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PDP for PTMP: Recipe for huge financial risk

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The bloated SRS proposal for transport infrastructure in Penang is just too financially risky and expensive, writes Eric Cheah.

The so-called “Penang Transport Master Plan” (PTMP) has come under increasing attack, not least because it is an unrecognisable mutation of the original Halcrow masterplan, approved by the state government in 2013.

Under the Halcrow plan, both mainland Penang and Penang Island would have benefited at an early stage, as the overriding focus would have been on improving public transport across the state. (This is in contrast to the mutated plan, which mostly targets Penang Island with expensive infrastructure in the first phase.)

In 2015 the state government controversially opted for the project delivery partner (PDP) model to implement the transport masterplan and selected the Gamuda-led SRS Consortium as its partner. This model includes a 6% fee payable to the project delivery partner based on the total project cost.

Small wonder that the cost of implementing the masterplan then jumped from the original RM27bn under the Halcrow blueprint to RM46bn (and counting) under SRS’ bloated new proposal.

Last year the federal government approved the scrapping of the PDP model for both the Sarawak and Sabah stretches of the RM16.5bn 2,324km Pan Borneo Highway, allowing it to make substantial savings. The Edge reported that “the decision is in line with the government’s intention to stop awarding infrastructure projects through the PDP model, which contractors are not being incentivised to be cost-efficient”.

Similarly, in 2018 the government ditched the PDP model for the second phase of the mass rapid transit in the Klang Valley – after its cost spiralled from RM28bn to RM57bn – and opted for the turnkey contractor model to reduce costs.

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This makes Gamuda’s announcement in early December 2019 baffling. The firm said it expected to sign a PDP agreement with the Penang state government within “the next few weeks”. Instead of ditching the PDP model, the Penang government hopes to sign an agreement using the same model the federal government discarded elsewhere!

Under the SRS funding model, sales of 4,500 acres of reclaimed land in southern Penang Island would raise funds for the state government to finance the expensive transport infrastructure.

But the Sungai Batu Fisherfolk’s Association has filed an appeal against the Department of Environment’s approval of the environmental impact assessment (albeit with 72 conditions) for the controversial three-island reclamation.

The fisherfolk’s appeal has not yet been heard, and it is possible that the matter could be challenged all the way up to the highest court. But the state government is acting as though there is no appeal pending.

Even more bewildering is the state’s readiness to embrace escalating costs when the PDP’s funding model itself is plagued with uncertainty. Assuming that 3,000 acres out of the total 4,500 acres reclaimed could be sold at an average price of, say, RM300 per sq ft over the next 20-30 years, the amount generated would be only RM39bn – not the RM70bn suggested in some press reports.

The state needs to be transparent over how it will be able to to raise the revenue from land sales, given the stuttering global economy, the flagging property market and the large glut in expensive condominiums.

These unfavourable conditions explain why the state government is now relying heavily on a new plan to borrow RM10bn through sukuk bonds (a type of Islamic banking loan financing) with the federal government expected to guarantee the debt. This borrowing will finance the initial bit of the SRS proposal – the controversial elevated light rail project costing “over RM10bn“.

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The RM10bn bond financing might expose the public to an enormous financial risk if things go wrong eg delayed or poor land sales, low light rail ridership and higher maintenance costs. This is a huge loan for a state whose annual income is projected to be only RM519m this year.  

It is all a far cry from the initial claim that the SRS financial model would be self-financing through land sales (apart from small bridging loans).

This in itself is a good enough reason for the state to ditch the PDP model and discard the SRS proposal in favour of more cost-effective, cheaper, modern solutions that would be quicker to implement.

Eric Cheah, an Aliran member, is a former national chess player and social activist who has fought for the rights of Vietnamese workers who were exploited, trafficked or unfairly prosecuted

The views expressed in Aliran's media statements and the NGO statements we have endorsed reflect Aliran's official stand. Views and opinions expressed in other pieces published here do not necessarily reflect Aliran's official position.

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Gursharan Singh
Gursharan Singh
30 Jan 2020 12.46pm

Could this be a case where worldwide Politicians may not be different regardless of their promises as the culture maybe similar IE PERSONAL INTEREST FIRST??!!!


Rodney Fong
Rodney Fong
29 Jan 2020 11.23am

How can one say the PTMP is not important to Penang nor is it relevant to d people. The people of Penang should know what they want. As the people including the fisherman there had voted so many times FOR this project n had cried out loud to have it started immediately seams to have been missed out in this artical. The state is doing what d people wans. Your turning n twisting facts around to blind fold the readers is all you say.

Edmond lee
Edmond lee
9 Feb 2020 5.10pm
Reply to  Rodney Fong

Please challenge the author with facts. I see relevant facts pointed out in this article. Can you tell me which part of the article is turning and twisting facts? If you are sincerely concerned about Penang, you should let this article be debated. This project is even more expensive than 1MDB, haven’t we learnt our lesson? This is no longer a Penang issue when the source of funding via sukuk bond is guaranteed by federal government. Every Malaysian has the right to question this mega project.

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