On the perils of funding megaprojects with uncertain cash flow

LETTER | The Star on June 4, 2019 reported that the paired road project in Penang linking Paya Terubong to Relau has hit a snag. The developers who are supposed to complete the remaining 2.1km-long stretches of this 4.9km highway are short of cash. The project will be further delayed.

Imagine, if the Penang state and local governments are facing so many problems in completing a mere 4.9km highway, how much confidence the public should have in their ability to build 70 km of elevated highways and tunnels under the Penang Transport Master Plan.

The problems with the Paya Terubong road ranges from collapsed beams, deadly landslides that claimed nine lives arising from poor implementation and monitoring, to further delays due to financial constraints.

Chief Minister Chow Kon Yeow hit the nail on the head when he was quoted as saying, “As building the road will not bring the developers any revenue, they need to time the paired road project with the sales of their project.”

What if the developers are unable to sell in a bad property market? How much time will the state and council have to wait?

This is exactly the risk that Penang Forum has repeatedly alerted the Penang state government about on the financial risks of funding the RM46 billion PTMP project with revenue from land reclamation.

The major risk arises from a mismatch in timing of cash flow. Payments have to be made when project construction is started, but will the state be able to reclaim and sell the land in time to fund the payment? Is there enough bridge financing to tide over the project?

Will the state be able to sell the land at the projected price? What happens when there is a shortfall in revenue? Will the project be delayed or abandoned?

There is nothing worse than starting a huge infrastructure project with severe environmental damage, and then delaying it, or worse still, abandoning it halfway. The extensive destruction of the hills in Paya Terubong should be a clear lesson for the state and the council.

The Penang state government has consistently sold the argument to the public and the federal government that it does not need any public funding, and that it can easily fund the PTMP with land reclamation. It has consistently underplayed the risks of its financial model for funding the PTMP.

If the chief minister is able to recognise this cash flow problem for a small project costing only RM270 million for the two developers and RM275 million for the MBPP, he should be more forthcoming to the public on the financing risks of the RM46 billion PTMP.

LIM MAH HUI is a former professor, banker and MBPP councillor.

The views expressed here are those of the author/contributor and do not necessarily represent the views of Malaysiakini.