The SPICE Controversy

Andrew Harding, Centre for Asian Legal Studies, National University of Singapore

Relevance of the Practice

This section consists of a case study rather than a local government practice as such. Nonetheless the case study is by no means untypical, and although ‘practice’ is possibly too strong a word for the phenomenon described here, it does represent a realistic and common scenario. Other similar examples, those of Johor Bahru’s ‘floating city’ project and the Penang Hill controversy, are referred to in the report section on people’s participation in local decision-making in Malaysia.

Not surprisingly, it is with regard to development that conflict between local and state government is most likely. The general laws set out in the last section appear to indicate a clear if not entirely satisfactory demarcation between general rules and policies, on the one hand, which can be controlled by state governments, and particular decisions, on the other hand, which are entirely within the remit of local governments. Nonetheless, in the case study, as in many other cases, the state government has used its leverage to make decisions that oust local government powers.

Description of the Practice

In the instant case, there was a joint venture project between MBPP (Penang Island City Council) and a private company, SP Setia, to develop via co-financing the Subterranean Penang International Convention and Exhibition Centre (SPICE), an initiative designed to attract tourism and business to the State of Penang as well as provide indoor sports activities. The project was a state government plan but was entrusted to MBPP, on whose land the SPICE was supposed to be built. In 2010 MBPP asked for proposals from the private sector. The project was awarded to a subsidiary of SP Setia. Negotiations were undertaken by state and local government officials without the knowledge of councillors, even those on the finance committee; they learned of it only when the RM 300 million contract had been signed and was referred to in the press. Councillors complained that the contract was lop-sided in favour of the private partner, and had been negotiated in an untransparent fashion, contrary to the state government’s stated ‘CAT’ policy of ‘competence, accountability and transparency’. MBPP was therefore asked to approve a decision that had already been taken and a budget of RM 50 million for a BOT (build-own-transfer) arrangement involving MBPP’s property contained some troubling features that included a lease of 30 years, twice renewable by the company for 15 years, with concessions regarding both assessments and density of retail outlets. In terms of cost-benefit, MBPP contributed the land and part of the finance but got little in return – the right to use the facilities for 42 days a year, and return of the land after 60 years. Despite these concerns, voiced by two councillors and civil society representatives, the majority of councillors, appointed by the state government, went along with the decision. SPICE opened on the agreed terms in 2015.

Assessment of the Practice

In a developmental state such as Malaysia it has been common for developmental concerns to trump governance concerns. There is no better example of this than the SPICE episode, but examples of this phenomenon appear to proliferate in urban areas all over the country.[1]

At the level of states such as Penang, where federal opposition parties are usually in control of the government, there is a strong political push to achieve development, and in this case to attempt to replicate Singapore’s vaulting development ambitions as a centre for trade and investment. As we have seen, the resources of state and local governments are not extensive, and the state government will use every resource and leverage it can to gain votes by demonstrating strong development. Accordingly, governance norms are often overridden by arrangements and negotiations done directly with developers, in which the state government will no doubt have made promises and taken positions that are strictly, as in this case, for the local authority to decide on. While the temptation is strong to ride roughshod over correct processes in the interests of securing an important deal, the lack of process may well result in mistakes, such as lop-sided contracts, where the interests of private corporations are placed above those of the public. There is also of course a distinct danger of corruption in such decision-making.

The SPICE episode compels the conclusion that legal and democratic norms have to be adhered to, rather than traduced by inappropriate decisions taken without proper consultation. The spineless response of most Penang councillors in this matter reveals the political realities that lie behind development at the local level.

References to Scientific and Non-Scientific Publications

Mah Hui L, Local Democracy Denied? A Personal Journey into Local Government in Malaysia (SIRDC 2020)

Tang Seng Hai, ‘CAT Needed in Penang’s SPICE Project’ (Malaysiakini, 4 October 2011) <>

[1] While there are examples of development projects in rural areas, e.g. converting rural land into housing estates, the system operates in a political manner, with politics in a real sense as described in the SPICE episode only happening in urban settings. Moreover, the literature rarely deals with rural local government issues, except to suggest that they are somewhat deprived of resources and compared to, e.g. Penang, Ipoh, or Kuala Lumpur, they have no power in the system.