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By right the Penang state government should have rescinded its agreement with SRS since the latter could not fulfil its basic commitment, something with Penang Forum consistently advocated.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.

A general view of the reclaimed land at Gurney Wharf which is located at the coast of Gurney Drive in Penang September 18, 2020. — Picture by Sayuti Zainudin
A general view of the reclaimed land at Gurney Wharf which is located at the coast of Gurney Drive in Penang September 18, 2020. — Picture by Sayuti Zainudin

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