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.