Why not borrow the RM8b?

Property News/ 8 December 2011 Leave a comment

title= Billed as the current government's biggest infrastructure exercise since it assumed office in March 2008, the projects have been tagged at RM8 billion and reportedly conducted via open tender.

Chief Minister Lim Guan Eng had said the projects would comprise a third (tunnel) link connecting Gurney Drive on the island to Seberang Perai on the mainland, a by-pass connecting Gurney Drive to the Tun Dr Lim Chong Eu expressway, a link between Bandar Baru Air Itam to the same expressway, as well as a paired road to the existing coastal road from Tanjung Bungah to Teluk Bahang.

Lim had also said that the state government will not provide any payments for the projects, and that the costs incurred will be recovered, via "competitive land swap" deals with prospective companies.

He was quoted as saying that the proposed land swap would involve the best prime land in Penang, which is in the Gurney Drive vicinity and that the price of land in Penang would increase in the next few years, and thereby benefit the companies that undertake the road and tunnel building projects.

Although it was reported that a prequalification exercise briefing for prospective companies would be held in Penang on November 29, the media does not appear to have been updated on how the briefing went, nor the interest shown by any potential firms.

Yesterday, the Penang state secretariat placed advertisements in selected print and electronic media, that a second briefing for pre-qualification exercise is to be held on January 14 next year.

The advertisement states that companies that had attended the first briefing on November 29, need not attend the second briefing.

The issue of the proposed land swap and the fact that Lim and his senior state executive councillor Lim Hock Seng were quoted as saying that the state would not incur any costs, appears to be quite mind-boggling, given the fact that prime land is going to be given away.

For the sake of argument, let us use the case of Ivory Properties Group Bhd which this year, won a bid to develop over 40ha at Bayan Mutiara on Penang Island.

Ivory Properties Group had in July this year disclosed that it received a letter of acceptance from Penang Development Corp on its proposal to buy and develop 41 ha of mixed development land in Bayan Mutiara for RM1.07 billion, or RM240 per sq ft.

Ivory is said to have paid RM240 for 70 per cent of ready-to-use land, while the remaining 30 per cent would be for reclamation rights.

If interested companies for the new plan unveiled get RM8 billion and land which will potentially triple in value, this renders an opportunity cost of RM16 billion (assets worth RM24 billion, minus costs of RM8 billion).

The question which now begs an answer is this: For RM16 billion, why does the Penang government not hire professionals and set up its own construction company like the Employees Provident Fund, which controls 40 per cent of Malaysian Resources Corp Bhd?

If the state is intent on proceeding with the projects – which are well-intended for traffic dispersal – it may be prudent for the authorities to borrow the RM8 billion needed to carry out the projects themselves and service the loan.

The current scheme announced appears to offer opportunity costs which are too low for the state and the people of Penang, and the move to privatise profits for such a venture may need to be revisited.

SOURCE: Business Times

  1. Tiger
    December 9th, 2011 at 17:53 | #1

    Who will lend them 8 billion. And how will they pay it back? And for how long? This traffic dispersal plan are not revenue generators. Yes, the tunnel might be a revenue generator – as people might pay to use it, but how much will the fare be. If you pay by giving rights for reclaimation, its an opportunity to fund project with as little borowings as possible. Of course private companies who undertake these projects want to make money and they will. But with very little federal funding, what else is there to do. Reclaimations are ugly but if done properly, they can be quite good – like Singapore. A new Public transportation system like MRT/LRT would be good but that is under the purview of the federal government.

  2. Central unit
    December 10th, 2011 at 11:56 | #2

    As summary, LGE only know how to please big business cronies but not middle income ppl.

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