PICC and the risks of BOT

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It is good to hear that the Penang government plans to stay put at its present offices in Komtar instead of building a “mini-Putrajaya’ (one of the hare-brained ideas of the previous administration). This, we are told, will save us RM1 billion in public funds.

We are also told the government will try to maximise its resources, to get more money so that it can continue its development and social programmes which are consistent with a people-centric government.

In the same spirit, I hope the state government will think along the same lines when it comes to the Penang International Convention Centre.

One good thing is that the state government appears to have abandoned plans to fund the PICC using RM50 million of the Penang Island Municipal Council’s (MPPP’s) precious funds. (The MPPP raises just over RM200 million a year from its operations.)

The state government is now looking at the Build-Operate-Transfer (BOT) model for the PICC – presumably with the MPPP remaining as the ultimate owner of the project?

What is BOT? Under a BOT model, a private firm or investors receive a contract to finance, build, and operate infrastructure for a set number of years. In return, they get to charge the users for the use of the infrastructure at a rate which makes the project financially viable for them. At the end of the agreed number of years, the project is handed over to the state.

Theoretically, the BOT option has several advantages:

  • It frees the state government from looking for financing for infrastructure it thinks is important. Whoever is selected as the private company will have to secure its own financing.
  • The state government/MPPP can set its minimum specifications for the construction, which the private company will have to comply with. The state can then monitor the work.
  • The private company will be discouraged from carrying out slipshod work or cutting corners in the construction as it will eventually have to maintain and operate the venue for a number of years.

The disadvantages of BOT in this case should be cause for concern:

  • The private company selected may have the expertise for construction, but it may not have the required expertise to operate and maintain the place.
  • If the contract is to run the place for X number of years, and if the private company is not able to operate or maintain the place, the state government/MPPP may not have the option to terminate the company and appoint someone else who can do a better job.
  • One of the components of BOT is the user-pay principle. But what if there are not enough users and the PICC is underutilised and the private company ends up making losses – will the state government end up having to subsidise the company? Under the BOT model, it is possible that the private company could get the land on the cheap or for next to nothing; so that is already a form of subsidy.
  • Will the MPPP still have to stump out expenses for major repairs and maintenance as it is now doing in the case of the Penang International Sports Arena?
  • Will financial institutions provide the required financing to the private company without the state government assuming some of the risks or providing guarantees?

These are some of the factors and risks the state government will have to consider before it uses the BOT model. Personally, I still think the risks are too high for this project.

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Pearlie White

Hello ike

Persada JB is doing well to boost the ego of Johor Corp fellows. It was set up the tap the MICE activities from Singapore. So far none has been achieved.

kee

Anil, first of all, my apologies over the long overdue cuppa, just did it in Pulau Tikus’s Public Bank. Just a tiny, tiny bit, it is not worth mentioning. I actually belong to the no fixed income group. However, i truthfully appreciate your work especially during the by-elections. Anil, how to survive with less than an average of RM600 per month. You survive on water and air ah? Please take in commercials. You need to find monthly or yearly support la. To all the readers out there, each one a bit, I bet wont hurt your pocket la. Have a… Read more »

Gerakan K

Hi Anil,

can you tell me how much (just roughly) freelance writing earn per article ???

LimBC

I supported the idea for having a convention centre. and Penang really need a convention centre. Don’t have to worry about the location as everywhere is quite near in Penang. Just look at the recent PC Fair, do you think PISA is a right venue for this event?

ike

PR wants to do this probably because they see every great city having a neat convention center where they can showcase. i agree this is good-to-have, but at what cost?, the closest parallel city i see is Perth. but dont forget, perth was very well planned as a city and the convention centre was built on top of a bus/rail interchange and where public transport is pretty world class. you have to address people flow issues because when you start looking at moving a few thousand people to and fro within a short period of time without undue aggravation, it… Read more »

Pearl

Mr. Anil, I want to know why an obviously off topic message from Kee is allowed and in the meantime you deleted many of my posts? Are you being partisan in this? I am not questioning your authority but the obvious fact is that that Kee fella has posted a low-class no-taste off-topic message linking me with a machai, and you allow it. What is the point in all these? It is the machai who kept sticking to my posts and then another machai is saying hinting that I have a crush on that first machai. Are you going to… Read more »

tunglang

Anil, you have to take it!
Blogging has it’s good and nasty fellas in the mix.

What’s important is the issue you brought up so that the public know what’s up in Malaysian economic, political and social going-ons, and for us to share our piece of mind rather than at the Speakers’ Square where there is no peace of mind and always having to look behind your back to watch out for loud-mouth hooligans!

Isn’t it great your blog has a lot of Machais to irritate the blur-blur?

Ken Wong

Agreed, there are big risks involved in carrying out this project. I still do not understand why the Penang State Government is so obsessed with putting up this huge structure. Why is priority being given to this project? Is’nt there any more urgent project that can benefit the people? Are the existing facilities insufficient to cater for present and future needs? The State Government should come out with a detailed explanation on the cost benefits of this risky project before embarking on it. Should the proposed structure become a white elephant or be regarded as a prestige project with little… Read more »

ike

you are correct in saying construction companies are not venue managers – the skill sets are very different. MICE business needs to be somewhat subsidized until some critical mass is achieved, and is a long term proposition. does the current state government have the long term resolve ? i agree BOT releases the state government from short term funding needs of the picc, but if the conference and exhibition business does not come in, someone will still need to underwrite the long term issues and that eventually will be the taxpayer. personally, i do not think penang requires a large… Read more »

Tommy

Anil, sorry to digress. Now what will those who say LGE cheated the Buah Pala residents when DBKL is offering only a RM35k flat for the Bukit Jalil Estate residents? Where is MIC? Where are the NGOs? Where are the news coverage? All hippocrites.

Jason Loh

Good one, Anil. TQ for raising the questions.

Robert Teh

I think turning PISA into PICC will be a big mistake on the part of the State Govt. Although Penang desperately needs a world-class MICE Center – PISA’s location and restricted land area do not make commercial sense. It is simply not viable if the PICC operator hopes to bring in world-class MICE participants – if the PICC is located at the current PISA site. Just look at other successful MICE Centers around the world – they are mostly located outside busy congested city centers, spread over a large area with supporting facilities and amenities, like world-class hotels, shopping, dining… Read more »

Yang

Competent, Accoutable and Transparent is what PR and LGE is. LGE & PR certainly have done a good job and have listen to the voice of the people. Who say they did not!!

Andrew I

Hare-brained idea? That’s an insult to the hare. No, this kind of idea is attributable to something much lower down the food chain and which is said to be capable of surviving a nuclear holocaust… until you step on it.

wandereAUS

Everything we do in life, privately or commercially, there are bound to have certain elements of risk! If you don’t try, you will never know. If you stayed stagnant without vision for the future, you are brain dead. So no guts, no glory!
THE BOTTOM LINE, I RATHER SEE THE TAXPAYERS’ FUND USED ON SOMETHING NEW AND ENTERPRISING THAN TO ALLOW THE MONEY TO FILL THE WALLETS OF CORRUPTED POLITICIANS.

kee

Anil, please allow off-topic a bit. TQ!…

WanderasAus is right, I think we all, readers of Anil’s blog, especially those who take advantage of Anil’s site as punching bag to vent their frustrations and anger, and also, to spew venom at DAP/Lim Guan Eng (because of no more kang tau from Gerakan since 308), those in the category, please contribute more, to support Anil’s work.

Guys, please oblige, including myself. TQ !!!

Let us build Penang together !!!

Pearlie White

I agree fully. There are a few who continuosly bashing the current Penang government as they could not come to terms with the lost of that useless Gerakan.

Pearl

If Lim Guan Eng would just shut up … and start devoting his time to serve the Penang people I would never criticise him.

When will Lim Guan Eng start doing that?

As long as Lim Guan Eng continues his foam-in-the-mouth tradition… at each and every single thing while not taking care of Penang I, as a Penang voter, will continue to point out his faults….

Amir

LGE does not need to be physically present in Penang to do his job. heard ofthe term ‘Delegation’? So long as the plan is set up properly, his subordinates could implement it easily.

kee

Yes, DAP/PR government always have the Rakyat at heart and in mind compared to BN. The latter is korek, korek, korek and now, our beloved country is at the brink of bankruptcy… These self-seeker politicians they are building wealth outside the country leaving us Rakyat bear the brunt of their sins and the Rakyat is bleeding along the country … Sad!!! The saddest of all is, there are people, in particular, non Malays still believe and support BN. Looks like they are sleeping eternally… Will they ever wake up??? Truly, it is the case of have eyes but seen not!!!… Read more »

Pearl

By hook or by crook Lim Guan Eng must erect that white ~PICC~ elephant.

Tell you what, Lim Guan Eng, please erect that building in Melaka and rename it MICC instead.

Thank you.

Razali

Dear Pearl

When was the last time you visited Komtar Penang?
have you seen the transformation done by DAP to revive the dead white elephant legacy of your Gerakan?

Pearl

I visited Komtar almost every single week. It is still as dirty, as smelly and as bad as ever. The floor cracks, escalators don’t work, paint on the wall peels off, rust here, stain there, nothing to be proud of. While the previous Koh Tsu Koon administration has absolutely failed – I give them 0 mark for the total failure – the Lim Guan Eng administration scores 30 points. Better, yes, better than Koh Tsu Koon but still a failure. We don’t need to compare to shopping centers in Orchard Road Singapore or in Toronto or Los Angeles or Dallas.… Read more »

Pearl

And by the way, stop associating me with any of those Gerakan…, okay?

Amir

Gurney Plaza is well managed because it is owned by Capital Mall, a Singapore-based organization.

Singaporeans can manage better because they are immune from the temptation for easy money and corruption. They have good retail and estate management.

By the way, the City Square shopping mall in Johor Baru is also woned by Singaporeans – much better managed than the Kota Raya shopping centre managed by Johor Corp!

Incidentally, I was told that pearl is related to one Gerakan tycoon.

Bigjoe

BOT like all privatization can be done well or badly. Granted its not simple. Can PICC be done well? In this industry, I have met some very impressive operator and entreprenuer in this sector around but those that are good and with the capital to do it are not that many. What can happen is someone that has a foreign partner with capital and network to make it work. Its not easy but its not really that hard either. To reduce the risk of the project, what the Penang govt got to do beside picking an entreprenurial partner is support… Read more »