‘RM6.3b Penang project to start soon with undersea tunnel’

This article first appeared in The Edge Financial Daily, on July 9, 2018.
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KUALA LUMPUR: Consortium Zenith Construction Sdn Bhd (CZC), the contractor of Penang’s RM6.3 billion integrated infrastructure project, is confident that the project will continue with its original plan of an undersea tunnel to connect Penang Island with the mainland, instead of a bridge that has been proposed as an alternative, with construction of part of the three roads under the project to take off by year end or the middle of next year.

“I’m pretty confident that it will be a tunnel because of the numerous issues that we will have to face if it’s a bridge,” its senior executive director Datuk Zarul Ahmad Mohd Zulkifli told The Edge Financial Daily recently.

To CZC, both options come with their own sets of pros and cons. For instance, it said last week the bridge would require additional considerations like a suitable height to enable larger ships to pass beneath it, and to accommodate a light rail line underneath it as well.

CZC, a special-purpose vehicle that is 13.21%-owned by Vertice Bhd, secured the traffic allevation project on Penang Island after winning an open tender organised by the Penang state government.

Both CZC and the Penang government came under heavy criticism under the previous Barisan Nasional-led federal government prior to the 14th general election (GE14), which prompted an investigation by the Malaysian Anti-Corruption Commission (MACC) into the project’s price tag and the RM305 million cost for the roads and tunnel’s feasibility studies. The choice of a tunnel instead of a bridge was also questioned, besides the project’s land-swap funding model.

Following Pakatan Harapan’s victory in GE14, CZC has been able to breathe a sigh of relief after it halted work on the project two months before the election, following several arrests by the MACC of individuals linked to the project for further investigation. It is unclear what is the latest development regarding the MACC’s probe into the project. Zarul said CZC had not heard anything so far.

Zarul’s private entity Zenith Construction has a 47.12% stake in CZC. The rest are held by Kenanga Nominees (Tempatan) Sdn Bhd (38.92%), Vertice (13.21%) and Juteras Sdn Bhd (0.75%). Zarul also owns a 14.62% stake in Vertice, where he was previously the chairman.

“We will do the feasibility studies first, then it’s up to the state to decide whether they want the bridge or the undersea tunnel. But in my personal view, I reckon that it will be an undersea tunnel as there are so many issues if you do the bridge, [such as] the shipping lane and environmental issues,” Zarul said. CZC completed 96% of the feasibility studies on the 7.2km undersea tunnel before it halted work. The studies are now expected to be completed by September.

The tunnel will be built by China Railway Construction Co Ltd, which is CZC’s engineering, procurement, commissioning and construction contractor due to its expertise in underground construction. The tunnel is expected to be built in 2023.

In the meantime, the road components under the integrated infrastructure project — the 10.5km paired-road from Tanjung Bungah to Teluk Bahang (Package 1), the 5.7km bypass between the Tun Dr Lim Chong Eu Expressway and Bandar Baru Air Itam (Package 2), and the 4.1km bypass from Gurney Drive and the Tun Dr Lim Chong Eu Expressway (Package 3), has one final hurdle to cross after the starting dates of these roadworks were deferred several times.

“We hope to start Package 2 at the end of the year or at the latest by the middle of next year. Package 1 will follow after that, but we would have to sit down again with the state government for Package 3 as it involves a 2.1km land tunnel. We have not come up with a solution yet.

“My proposal is the cut-and-cover method, which is a more economical way of doing a road underpass compared to the state’s preference for the tunnel boring machine. We find that there are sharp turns [in the ground], and so using the machine would not be feasible,” he said.

Before it embarks on any construction work, CZC has to first monetise the land, which is being reclaimed off Gurney Drive by Eastern & Oriental Bhd. The land would be handed over by the state to CZC as part of a land-swap funding model.

“As far as Zenith is concerned [because it is a land-swap deal], we are not interested in carrying out [any] development [on the land]. We [would] rather convert the land into cash. So the land is very important for us before we start,” he added.

In its preliminary agreement signed with the state government in 2013, 110 acres (44.52ha) of freehold land at a total cost of RM6.2 billion was offered as payment for the costruction cost. To date, CZC has received 5.67 acres valued at RM206.6 million for the studies on the roads and tunnel.

However, with no bridging loan, as Zarul said it is cumbersome with no land to show as collateral, CZC will have to wait for the portion of the land on the reclaimed site designated for the company.

“When we went into the tender agreement [with the state], we mentioned that for us to [ensure that we] deliver a RM6.3 billion project, it’s got to be just in time. That means we cannot delay [it because] it is going to cost us money,” Zarul added.

He said the state will have to physically show that the land has been reclaimed, so that CZC can sell it to a developer. “I have not taken any loan from the bank. It’s a deferred payment. Once I see the land, I will be able to get a developer to give me a bank guarantee that I can use to pay my contractors. When I reach the milestone, I will get the land and we can square off.”

Zarul also noted that the land reclamation had been long overdue. The company has been waiting for the reclaimed land since 2012.

“There’s all these works done in this stage, which is a prelude to us doing the construction work. We are eager to [start the construction]. Right now, we have to fulfil all these conditions, while the state government completes its part before we start construction,” he added.