September 15, 2008
Welcome to Dr. Michael Lim Mah Hui’s blogsite!
Dr. Lim is a sought after conference speaker on International Finance, Malaysian Economics and Politics. He is passionate about his field and looks forward to sharing his knowledge and experience with you!
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May 30, 2021
It’s also foolish to apply outdated solutions to solve traffic, mobility problems today
Updated 2 hours ago · Published on 30 May 2021 10:26AM · 0 Comments21Shares
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ON May 27, 10 DAP assemblymen issued a statement affirming the “necessity, feasibility and vision underlying the PTMP and PSI project”.
Note that the Penang South Reclamation (PSR) project, with all its social and ecological issues, is being reinvented as Penang South Islands (PSI) to make it more marketable. Nevertheless, PSI and PSR are used interchangeably here.
The DAP backbenchers accused Gerakan, PAS and Penang Forum for recycling criticism that have been answered by the state.
On PTMP
I do not dispute the feasibility of the project purely from an engineering perspective. However, I do have grave doubts about Penang state and local governments’ capability to execute and handle such mega projects, given their poor track record as attested by the financial fiasco and human tragedy in building the 5km Bukit Kukus highway. What more, for mega projects such as the proposed undersea tunnel and Pan Island Link 1 (PIL1), with 10km of tunnels running through the hills and fault lines of Penang island.
The proposed Penang Transport Master Plan (PTMP) and PSI in the present form are neither necessary nor visionary. Recognising their past folly of building mega highways that catered to cars and destroyed communities, city authorities in the United States, South Korea, and other countries are tearing down these structures today (see the New York Times article titled “Can Removing Highways Fix America’s Cities?” on May 27, 2021).
Instead of learning from the mistakes of these countries, our politicians instead seem bent on repeating them. Do our esteemed assemblymen deny the real hazards of climate change, and the growth of private vehicle use as a major contributor to it?
Are they not aware of how transport technology is changing so rapidly, and how the pandemic has altered working and travelling patterns so drastically, that it is foolish to apply outdated solutions like building highways to solve traffic and mobility problems?
Other countries are investing in congestion pricing and better public transport systems, and encouraging bicycling, while we still prioritise highway-building. Is PTMP in its present form reactionary or visionary?
The assemblymen, like the Penang government, accused Penang Forum of only criticising, and not offering alternatives. In 2016, Penang Forum proposed its “Better, Cheaper, Faster” version of a public transport system as an alternative vision and outline for PTMP.
Granted, it is not a full-blown technical report, which can be done only by transport professionals, but it provides an outline and road map for a more scaled-down and sustainable transport system. We invited the Penang government to engage world-renowned independent sustainable mobility experts to evaluate the proposal and PTMP. But, this was never done.
Penang Forum was the first to propose to the state government in 2018 to consider the trackless tram or autonomous rail transit (ART) system instead of the light rail transit system, when ART was first introduced in China.
Penang could have built the ART system in a year or two, at a tenth of the cost of the LRT. This was also rejected. Instead, Sarawak is implementing the Kuching Urban Transportation System, which uses ART, powered by hydrogen fuel cells.
The project’s civil and structural works are expected to begin in 2022. In Johor, the first ART system arrived in January for pilot testing under the Iskandar Malaysia bus rapid transit project.
Sarawak and Johor have implemented the ART system, while Penang is still whistling in the wind.
On PSR
My esteemed reps also claimed that PSR or PSI is a visionary project that will bring tens of thousands of new jobs and propel Penang to greater heights, building on the track record of former chief minister Tun Dr Lim Chong Eu.
Unfortunately, repeating past performance is no guarantee of future achievement. Moreover, the times and circumstances have changed. The dark side of unbridled reclamation – from destructive sand mining, devastation of marine biodiversity and damaging of coastlines to a carbon emission of 3.2 million tonnes annually in the PSR reclamation – is now increasingly recognised.
However, the Penang government still thinks reclamation is a costless way to acquire land. It fails dismally to recognise the richness of the area in supporting sustainable fishing livelihoods and securing food security for Penangites, and severely underestimates the ecological losses from the reclamation. SRS’ consultants in its environmental impact assessment (EIA) clearly admitted that the PSR project will result in “irreversible change” to the environment, and the “permanent loss” of physical and biological resources in the seas south of Penang island.
The original justification for PSR was to finance PTMP. Significantly, this justification and link have now disappeared. PSI is unable to finance even a small fraction of PTMP (see my article titled “Selling Penang for a Song and Dance”, which appeared on May 17).
The following needs are now presented to justify PSR: to plan for a smart city; to provide employment opportunities; to expand the Bayan Lepas Free Trade Zone; to develop and retain human capital; and, to relieve the development pressure on George Town.
I support all these lofty objectives. My point is that the state can achieve all of these by redirecting development and growth to the mainland. A major weakness in Penang that the state government recognises is the unbalanced development between the Penang mainland and island.
Too much growth has been concentrated on the island, contributing to escalating land prices and pressure. What better way to redress this imbalance than to focus its energy to develop the mainland?
Penang could also turn a statewide sustainable mobility network of BRT, modern trams or ART, and water taxis into a major economic sector. It could provide thousands of direct and indirect jobs (drivers, and maintenance, administration, technical support and IT staff), as well as employment in support sectors, such as the construction of buses and water taxis; maintenance workshops and depots; and, transport coordination.
Recycling criticisms that have been answered
Finally the assemblymen claimed that Penang Forum is merely recycling criticisms that have already been answered. Yes, the state has responded to some of our queries and criticisms. But as any teacher would tell their student, responding to a question is not the same as providing a satisfactory, or even passable, answer.
Let me repeat a few fundamental questions on PSR and PTMP that have been raised, that have not been adequately answered by the state.
1. Can the state justify its population projection for the three islands to reach 446,000 by 2030 as stated in the EIA report?
2. Can the state explain how it will fund PTMP projects, which will cost billions, when its expected revenue from reclaiming half of Island A would probably be about RM600 million in seven to 10 years’ time? This is equivalent to only about one year’s state revenue. However, the environmental damage and social losses would cost many times as much, if they are truly to be accounted for.
3. Can the state explain how the costs of PSR have escalated from RM8 billion for two islands (totalling 1,428ha) in 2015 to RM7 billion for half an island (only 485ha) in 2021? These figures alone do not speak well of Penang’s competency, accountability and transparency! – The Vibes, May 30, 2021
Lim Mah Hui is an economist, and former banker and Penang island city councillor
May 30, 2021
Lack of transparency in contract management allows shareholders to double-, even triple-dip into profits of developer
Updated 5 days ago · Published on 24 May 2021 8:04PM · 0 Comments208Shares 157 45
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
May 20, 2021
MAY 17 — The Penang state government’s plan to reclaim Island A, the first part of Penang South Reclamation (PSR), seems like a fait accompli. But how did we get here? Following the progress of the Penang Transport Master Plan (PTMP) might show that a sweet promise made to the public for a self-financing project, has been used to sell a questionable privatisation-cum-marketisation deal.
In early 2013, the Penang state government approved a RM27 billion Penang Transport Master Plan to address the state’s transport and traffic problems. Two years later the SRS Consortium proposed an amended PTMP which ballooned the costs to RM46 billion. The proposal included the reclamation of three islands (4,500 acres) off the southern shores of Penang to finance the PTMP.
SRS was appointed to be the project delivery partner (PDP) to manage this massive project, charging a fee equivalent to 6 per cent of total project cost. SRS sold this Penang Southern Reclamation (PSR) proposal to the Penang state government as self-financed, that is, the proceeds of land sale will pay for the PTMP projects. According to the SRS request for proposal (Volume 1, Chapter 4), reclamation of islands A and B, taking about 8 years, will net an income of RM 16.1 billion for the Penang state government (RM7.2 billion from Island A and RM8.9 billion from island B).
Volume 1 page 1-06 of the same proposal states, the PTMP project, “Does NOT require the State (or the Federal Government) to raise or guarantee any loans to finance the delivery of the TMP (Transport Master Plan).” The emphasis “NOT” in capital letters is original. All funding, except the initial capital, is supposed to come from reclamation of the three islands. SRS promised to source the initial RM1.3 billion bridge loan to kick start the reclamation. But this promise was never fulfilled.
Instead, the Penang state government had to desperately approach multiple sources, including a Japanese government agency, to help finance the PTMP. When Pakatan Harapan became the federal government, the Penang state government asked the latter to provide a loan or loan guarantee for up to RM10 billion.
By right the Penang state government should have rescinded its agreement with SRS since the latter could not fulfil its basic commitment, something with Penang Forum consistently advocated.
Eight years later, the people of Penang are sold a different story.
On March 25, 2021, the Chief Minister of Penang Chow Kon Yeow revealed that Island A, the largest island to be reclaimed, will become “private”. This is because the Penang state government was unable to secure a loan or financial support from the federal government to jump start the mega-project.
Under the new public-private arrangement, a 30-70 joint-venture called the Project Developer (PD) would be set up — 30 per cent owned by a Penang state government nominee and 70 per cent by SRS. The PD has sole and exclusive rights to develop and sell the reclaimed land in Island A. The PD in turn would award all construction work (not through open tender) to a turnkey contractor (TC), another 30-70 joint venture between a Penang state government nominee and SRS, to manage and implement the project. The TC will directly award the reclamation work to Gamuda Engineering and other work packages (infrastructure work, PIL2A and Phase 2 reclamation) via competitive bidding. Upon completion, Island A will be handed over to the PD who will in turn call for tender on land parcel sales. This new scheme puts Gamuda in the driver’s seat as it owns 70 per cent of the JV through SRS. Gamuda will be responsible for financing the project and the Penang state government will be absolved from all financing responsibility and risks.
The PD will have full control over the reclamation schedule — reclaiming and selling according to market conditions, stipulating that the condition that the work should be completed within 10 years from work commencement. It is expected the reclamation will take up to 6 years with initial land sales beginning from year 4. This means the original intention of financing PTMP projects based on land sale is no longer applicable, for the link between land sale and PTMP project construction has been broken. Land reclamation and sale are driven purely by market conditions, not by PTMP projects.
According to the chief minister, the Penang state government doesn’t have to fork out a cent and it will still own all the reclaimed land. This deal sounds too good to be true.
So, what will the Penang state government get out of this new arrangement? The short answer is RM600 million in 7 to 10 years’ time. It is even less (about RM400 plus million) on present value basis.
Let us follow the arithmetic of this new deal. According to Gamuda’s new estimates, land sale proceeds from Phase 1 of Island A are between RM8-9 billion over 7 years, reclamation costs are between RM4-4.5 billion, and construction costs between RM2-2.5 billion. (The reclamation and infrastructure costs have more than doubled compared to the SRS 2015 proposal.) Taking the higher estimates, the net revenue is estimated at RM2 billion (RM9 billion less RM7 billion). Hence, the net revenue for the Penang state government is RM600 million (30 per cent of RM 2 billion).
If the Penang state government gets only RM600 million from this new deal, what will Gamuda stand to gain? Plenty. It has complete monopoly over all reclamation work. All proceeds from land sale shall be used to pay for all the PD’s and TC’s costs and liabilities, including but not limited to payment to the TC, payment of interests and loan principal, all fees and taxes. In other words, Gamuda would be “double-dipping”, by making good profit from the reclamation work and, on top of that, chalking up 70 per cent of net proceeds of the PD and the TC.
The original idea and intention of the PSR project was to fund the RM46 billion PTMP. The initial estimated costs of the PIL1 and LRT (the first two PTMP projects) came to about RM6 billion each. These costs have ballooned to about RM8 billion for each.
Penang Forum is in principle against the PIL1 and LRT because these megaprojects are overdesigned for local population needs, too costly and entail unacceptable environmentally impacts. However, for the purposes of this essay, there is a need to analyse whether the PSR will deliver what the government promised.
Is the Penang state government admitting that the LRT and PIL1 will not start until they are able to get money from reclaimed land sale in 7 to 10 year’ time? Even then, how is a projected revenue of RM600 million from Island A going to pay for the LRT and PIL1 which will cost RM8 billion each?
What can we conclude from all the twists and turns in the agreements between the Penang state government and SRS/Gamuda?
Financing a bloated PTMP was put forward as the original justification for the PSR project. But it is now clear this has failed. It is impossible to finance even the 2 initial projects of the PTMP (LRT and PIL1) with RM600 million. PTMP and PSR have been decoupled. Perhaps the PTMP was simply a bait for the people of Penang, which is now switched for the original intention of land reclamation for land sales per se and nothing further.
In face of the pandemic, the economic forecast for the next 10 years is uncertain. What happens if the cash flow starts to falter before land sales can begin, will Island A end up like so many other stalled reclamations. The Penang state government is willing to gamble away the state’s fortunes given unforeseeable externalities that will have to be borne by future generations.
In this whole process, Penang loses its environment, valuable fishing ground, food security, and loss of fishermen’s livelihood etc. SRS’s consultants in its Environment Impact Assessment (EIA) admitted that the PSR project will result in “irreversible change” to the environment and a “permanent loss” of physical and biological resources in the seas of southern Penang island.
This new arrangement clearly does not make any economic, financial and ecological sense. It is against all public interests and is a folly to continue.
* This is the personal opinion of the writer or publication and does not necessarily represent the views of Malay Mail.
May 17, 2021
July 9, 2020
Conference Speaker: Dr. Michael Lim Mah Hui 