang

Anil, this swap deal is 80% done deal, 20% risking skinning the Cat.
No different from BN style of Satu Lagi Projek kongsi kaya raya kosmopolitan.
Except there’s no RM100 million discount for Komtar Tower.

Have you seen how the Ah Pong man open & close his multiple ovens on time?

Yang

Shouldn’t Consortium Zenith have come up wth its own funds to carry out the detailed design work rather than having to rely on land granted by the state just to finance the feasibility study and tunnel design work? Isn’t this supposed to be a company with vast resources and access to capital to carry out such an enormous project? If so, why does it need land from the state to finance the design work?

Arh, its so simple. When the project goes poochit only Penangite loses, not DAP …

Yang

not DAP or LGE or Consortium Zenith

Yang

Wow now we know we are not swapping 110 acres of our land for 6.5 billions. The builder get a concession for how many years god knows. Penangite are now being taken for a long long ride. Remember how a BN crony company was given the right to the outer and inner ring road project. The company do not have any capital outlay and has to rely on loan and upfront 50 million from the then govt to finance the project which was later put off due to objection by the people. Now we see the same thing happening by… Read more »

Aisay man

It’s kinda strange up til to-date there’s not even a f… of disclosure of work done. Yet again “scheduled land title” (and possession) has been passed/parted !?

Yang

Is this going to be DAP’s PKFZ? Are there are any shenanigans involved in the multi-billion Ringgit Penang Undersea Tunnel project being implemented by the Penang State Government. However, the news reports appear to suggest that there is something not very kosher going on behind the scenes. Is this going to be DAP’s PKFZ? http://www.malaysia-today.net/is-this-going-to-be-daps-pkfz/ Think again, DAP LGE is not the angel that you think he is. In fact they could be worse than the coalition of Gerakan, MCA or UMNO. Look at how Lim Chong Eu and later Koh Tsu Koon of Gerakan guided Penang to its most… Read more »