sPICE: The quid pro quo with SP Setia

How is SP Setia going to finance the building of the proposed new convention centre in Penang known as sPICE? It will be allowed to build an extra 1,500 homes in its existing projects in Penang, effectively increasing the density of those projects.

That emerged during a feedback dialogue session on sPICE, which I attended yesterday morning at the Town Hall facing the Esplanade.

At first, I thought it was going to be a small session with the MPPP and the council president, Patahiyah. But it turned out to be a bigger event with the Chief Minister chairing it, until he had to leave and hand over the reins to Patahiyah. Among those present were Council staff and representatives of SP Setia.

As one of the participants, engineer Tan Seng Hai, observed, this was a closed-door session as only those who had emailed their concerns to the Council president were invited. About seven or eight of us out of the 16 or 18 who had emailed objections turned up. (The rest probably couldn’t make it as the session was held during working hours.) No one from the press or BN opposition parties was there. Still, it was notable that such a session was actually being held unlike in the past, when projects were undertaken without any feedback or public consultation.

The Chief Minister started the ball rolling by explaining to those present why he felt the RM300 million convention centre was necessary for Penang. He was clearly passionate about it, pointing out it would only cost the MPPP just over RM11 million net. (MPPP’s share of the RM300 million bill i.e. RM50 million less savings on future upgrading work on Pisa and amount raised from leasing out three acres of the site for 99 years for a 300-room hotel.)

Seng Hai raised the point about the availability of convention centres in other urban centres in the region such as Bangkok, Singapore and Macau. Was there already overcapacity and would there be a glut and would Penang be able to compete with the big boys? Guan Eng was convinced that Penang needs a convention centre for its own requirements and he vowed to personally market sPICE during his trips abroad. He said the seven acres of green space (which would be free and open to the public) envisaged in the project was an added attraction and indeed, Penangites badly need more open recreational areas.

I followed up by asking why MPPP should get involved in building a convention centre when a couple of upcoming private projects in Penang include convention centres of their own. As I ended my question, the Chief Minister raised his hands to show eight fingers: he explained that it would take at least eight years for those proposed private sector convention centres to be completed, and he felt that Penang couldn’t wait that long. As for sPICE, it is better to try and fail, than not to try at all, he said.

Other questions and concerns raised touched on traffic dispersal, the need for an LRT station to be factored into the design, proper ramps for loading and unloading goods at the convention centre, security, the size of the swimming pool, maintenance of toilets, and how really green this project would be (it would be ‘gold’ green rather than ‘platinum’ green, according to industry jargon). On the green space, questions were raised as to whether there would be a jogging track and whether shady trees could actually be planted on a roof-top green space.

I raised a couple of points: was this an MPPP or a Penang state government project, as the decision-making process is different. If it was a Penang state government project, it would have to be approved by the Penang State Assembly. If it was an MPPP project, it would have to be approved in a full council meeting. If so when was it approved?

To which, the Chief Minister responded by saying that this was indeed an MPPP project, but apparently, anything involving MPPP landed property or lease of land would also need approval from the relevant state authorities. I am still not clear if an MPPP full council meeting did indeed approve the deal.

I asked the Chief Minister and the Council president if the RM11 million (or RM50 million, whichever way you look at it) would be the maximum the Council would be exposed to and if there were any other hidden costs, and they both said RM11 million was the maximum and it would be incurred in the first three years. In fact, they said the Council could actually earn assessment from the project in later years. I think I heard it being mentioned that the state authorities had themselves committed to use sPICE for 45 days in a year.

I also expressed concern that sPICE would be 30 years old and out-of-date at the end of the Build-Operate-Transfer period, when the property would be transferred back to the MPPP (though the future price of this prime land would still make the site a valuable asset).

What was also revealed during the session was that the deal involves allowing SP Setia to build an additional 1,500 homes in its existing projects in Penang. I had to seek clarification on this a few times as it wasn’t clear to me what this concession entailed.

After a couple of clarifications from first Patahiyah and then, an SP Setia manager, this is my understanding of the deal:

Out of the extra 1,500 homes now allowed, the 30 per cent low-cost component (450 homes, at a price of around RM72,000) by SP Setia would be built on state land “given” to the developer. If this land is given free or subsidised, then the revenue lost should be factored in as part of the sPICE project cost incurred by the state/MPPP. (Normally, developers have to pay for the land on which their quota of low-cost housing is built.)

The remaining 1,000-odd extra homes that SP Setia would be allowed to build on its handful of existing projects on the island effectively means raising the approved density of those projects on Penang Island. This is the real deal clincher for SP Setia and the SP Setia manager acknowledged as much during the session.

A few more questions arise here, which I only thought of after the session was over: would a development charge be imposed for this increase in density? If not, shouldn’t that revenue lost by the MPPP be factored in as a cost of sPICE? Second, would this increase in density set a precedent and result in future permissible densities becoming more ‘flexible’? Third, who pays for the supporting infrastructure needed to cope with the extra density?

In this connection, another question arises: when will the Penang Island draft local plan, which specifies permissible densities for each area, be released to the public? So far, we have only heard about the ‘special area plan’ for the heritage area of George Town but not the draft local plan for the island for 2005-2020.

Consultants started working on the island-wide plan from 2005-2006. It was approved by the MPPP in 2007 and later resubmitted to the MPPP for approval in September 2008 after incorporating amendments that had been proposed by a few councillors who, together with the consultants, had gone through it with a fine tooth comb. This plan was to be confirmed by the state government by December 2008, after which it was to be open for public viewing.

The state government then asked the consultants to brief them and that took many meetings until 2010, when the Chief Minister called for a final meeting of all councillors and Aduns. It was then announced that the draft local plan for the island and the ‘special area plan’ for the heritage zone would be open to the public in 2010 because the authorities need to submit the special area plan to Unesco by February 2011. What we read in the press now is all about this special area plan.

So we really need to look urgently at the Penang Island local plan, which could get even more outdated with each passing month (after all it is for the period 2005-2020), and take a careful look at the densities allowed.