Two hot potatoes in PGCC/Penang Turf Club deal

It looks like we are going to hear more about the Penang Turf Club in the news.

The controversy is simply not going away.

Here are two more hot potatoes:

First hot potato: No conversion fee charged

When the status of the Penang Turf Club land was converted from open recreational to mixed development land, by right the state government should have collected a conversion fee from the developer – even if the developer had not applied for the conversion. But the conversion was nonetheless handed over on a silver platter by the previous state government for the PGCC developer’s benefit.

The state waived hundreds of millions of ringgit in one fell swoop. How much would the fee be?

Few outside the local government know for sure what the actual rate should be in this case.

From one source, I hear it should be 25 per cent of the original value.

A second source tells me that it could be RM50 per square foot. (In Green Lane, for instance, if you want to convert houses from residential to commercial, the conversion fee is apparently around RM100psf.)

Let’s do the calculations for both methods, based on purchase price of RM488 million for 260 acres (with only 180 acres that may be developed, the remainder being hill-slopes and cemetery land):

Based on 25 per cent of the value:

RM488 million x 25% = RM122 million

Based on RM50/sq ft conversion fee:

180 acres x 43,560 sq ft/acre x RM50/sq ft = RM392 million

So the conversion fee would have been in the ball park range of RM120 million to RM400 million. Either way, we are talking about hundreds of millions of ringgit of lost revenue for the state. The developer should have been charged this fee – even if it had not applied for the conversion itself.

Let’s not also forget the profit made by the developer arising from the higher market value of the land following the conversion. Based on the current market value of mixed development land of around RM250psf:

Current value (180 acres x 43,560 sq ft/acre x RM250/sq ft) – purchase price RM488 million = RM1.5 billion revaluation profit!

Less: the cost of a constructing a new racecourse RM300 million

= RM1.2 billion surplus.

Hey presto! The developer becomes an instant billionaire, thanks to the government.

So this is one good reason for the Penang government to immediately regazette the land back to recreational status and turn the whole place into a People’s Park.

Second hot potato: Prime land sold cheap to Abad Naluri (but still unpaid)

Now, Abad Naluri was supposed to build a new replacement race-course in Batu Kawan over 300 acres of land acquired from the Penang Development Corporation. This land is now prime land in Batu Kawan as it is just next to the site of the proposed second bridge for Penang (what a “coincidence”!), the ground breaking ceremony for which was held in 2006 by Prime Minister Abdullah Badawi.

And how much did Abad Naluri pay for this land?

According to one source, the purchase consideration was RM46 million for 300 acres (still not paid).

Let’s do the calculation:

RM46 million divided by 300 acres divided by 43,560 sq ft/acre = RM3.52psf!

And this probably includes the cost of earth filling by the PDC.

RM3.52 per square foot for prime land?!! What the…

It is now said to be worth 15psf, which means that Abad Naluri would have made;

Current market value (RM15/sq ft x 300 acres x 43,560 sq ft/acre) – Purchase consideration RM46 million =

unrealised revaluation surplus of RM150 million for Abad Naluri if the sale were to bes completed.

It’s time for the Penang state government to take back the Batu Kawan land and sell it at its real value or use it for the people’s benefit e.g. low-income housing.

Now, let’s look at the chronology of events:

2002

Nov 25 – Turf Club EGM approves sales of Turf Club land in Batu Gantung and acquisition of Batu Kawan site.

2003

March 21 – Preliminary agreement said to have been entered into with Abad Naluri. Under this agreement, Abad Naluri has paid advances totalling RM10 million, presumably as “compensation” to Turf Club members.

No mention in Annual Reports of progress of deal since then.

2004

May 12 – Agreement entered into between Turf Club and Abad Naluri for sale of the Turf Club land in Batu Gantung.

Abad Naluri also enters into Principal Agreement with PDC for purchase of Batu Kawan land, for which it has still not paid RM46 million for 300 acres. Terms and conditions apparently still not finalised.

2005

July 5 – And yet, layout plan for Batu Kawan race course approved by MPSP.

2006

By Sept/Oct – Abad Naluri submits application for planning permission for PGCC.

Nov 12 – Abdullah Badawi officiates at the ground-breaking ceremony of the proposed second bridge in Batu Kawan, right next to new race-course site.

2007

March 28 – Earthworks approval for Batu Kawan site obtained from MPSP; earthworks said to have commenced after this – even though purchase consideration not fully paid!

June 28 – Conversion of Turf Club land from recreational land to mixed development gazetted under the Penang Structure Plan, thus turning PGCC developer into instant billionaire!

Oct 17 – Prime Minister Abdullah launches PGCC, flanked by then Chief Minister Koh Tsu Koon and Patrick Lim – even though acquisition of Turf Club land not yet been completed.

Penang civil society groups launch concerted and successful anti-PGCC Campaign, mobilising Penang public, who send 2,500 letters and 500 emails to Chief Minister Koh.

2008

Jan 14 – Koh issues directive to return the planning application to the PGCC developer, who now has to revise the plan before it can be approved.

March 8 – But it’s too late. Penang ruling coalition is shockingly trounced in the general election. Gerakan loses all state seats and Koh is dumped in Batu Kawan parliamentary seat. It’s a complete wipe-out.

March 12 – New Chief Minister Guan Eng says no approval has been given for PGCC.

Over in Batu Kawan, Abad Naluri has made hardly any progress in constructing replacement race course. Instead, cows seen grazing on the site!

April 1 – Supplementary agreement entered into between Turf Club and Abad Naluri extends the original agreement, which should have lapsed. The agreement is extended to 2011.

April 7 – Penang Turf Club holds AGM, amidst uneasiness among members over the deal.

April 10 – Abad Naluri chairman resigns.

April 14 – PTC opens documents for inspection by members, but says documents not for circulation to members; members only “free to make notes of the documents”. Some Turf Club members unhappy that allegedly material changes to the original deal not brought to their attention.

May 1 – New vultures said to be entering the picture through the back door, showing interest in Turf Club land.

May 8 – Turf Club members lodge police report.