This article first appeared in The Edge Malaysia Weekly on May 29, 2023 - June 4, 2023

THE federal government’s decision in principle to fund the development of the Bayan Lepas Light Rail Transit (LRT) project is pleasant news for Penangites awaiting public rail transport to ease traffic congestion.

In view of that, the state government has indicated its intention to scale down the Penang South Islands (PSI) reclamation project, which is supposed to help finance the Penang Transport Master Plan (PTMP). The Penang government wants to reclaim only one island instead of three.

Gamuda Bhd, which holds a 60% stake in the consortium that is undertaking the reclamation works, laments the state government’s move to scale down the PSI project. The construction giant sees it as “scant regard to rule of law”.

The other stakeholders in the consortium, SRS Consortium Sdn Bhd, are Penang-based Loh Phoy Yen Holdings Sdn Bhd and Ideal Property Development Sdn Bhd with 20% equity interest each.

This change in plan sparks a debate of whether there is a need for the Penang government to downsize the PSI reclamation project. That is because the LRT is just one part of the PTMP. Even with federal government funding for the LRT, the state still needs money to implement the rest of the PTMP.

Looking at the announcement by Gamuda on March 6 on the implementation of the PTMP, the construction group says a project developer has been formed to undertake the development of Island A under the PSI reclamation project.

Gamuda also holds a 70% stake in the project developer, Silicon Island Development Sdn Bhd, via its wholly-owned subsidiary SRS PD Sdn Bhd. PIC PD Sdn Bhd, a unit of Penang Infrastructure Corp Sdn Bhd (PIC), has the remaining 30% equity interest.

The project developer has been granted the sole, exclusive and full right to commence, manage, carry out and complete the development of Island A. It also has the right to market and sell the reclaimed land of Island A.

Island A is a 2,300-acre land reclamation project that will see the development of the depot for the Bayan Lepas LRT, as well as an industrial zone called Green Tech Park. The industrial zone will be the extension of the already mature and saturated Bayan Lepas Free Industrial Zone.

According to analyst reports, an estimated RM8 billion to RM9 billion in land sales can be realised from Island A over a seven-year period. The lion’s share goes to Gamuda’s unit SRS PD as the Penang government, through PIC, only holds 30% in the project developer of Island A — Silicon Island Development. 

This means that at best, only RM2.7 billion of the proceeds from the sale of the reclaimed land on Island A could go towards funding the PTMP, assuming the analysts’ estimates are correct. 

It is not clear whether the estimate of RM8 billion to RM9 billion is for the entire Island A or just parts that can be reclaimed during a seven-year period. Meanwhile, the estimated cost of the PTMP is RM46 billion.

Recall that on May 6 at the Malaysia Madani Aidil Fitri Open House in Bukit Mertajam, Prime Minister Datuk Seri Anwar Ibrahim pledged that the federal government would provide additional funds to the Penang government to “expedite the construction of the Penang LRT”.

The Bayan Lepas line is the priority for the state government, based on the PTMP. Anwar also said that with federal funding, the Penang government could look into scaling down the PSI reclamation project.

On May 11, Penang Chief Minister Chow Kon Yeow said the state had agreed to not proceed with Island B and C of the PSI following the prime minister’s advice. Island A, or Silicon Island, will continue to be implemented, he added.

There are still no details on the funding of the LRT, whether it will be in the form of a federal government agency implementing the project, or through a special grant to the state government to fund it.

In any case, scrapping Island B and C as a result of the federal government’s approval to fund the Bayan Lepas LRT raises the question of how the state will fund the PTMP that is estimated to cost RM46 billion. The proceeds from Island A will not be able to cover the entire cost of the PTMP.

The PTMP is a transport infrastructure master plan formulated by the Penang government, which entails the construction of roads, highways, urban rail-based public transport systems and a third link between the island and the mainland. When the PSI was proposed, the purpose was not just to fund the PTMP either, but also to expand the state’s land bank for economic and social purposes.

“While it is a dream come true for the Penang government if the federal government provides the budget for the LRT, there is still a need for the PSI, at least for Island A. That is because it is the only location that can house the LRT depot,” says an observer of the PSI reclamation project.

“As for Island B and C, these projects have not been factored in yet for all involved. SRS Consortium has only factored in the Island A reclamation, and it will take at least a decade for Island A to be reclaimed, let alone developed.”

Island B was slated as a “business enclave”, a new central business district (CBD) for Penang, as the PSI is also aimed at rebalancing the development gap between the North East and South districts. Meanwhile, Island C was envisioned as a resort and leisure destination.

To rebalance the development gap between the two districts, at least Island B will still be needed, says the observer. Penang, however, could do without Island C as there is no immediate need for a resort island in the state.

While the Bayan Lepas LRT is something that the Penang and federal governments would like to expedite, the PSI reclamation project and PTMP are long-term plans for the state. This shows that the PSI is not contingent on the funding of the LRT.

In response to The Edge’s questions, Zairil Khir Johari, Penang’s state executive councillor for infrastructure and transport, says the scaling down of the PSI reclamation project doesn’t pose any shock to the market’s expectations or disruption to the business community.

“Initially, Islands B and C were designated for business, resort and leisure, as well as some housing projects to complement Silicon Island’s industrial development. The original PSI project is a 30- to 50-year development plan to be implemented in phases — not to build the three islands simultaneously,” Zairil points out.

“The market knows that the development will begin with Silicon Island, which will take up to 15 years … With Island A, we will still be able to meet the development needs of Penang, while kick-starting the LRT project.”

He also says discussions are ongoing between the Penang and federal governments on the details and timeline of the LRT project.

If there is no immediate need for Island B and C, that means the two islands are not meant to fund the Bayan Lepas LRT in the first place. So, observers would wonder why the state government is looking to scale down the project just because it has obtained the federal government’s greenlight to fund the LRT project. In fact, proceeds from the land sales on Islands B and C could be used to fund future PTMP projects.

Recall that the Bayan Lepas LRT was approved by the Land Public Transport Agency in 2019. In August 2022, the state government called for a request for proposal (RFP) for bidders to be pre-qualified to take part in the project. The award of the tender for the Bayan Lepas LRT is slated for the third quarter of this year. The project is said to cost RM9.5 billion.

The PSI reclamation project has been given conditional approval based on the environmental impact assessment (EIA) that it submitted to the Department of Environment. This means the project is essentially a go, with or without funding from the federal government. 

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