This is the latest statement from Penang Forum. The financial risk from this RM46bn project should concern all the people of Penang. Bear in mind that the annual income of the Penang state government is around RM0.6bn per year.
The Penang state government is adamant to proceed with its “Penang Transport Master Plan” (PTMP) despite legal and financial setbacks.
Financially, it is not likely to receive backing from the Perikatan Nasional government, and legally it is under investigation by the Malaysian Anti-Corruption Commission for possible malfeasance over the undersea tunnel project.
The state government is setting up a wholly owned special purpose vehicle, Penang Infrastructure Corporation Sdn Bhd, to manage the PTMP project.
Ostensibly, it will issue bonds guaranteed by the state to fund the projects. The amount is yet to be determined.
In the original PTMP submitted by SRS Consortium, SRS was supposed to provide a bridging loan of RM1.3bn and the state would supply about RM1bn from sale of the land in Sungei Nibong.
However, last year, the state asked the federal government, then still under Pakatan Harapan, for a RM10bn loan guarantee.
All this, of course, is off the drawing board, and the state now wants to raise the funds directly.
The Consumers Association of Penang has issued a press statement that it is unconstitutional for a state government to guarantee bonds except with the expressed approval of the federal government.
Instead of seeking proper legal advice, Chief Minister Chow Kon Yeow responded with a business remark that banks are the ones that proposed and are pursuing the idea.
Penang Forum has repeatedly alerted the Penang state government to the financial risks of funding the PTMP with revenue from land reclamation.
The major risk arises from the timing mismatch of cash flow between expenditure commitments and revenue availability. Payments have to be made when project construction is started, but will the state be able to reclaim and sell the land in time to fund the payment?
Will the state be able to sell the land at the projected price? Malaysia’s glut in property market is made worse by economic uncertainties arising from the coronavirus pandemic.
What happens when there is a shortfall in revenue? Will the project be delayed or abandoned? There is nothing worse than starting a huge infrastructure project with severe environmental damage and then delaying or worse, abandoning it halfway.
A similar problem happened with the Bukit Kukus highway project in Paya Terubong, where works were interrupted in October 2018 with a landslide resulting in nine workers’ deaths. The highway is still incomplete today, although the mishap cost the MBPP additional millions.
Initially, private developers who were committed to build part of the road could not deliver when they were unable to sell their property in a bad market.
Chow recognised it when he was quoted as saying, “As building the road will not bring the developers any revenue, they need to time the paired road project with the sales of their project.”
If the chief minister is able to recognise this cash flow problem for a small project costing only RM270m for the two developers and RM275m for the MBPP, he should be more forthcoming to the public on the financing risks of the RM46bn PTMP.
The Penang state government has consistently sold to the public and the federal government the idea that it does not need any public funding – a position that it has flipped-flopped on.
It has consistently underplayed the risks of the financial model for funding the PTMP. With limited state revenue averaging around RM600m per year, it is highly irresponsible of the chief minister to burden the people of Penang with such a multi-billion ringgit risk.
In accordance with the state’s commitment to transparency, Penang Forum calls on the state government to make public the terms and conditions in the new agreement with SRS Consortium such as the project delivery partner fees to be paid, the clauses for delays and cost overruns, and the terms of compensation for exit or termination.
Penang Forum steering committee
17 July 2020