Laying out the facts on the Penang South Reclamation project – Lim Mah Hui

IN my article of May 17, “Selling Penang for a Song and a Dance?”, I showed that the Penang government was trading off its coastal ecosystem, fishermen’s livelihoods and food security for only RM600 million in the Penang South Reclamation (PSR) project.

In their reply dated May 22, 2021, the developer consortium assured the public that it will not be “double-dipping or leveraging off the state in any way”, as the state government will be appointing an independent checking engineer to oversee the costs and work programme of the Penang South Islands (PSI) project.

As usual, instead of addressing my arguments, SRS Consortium skirts around the issues, creating obfuscation and confusion for readers.

Let me explain from the beginning. In 2015, SRS Consortium responded to the state government’s request for proposal for the Penang Transport Master Plan (PTMP) and was awarded the project. SRS Consortium proposed land reclamation as a way of financing the transport plan.

The following year, after repeated requests from civil society for more information about the public project, the SRS Consortium proposal was exhibited at Dewan Sri Pinang during office hours. As we were not allowed to bring in any recording device or cameras, and not even our handphones, members of Penang Forum painstakingly copied salient portions of the proposal by hand with the pencils and paper given to us.

Here are the figures. In 2015, SRS proposed to reclaim Island A of 2,430 acres (983.4ha) for a cost of RM4.9 billion (RM3.3 billion for reclamation and RM1.6 for infrastructure) and Island B of 1,110 acres (449.2ha) for RM3.1 billion (RM1.9 billion for reclamation and 1.2 billion for infrastructure).

In short, two islands of 3,530 acres would cost a total of RM8.1 billion to reclaim. The money made from the sale of land from these two islands would pay for the implementation of the transport plan. Hence, the state government agreed to undertake the PSR project, which later expanded to three islands.

Since then, the costs of both PTMP and PSR have been hiked up every one or two years. In 2021, we were told that it will cost the state government RM7 billion to reclaim half of Island A of 1,200 acres (485.6ha) (RM4.5 billion for reclamation and RM2.5 billion for infrastructure).

Now, let us look at how SRS Consortium’s role in the endeavour has evolved.

Under the 2015 proposal, SRS was to play the role of project delivery partner for fees amounting to 6% of the project costs. In 2021, SRS has now become the majority shareholder in a joint venture (the project developer) with the Penang government, represented by its subsidiary Penang Infrastructure Corporation, the minority shareholder.

Protection ‘thrown out the window’

Even more worrying is the complex arrangement of the contract management. This has been designed in such a way that the same players are involved in two or three levels of project implementation. The first layer is the project developer (30% owned by a state government nominee, 70% by SRS), the second layer is the turnkey contractor (also with the same 30% and 70% ownership structure), and the third layer comprises the companies carrying out the construction and reclamation work. 

Needless to say, the operationalisation of the contract management set-up is less than straightforward or transparent. In addition, the multilayered structure, whereby the same parties are both project developers and turnkey contractors, may compromise corporate governance, weaken cost performance and impair time performance.

This is how SRS Consortium, being involved in the second and third levels of project implementation, may enjoy opportunities for “double dipping”. Gamuda Engineering gets to keep 100% of profits, and SRS, 70% of turnkey contractor’s profits. Indeed, Gamuda may even uniquely enjoy the opportunity for “triple dipping”, if profits are made by the project developer.

Under the 2015 SRS request for proposal for PTMP, it was clearly stated that SRS Consortium as the project delivery partner and its affiliated companies will not be bidding for construction work, as that would entail a conflict of interest. This protection is now thrown out of the window.

As for the safeguards supposedly put in place by the Penang government, whether or not this independent checking engineer will be truly independent remains to be seen.

Plucking figures ‘from thin air’ 

Finally, let me address two other points raised by SRS’s statement.

The first is that its claims of the project attracting RM70 billion in foreign direct investment, contributing RM100 billion to Penang’s gross domestic product, and creating 300,000 jobs over 30 years. Suffice to say that anyone can pluck any number out of thin air. How credible are these numbers?

The credibility can be reflected in SRS’ population projection of 446,000 inhabitants on the three islands by 2030 in its 2015 proposal. Are we to believe that Penang’s population will increase by 446,000 in a span of 10 years, when it has taken 200 years for its population to reach 720,000?

Second, SRS said I was selective in my arguments by not mentioning that the Penang government, in the 2015 proposal, would be funding the reclamation, be the owner of the islands and take on all the financial risks.

On the contrary, I have from the very start cautioned the state government against SRS’ proposal to fund PTMP through land reclamation precisely because of the huge financial risks arising from the mismatch of cash flow between land sales revenue and construction expenditure.

The Penang government should have rejected SRS’ proposal from the start. Instead, it has now acquiesced to a back-seat role in a private-led joint-venture model, with Gamuda in the driver’s seat.

The state government is required to do due diligence before signing the agreement. They should go over the figures once again and explain how the costs of PSR has escalated from RM8 billion for two islands (totalling 3,530 acres) in 2015, to RM7 billion for half an island (only 1,200 acres) in 2021. Work has not begun, but project costs have almost tripled!

It is the Penang government’s duty to protect public interest and not become entangled with private interests. What it should do now is to simply abandon the massive reclamation project, which will destroy the state’s environment and biodiversity, as well as its fishermen’s livelihoods, and threaten local supply of fresh and affordable seafood to Penangites. Move the development to the mainland and scale down PTMP to sustainable proportions. – The Vibes, May 24, 2021

Dr Lim Mah Hui is former member of Penang Island City Council, an economist, and former banker