Despite cheap China loan, local funds underwrite Second Penang Bridge

By Jahabar Sadiq, The Malaysian Insider

KUALA LUMPUR, Oct 4 — Putrajaya has decided to forgo a cheap US$800 million (RM2.6 billion) loan from China to build the Second Penang Bridge, and has instead asked the state-owned Bank Pembangunan to further underwrite the construction of the 24km bridge which is now due in 2013.

The Malaysian Insider understands that the RM4.3 billion Malaysia-China joint-venture project has not drawn any funds from the loan granted in July 2007 when Tun Abdullah Badawi was prime minister. The interest rate for the loan was set at three per cent for 20 years.

“The Ministry of Finance (MOF) has not taken one sen of the loan but has asked local banks to provide the balance of the funds,” a source told The Malaysian Insider.

No reason was given for not taking the loan, which was seen as a sign of closer ties between the Asian giant and Malaysia, especially for Penang, which has a sizeable Chinese population.

Another source confirmed that Bank Pembangunan has been told to give out a further loan apart from the RM1.7 billion issued to the joint-venture between the Beijing-owned China Harbour Engineering Company (CHEC) Ltd and UEM Builders Bhd, which is owned by state asset manager Khazanah Nasional Berhad.

“Bank Pembangunan is now providing most of the money in place of the Chinese loan,” he added.

It is not known if the use of local funds could be a crimp for loans for other infrastructural projects in the country including the Klang Valley Mass Rapid Transit (MRT) for which the first line linking Sungai Buloh and Kajang could cost up to RM50 billion.

The Second Penang Bridge is managed by the Finance Ministry’s Jambatan Kedua Sdn Bhd and has been fraught with issues over a lack of urgency in its construction by the Chinese, who were keen to show their engineering capabilities beyond the Middle Kingdom.

The final figure of RM4.3 billion was agreed upon after the government had to put its foot down and set a benchmark after initial calculations showed that the cost of the project could go as high as RM4.8 billion. Both UEM and CHEC have argued that the cost of the bridge has increased from RM3.6 billion in 2006 because of the sharp increase in the cost of materials, especially steel.