A great article on Malaysia.
– A letter from SRS Consortium to FMT
First, we would like to reiterate that for both the Penang Transport Master Plan (PTMP) and the Penang South Islands (PSI) reclamation projects, it is the state that is the asset owner.
As the asset owner, the state has to “take into consideration the need to adequately fund the PTMP and reclamation costs” and “consider the matching of supply of these lands to balance with demand from the market”.
This statement clearly highlights that under the project delivery partner model of the RFP, the state is indeed the ultimate funder of both the PTMP and the PSI projects, and apart from assuming all the financing risks, it also has to contend with the full assumption of market risks in selling reclaimed land real estate.
Upon the formation of the Pakatan Harapan federal government in 2018, the state had a renewed belief that it would be able to obtain federal government allocations and/or loan guarantees to fund its PTMP components, just like how other states had similarly benefitted for their own transport infrastructure.
For example, the LRT systems within Selangor’s borders and the Pan-Borneo highways in Sabah and Sarawak.
Subsequently, in early March 2020, the RM10 billion loan guarantee that was promised for the state’s LRT was withdrawn.
Nonetheless, the state still took the view that:
- It would pursue with the federal government for the LRT loan guarantee to be reinstated given that it is purely a development expenditure for social needs of its rakyat; AND
- The reclamation of the first island of PSI (Island A) must proceed forthwith to provide a pivotal addition and extension to the state’s E&E hub in Bayan Lepas, and attract E&E foreign investors – in doing so, there would be an influx of foreign direct investments (FDI) and tremendous job creation for Penangites, especially among the highly skilled.
To achieve the second objective of kick-starting the PSI Island A reclamation as a major economic impetus for Penang state, especially as a post-pandemic economic stimulus, it was agreed that a joint venture be formed between SRS and Penang Infrastructure Corporation (wholly owned by the Penang state government) to enable SRS to fully fund the Island A development, while the state is absolved of all financing risks and costs of Island A’s development.
Even though the state has fully absolved itself of all risks, it still retains a substantial stake of 30% to reap in any rewards or profits from the Island A development.
Not to mention, the state can wield substantial influence of control via its 30% stake and its authority over all land matters, to ensure its socio-economic and land planning objectives are all met, for the people of Penang.
For federal projects, typically any privateer would reap 100% of the reward, given it would absorb 100% of the risks. For independent power producers, or highway concessions or developments, this is the underlying prevailing equitable rule.
Yet, the Penang state has clearly done one better here for itself.
Under this 70:30 joint venture arrangement, the state insisted on an enterprise, not only with a strong enough balance sheet to fully shoulder the funding liability of RM4 billion to deliver Island A, but also with the requisite track record of delivery of large infrastructure projects, on time and on budget, all the time.
Furthermore, the same enterprise is also responsible for delivering Phase 1 of the reclamation.
This will ensure that the project gets delivered and Penang benefits from the ensuing FDI, estimated at over RM70 billion and the ensuing GDP contribution and job creation is estimated to be RM100 billion and more than 300,000 jobs, respectively, where at least half are knowledge-based and highly-skilled jobs, over a 30-year development time frame for the three PSI islands.
And to ensure the delivery of the lands is done on the most cost-efficient basis, the state had also insisted on the appointment of an independent checking engineer, to oversee that cost estimates and work programmes are reasonable, fair and equitable.
Thus, there is clearly no double dipping or leveraging off the state in any way.
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