Question
The contractor’s financial strength in terms of paid-up capital is only RM50 000.00, while it tries to undertake project of RM1, 020,000,000.00. The capital is not enough even to build a low cost house where the license cost RM200 000.00.
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| 1. | The Federal Government is not willing to fund the PORR fully so that when privatised the project cost will be born largely by the Penang people. This is inconsistent with policy to fund outer ring roads in other states eg Kedah and Seremban.
Although a Federal Government project, the Government is only directly funding RM150 million for land acquisition. The construction cost of RM870 million will be borne by Peninsular Metroworks Sdn Bhd, which has to secure its own financing. Partial Governmental funding towards PORR is deducted from the Federal Government’s budget allocation for Penang State. Were it to bankroll the entire project, little monetary resource will be left for other projects for Penang, including the Light Monorail System, Second Link, North Butterworth Container Terminal and even new schools. Like PORR, the Butterworth Outer Ring Road also receives funding from the Federal Government for land acquisition. Both projects are similar to many other highway projects around the country. Tolling is introduced as a means of absorbing some of the project cost, while ensuring funds are available for maintenance. PORR will employ a ‘users pay’ principle, leaving alternative local roads available to motorists who choose not to use PORR. It is untrue that the project cost is borne entirely by Penangites.
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| 2. | The project relies on a try and failed financial model quite similar to the Jelutong Expressway. Jelutong Expressway contractor are similarly given lands for development and through the earnings, finance the road project. Many uncertainties would cause the project to stall or fail.
The contractor’s financial strength in terms of paid-up capital is only Rm50 000.00, while it tries to undertake project of RM1, 020,000,000.00. The capital is not enough even to build a low cost house where the license cost Rm200 000.00. On the contrary, the JEway’s financial model is quite a success, as the contractor could still continue the project following the economic downturn, when many other projects were abandoned. The First Phase of the JEway is open and is a popular route for Penang motorists. PMWSB is a Special Purpose Vehicle (see question 12) specifically set up to bid for the project. The present RM50,000 paid-up capital of PMWSB is only to reflect the percentage participation of the shareholders. The EPU will determine the extent to which the paid-up capital will be increased during the course of the project, which is estimated to be about RM200 million. This is not an unusual business practise. 
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| 3. | Since the Penang people as tax payers and road users would be financing the bulk of the project it is inconsistent that the Federal government make all decisions regarding the highway project including appointing the contractor. Something terribly wrong here.
The bulk of the project cost for PORR is financed by Peninsular Metroworks Sdn Bhd. The Federal Government is paying for land acquisition and granting the rights for toll-collection to help absorb cost. Since tolled highways are under the jurisdiction of the Federal Government, the Federal Government decides which company to award the contract to, carried out through the Economic Planning Unit. The Malaysian Highway Authority conducts feasibility and viability studies on the project, and acts as the Government’s implementing arm. Although playing a supporting role, the State Government helps safeguard the people’s interest and safety. For example, the original 76 houses to be acquired for the project has been reduced to 46, and 500 affected graves have been reduced to zero. The present toll of RM1 per booth is also a result of the State Government’s intervention. By allowing reclamation rights to the concessionaire and offering State land for exchange, the proposed toll rate of RM1.70 per booth was avoided. This is a 40 per cent discount for motorists using PORR. And once the concession period is over, the Federal Government will take over maintenance of the expressway and tolling will be abolished. In the long term, this will save the State Government and the people of Penang considerable amounts of money.
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| 4. | Referring to the high incidences of stalled/abandoned projects around the country especially privatised ones, and given the weak financial support for the contractor should the project stall or fail how do the Federal/State government decide to hold the contractor financially responsible?
If the project stalls due to the failure of the contractor, action will be taken against the contractor as stipulated in the agreement. This will include penalties in the form of deductions from the performance bond or even termination. Alternatively, the inducement for the contractor to complete the project within the stipulated time period is the toll collection to recover cost.
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| 5. | The financial management record of the company directors including bankruptcy. Would the people rather choose someone with more impeccable records to undertake such a mammoth projects?
The contract for PORR was awarded by the Economic Planning Unit after scrutiny of the bidder’s financial model. Another audit will be carried out before the project is allowed to proceed. There will also be checks and balances in place to ensure the concessionaire delivers according to the agreement and stiff penalties as deterrents. To be fair, PMWSB includes shareholders who have had considerable experience in other infrastructure projects around the country, including Package 6 and 7 of the Penang Bridge and the North-South Expressway (from Jawi to Alor Pongsu) and other infrastructure and property development projects worth more than RM2 billion in Penang. Please also refer to question 12.
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