GEORGE TOWN, Nov 7 — The Penang state government will form a special purpose vehicle (SPV) to issue bonds for funds to pay for the state’s massive transportation plans, Penang Chief Minister Chow Kon Yeow (DAP — Padang Kota) said today.

He said the prime minister has written to confirm that the federal government will provide a sovereign guarantee for bonds issued through the state’s SPV to raise money for the proposed Light Rail Transit (LRT) project under its RM46 billion Penang Transport Master Plan (PTMP).

"With a guarantee from the federal government, we have started discussions with banks on the issuance of bonds to fund the project,” he said in reply to a question by Ong Khan Lee (PKR — Kebun Bunga) at the state legislative assembly today.

He added that Penang would not have been able to raise enough in the bonds market without Putrajaya’s guarantee.

Chow was also hopeful that the federal government would announce funds for the PMTP in the 12th Malaysia Plan so that Penang could reduce the size of the bonds issue.

When Ong asked if it was prudent for the state to prioritise the PMTP when other matters such as urban poverty remain unresolved, Chow asked if the former expected all development to be halted over this.

"Are you saying that any country with urban poverty, they need not implement any projects, they don’t do anything and then there will not be any more poverty? Are you suggesting this?” he asked.

To Ong’s oral question on whether the Penang South Reclamation (PSR) will still proceed if the state obtained RM10 billion in federal funding, Chow said the PSR was integral to the state’s economic transformation plan for the next 50 years.

"With the additional 4,500 acres created, state can prepare quality affordable housing in strategic locations that is connected by the Light Rail Transit (LRT), trams and highways,” he said.

"This comprehensive master plan will attract more investors to Penang and at the same time develop the southern part of the island, improving the quality of life of the local communities there including fishermen,” he added.

He said the project would also create opportunities for fishermen and their families as well as upgrade their living conditions.

Chow said continuing with the PSR meant the state government could always fall back on this to fund the PMTP if other sources do not deliver.

The PSR is the state government’s proposal to create three man-made islands and the lands will be sold to raise funds for the PTMP.

In a press conference later, Chow clarified that the state government could form individual SPVs for different components of the master plan, such as one for the LRT and another for the PSR.

He said the PM’s letter to the state government dated October 1 only contained two matters: the rejection of the state’s application for RM10 billion for its LRT and the sovereign guarantee for the state to raise bonds to fund the LRT.

"The bonds we raise do not have to be RM10 billion; we can start with RM1 billion and then RM2 billion until we have reclaimed the islands to raise funds from there,” he said.

He said the matter must still be discussed at length.

Chow added that issuing bonds to fund government projects is not new as the federal government has done this for other projects including the purchase of Penang Ferry.

"This is a common mechanism used to fund projects,” he said.