Seeking more land from E&O

KUALA LUMPUR (July 12): The Penang  government is seeking as much as 20% of the net reclaimed land from Eastern & Oriental Bhd (E&O), which holds the concession to reclaim up to 980 acres (396.5ha) at the seafront Tanjung Tokong strip.
Penang Chief Minister Lim Guan Eng said the state government has been in negotiations with E&O to obtain the additional land to settle the property developer’s obligation to install traffic dispersal infrastructure.
“Earlier, they were supposed to give us about 5% to 10% of the land but we negotiated and now we are getting 20%,” Lim told The Edge Financial Daily in a recent phone interview.
In an immediate response, E&O deputy managing director Eric Chan Kok Leong said the concession agreement for the Seri Tanjung Pinang reclamation project stipulates that only 10% of the net saleable land will be made available to the state.
The net saleable land is derived after taking into account space for roads, public utility areas and public amenities.
Chan, however, did not specify the exact amount of land to be handed over to the state government.
“The developer will address its development infrastructure obligations for the project, including traffic infrastructure, in the course of the master planning process,” Chan said in an email reponse to The Edge Financial Daily.
The general rule of thumb is that the net saleable portion would usually comprise about 55% of the total reclaimed land size, according to a senior property analyst.
Based on this estimate, the net saleable portion of Seri Tanjung Pinang works out to be about 539 acres (215.6ha) from the total 980 acres to be reclaimed.
Analysts said the Tanjung Tokong land could be worth about RM25 psf or RM10.89 million per acre going by recently transacted prices of comparable land in Penang.
This means that the Penang government stands to receive land worth at least RM586.97 million based on the estimated 10% net saleable land area promised to it under the concession agreement.
E&O’s subsidiary Tanjung Pinang Development Sdn Bhd had in 1992 won the exclusive right to reclaim and develop 980 acres in Tanjong Tokong.
It has reclaimed about 240 acres under Phase 1 which is under ongoing development.
Last April, E&O announced that it received approval-in-principle to reclaim the balance concession area of 740 acres.
In an earlier interview with The Edge Financial Daily, the chief minister explained that the land obtained from E&O would be used as a “bargaining chip” to get companies to build highways and a tunnel at no cost to the state government.
This forms an integral part of Lim’s earlier plan to build RM5 billion to RM8 billionworth of infrastructure to cope with the expected rise in traffic volume especially on Penang island.
Lim had said these ambitious plans would be undertaken on a public-private partnership basis where the projects will be funded via land swaps or toll collections.
The deal is structured in a way where companies keen on a slice of the increasingly scarce seafront land can propose to build the infrastructure and receive the reclaimed land as payment in kind.
“E&O will give us land to fulfil their traffic requirements. As for the other projects, I use the land as a counterweight, as the chip for them to build the infrastructure and exchange,” Lim had said.
The open tender exercise is said to have attacted both local and regional construction firms.
The Penang government last year held a pre-qualification exercise in which it unveiled plans to build a 6.5km undersea tunnel to link Butterworth on the mainland and Gurney Drive on the island.
There are also plans to construct a 4.2km bypass linking the tunnel to the Tun Dr Lim Chong Eu Expressway  and a 4.6km bypass from Bandar Baru Air Itam to the expressway.
The fourth planned piece of infrastructure is a 12km paired road to the existing coastal road connecting Tanjung Bungah and Teluk Bahang.
Lim said construction is only expected to begin in 2016 with completion tentatively slated for 2020 due to the rigorous environmental studies and surveys that need to be conducted.

This article is appeared in The Edge Financial Daily on 12, July 2012.