This article first appeared in The Edge Financial Daily, on January 11, 2016.

KUALA LUMPUR: Consortium Zenith BUCG Sdn Bhd (CZBUCG), the main contractor for the RM6.3 billion undersea tunnel project in Penang, will commence the construction on June 15, slightly later than its original schedule.

The construction of the mega project is expected to begin in the first quarter of this year.

CZBUCG chairman Datuk Zarul Ahmad Mohd Zulkifli said the consortium will first begin construction of the three highways, which form part of the project, before embarking on building the 7.2km undersea tunnel linking Penang island to the mainland.

The three road projects are the paired-road from Jalan Tanjung Bungah to Teluk Bahang, the Air Itam to Tun Dr Lim Chong Eu Expressway bypass and the bypass from Gurney Drive to Tun Dr Lim Chong Eu Expressway, which have a combined length of 21.2km.

Zarul said the consortium is currently waiting for the Penang state government to conduct an independent environmental assessment of the three road packages.

“What is pending now is that the state government is going to appoint an independent environmental consultant to look at it (the road projects), and to get approval from the Department of Environment (DoE) for the three highways,” he told The Edge Financial Daily in an interview last week.

“It will not take long because the DoE has already given us the go-ahead, but we have to get the state’s independent environmental consultant’s assessment, and submit with the preliminary environmental impact assessment (EIA), to get a formal approval,” Zarul explained.

He said the environmental assessment of the three highways can be done relatively faster than for the undersea tunnel, which would take up to 18 months.

“Unlike the undersea tunnel, where there are more environmental concerns, the DoE has already given us a letter for the three highways, which stated that we only need a preliminary-EIA to start construction,” Zarul added.

As the highways would take about six years to complete, Zarul estimates that CZBUCG would begin the EIA application for the undersea tunnel by 2017 or 2018.

“We probably would start (construction on) the undersea tunnel by 2021.

“We have to complete the three highways first. Otherwise, traffic volume from the tunnel would have no channel to disperse,” he said, adding that construction of the tunnel would take up to two years to complete.

CZBUCG was awarded the RM6.3 billion integrated road transport project on Oct 6, 2013 by the Penang government. In return for building the infrastructure, the state government will compensate CZBUCG with 110 acres (44.5ha) of freehold reclaimed land at Tanjung Pinang.

After the completion of the three highways, Zarul said CZBUCG will claim about 50 acres of the said land from the state government.

“We will claim the land from the state government every time we achieve a certain milestone in the construction, which commensurates with the value of the land,” he said.

The consortium has appointed China Railway Construction Corp Ltd (CRCC) as its engineering, procurement, and construction contractor for the project, on favourable terms.

Under the partnership with CRCC, Zarul said the Chinese company will only get paid after the land parcels claimed from the state government are monetised.

CZBUCG has formed two joint ventures (JVs) with public-listed precision sheet metal manufacturer-cum-property developer Ewein Bhd.

After securing the land parcels from the state government, CZBUCG will dispose of them to these JVs (it owns 40% stakes in both entities) to monetise the properties and pay the construction fees to CRCC.

Moving forward, Zarul said CZBUCG may consider lowering its stake in the JVs to 20% each, in order to reduce the consortium’s capital expenditure.

“When we start construction, we need more cash, so probably we would reduce our stake to 20%,” he said.

So far, Zarul said the project has incurred expenditure of about RM160 million.

A check with the Companies Commission of Malaysia showed that the shareholders’ structure in CZBUCG has been updated to 98.10% owned by Zenith Construction Sdn Bhd, with the remaining held by Juteras Sdn Bhd (1.89%) and Beijing Urban Construction Group Co Ltd (0.01%).