• Dissecting the ETP Annual Report (Part 2): The mystery of the disappearing entry point projects

    The investments enigma. PEMANDU in its Annual Report claims that investments by the private sector were well above target last year. The headline claim may not withstand scrutiny though. Very large entry point projects (EPPs) appear to have faltered. We highlight just three examples here. If they had indeed faltered, which projects stepped up and more than filled their large shoes?

    The shifting sands of LFoundry. PEMANDU gave itself full marks for the completion of construction of this 200mm wafer fab. However, very strangely, elsewhere in the Annual Report, a much less significant RM100 million equipment refurbishment project was showcased instead of this RM1.9 billion fab. The uncharacteristic modesty by PEMANDU led us to do some digging, which suggests that this lab might never have been constructed at all, contrary to PEMANDU’s claim.

    What happened to Damansara City 2 and Marina Island Pangkor? These two EPPs announced last year were perhaps the most important in the Greater Kuala Lumpur/Klang Valley and Tourism NKEAs. But the ETP Annual Report omits any mention of them, focusing instead on modest “heritage trails” in Kuala Lumpur, and Penang, Klang and Kota Kinabalu as the three ports with the most tourism potential.

    PEMANDU’s chimera of perfection. Glossing over issues merely results in a growing gap between reality and delusions of grandeur, and the facade will ultimately come crashing down. Rather than prolonging the charade of infallibility, PEMANDU should be frank and confess to problems, and state the remedial steps it took. This may well help others avoid making similar mistakes and adds much more value to Malaysians.

    Some very large EPPs announced in the ETP Updates last year were strangely omitted in the recently released ETP Annual Report 2011.

    ● These include a RM1.9 billion wafer fab in Kedah, the RM1.9 billion GuocoLand Damansara City 2 project and the RM600 million Marina Island Pangkor Extension .

    ● Did these EPPs hit problems? If they did, PEMANDU should come clean and transparently explain the issues.

    ● Problems are part of the business landscape. PEMANDU would add far more value if it shared its experiences in surmounting obstacles instead of glossing over issues.

    PEMANDU’s unrealistically perfect world  

    PEMANDU in its inaugural Annual Report of the Economic Transformation Programme (ETP) claimed many successes including:

    1. Economic growth being ahead of its target;

    2.72 out of 131 EPPs (entry point projects) taking off;

    3. EPP investments totalling RM179 billion, creating RM130 billion of GNI and nearly 314,000 new jobs.

    Last week, in Part 1 of our series, we gave PEMANDU an A+ for obfuscation, for being less than clear and truthful about its economic growth targets.

    This week, we drill down to Execution — the first E in our DEEDS framework for evaluating the ETP. Acolytes of PEMANDU would surmise that business and economic management is effortless. Hardly a hint of difficulty is ever expressed in PEMANDU’s rhapsodic reports.

    Those grounded in reality will not be surprised to learn that REFSA finds at least two major issues with the claim of entry point project successes:

    1. Some major EPPs announced during the ETP Updates given by PEMANDU last year were strangely omitted in the Annual Report;

    2. A number of projects, including big-ticket projects such as Karambunai Integrated Resort City, Tanjong Agas Oil and Gas Hub and LFoundry Wafer Fab, may not pass muster under close scrutiny.

    Let us start with the wafer-thin foundations of the RM1.9 billion LFoundry Wafer Fab project in the Kulim High-Tech Park.

    The shifting sands of LFoundry 

    The very first entry point project (EPP) stated under the Electrical and Electronics NKEA (National Key Economic Area) is “Executing a smart follower strategy for mature technology fabrication.” In Update 1 on October 25, 2010, PEMANDU said LFoundry Sdn Bhd, a subsidiary of German-based Landshut Silicon Foundry GmbH, would undertake this RM1.9 billion project.

    Subsequently, the ETP Annual Report proclaimed that the “construction of the 200mm wafer fab” had been completed by December 2011 and PEMANDU gave itself full marks for delivering on this EPP.

    Oddly enough, nothing was mentioned in the “Achievements” section of the ETP Annual Report. Instead, a much smaller RM100 million equipment refurbishment and training centre project was highlighted.

    We were very surprised that this astounding execution of completing a wafer fab way ahead of schedule and within just 12 months was not trumpeted. And indeed, we would have supported such publicity as well-founded and a wonderful example of Malaysian construction and engineering prowess.

    This uncharacteristic coyness of PEMANDU in choosing to highlight a much smaller RM100 million “refurbishment” project instead of a spanking new RM1.9 billion wafer fab plant completed in record time spurred us to do more research. We found that LFoundry in Germany is declaring itself insolvent and going into bankruptcy proceedings! In fact, there is no mention of this project on:

    1. L Foundry’s own website; or on

    2. Kulim Hi-Tech Park’s list of tenants.

    Note that L Foundry’s financial woes had been in the news as far back as November 2011. But this fact was never mentioned in the ETP Annual Report published in April 2012 when PEMANDU took “100 per cent” credit for the achievement in constructing a 200mm wafer fab.

    It was only later that Chris Tan, PEMANDU director for the Electrical & Electronics NKEA, revealed the following in the ETP blog:

    “…the German partners ran into operational difficulties … and were forced to pull out. The project as originally envisaged was scrapped … MIDA … shifted to Plan B, and facilitated capacity increases via other companies.”

    Taking Tan’s comments at face value, PEMANDU’s achievements are even more breathtaking. It surmounted difficulties with the original German partners and managed to find “other companies”‘ and still complete a 200mm wafer fab factory all within 12 months!

    The story behind such “remarkable” execution should certainly be shared with all Malaysians. It would indeed help in transforming the economy if PEMANDU were to share its knowledge with all entrepreneurs:

    Who are these “other companies” who stepped in and filled the gap so quickly? Please name them so that we may study and emulate their abilities;

    Better still, please set up a site office and a case study. How was construction fast-tracked? Our contractors might learn a thing or two about project management.

    Or is the truth more prosaic, and the reality is that there is no 200mm 100 per cent completed wafer fab as claimed in the Annual Report?

    We conjecture that PEMANDU gave itself full marks for completion on the basis that while the original projected floundered, it still managed to “facilitate capacity increases via other companies”. We could debate this point further — are full marks deserved if the total investment is less than originally targeted? Furthermore, increasing capacity at existing companies is less valuable than introducing a new player who can broaden and deepen the industry.

    However, there are other pressing issues — such as missing projects. These are EPPs which were proudly presented during PEMANDU’s numerous ETP Updates in 2010 and last year, but which, very oddly, received no mention in the ETP Annual Report released in April this year.

    We shall highlight just two examples — Damansara City 2 and the Marina Island Pangkor extension.

    What happened to Damansara City 2?

    The Damansara City 2 project by GuocoLand (Malaysia) Berhad was unveiled in the 3rd ETP Progress Update on January 11, 2011. This mixed development comprising retail and office blocks and a hotel and service apartment was by far the largest project mentioned under EPP 7: Creating Iconic Places and Attractions in the Greater Kuala Lumpur/Klang Valley NKEA (National Key Economic Area).

    We shall set aside the questions of how “transformative” really are property development projects such as this, as well as the process which resulted in GuocoLand’s proposal being granted EPP status and thus, at least implicitly, being more iconic and transformative than, say, the KL Eco City and Icon City projects by SP Setia and Mah Sing, respectively.

    What is shocking is that this EPP, which at RM1.9 billion is by far the largest project in EPP7 in the Greater KL/Klang Valley NKEA, receives no mention at all in the ETP Annual Report. There was no status report, and in fact, it was not even mentioned in the “Moving Forward” section. Instead three additional heritage routes and the upgrading of Masjid Jamek were highlighted instead.

    Marina Island washed away?

    Moving on from the LFoundry and Damansara City 2 projects on the shifting sands of dry land, we come to seaside projects which may have been “washed away”.

    The Marina Island Pangkor’s International Resort & Entertainment Extension Project was showcased in the 4th ETP Progress Update on March 8, 2011. This “World-Class Integrated Passenger Seaport Transportation Hub and a World-Class Waterfront Development” which “will position Malaysia well into the future” appears to dovetail nicely with EPP6: Creating a Straits Riviera Cruise Playground in the Tourism NKEA.

    Strangely though, no progress update was given in the Annual Report on this huge project which will require RM600 million of investments, and is expected to provide 27,000 jobs and contribute RM9 billion of GNI (Gross National Income) by 2020.

    Instead, the ETP Annual Report points out that the Cruise and Ferry Integrated Seaport Infrastructure Blueprint for Malaysia identifies Penang, Klang and Kota Kinabalu as the three ports with “potential to contribute significantly to the Malaysian cruise industry”.

    Whatever happened to Marina Island Pangkor? The Blueprint, no doubt, was commissioned by the Economic Planning Unit. But surely PEMANDU in its Annual Report should have stated where this important EPP stands in the overall scheme of things.

    Let’s be frank

    Uncertainty and adjustments are part and parcel of the business landscape. It is normal for projects to be varied, postponed or even abandoned. Companies do get into financial difficulties. Some go bust. It would be irrational to expect all the entry point projects (EPPs) under the ETP to progress with smooth precision. Problems are to be expected, which good project managers recognise and surmount.

    Glossing over and ignoring issues as PEMANDU is wont to do is a terrible approach. Plans, assumptions and forecasts must accommodate changing circumstances. Pretending that all is going perfectly to plan merely results in an escalating divergence between reality and delusions of grandeur, and the facade will ultimately come crashing down.

    PEMANDU must be transparent about the EPPs which are facing difficulties. The contribution of these troubled EPPs to investment, GNI and jobs created should be stated clearly and transparently so that shortfalls caused by the affected EPPs and the effects on their respective NKEAs can be addressed and given extra attention moving forward.

    In addition, it is also good practice and would be very helpful to other entrepreneurs if PEMANDU were to disclose what went wrong and the remedial steps taken. PEMANDU’s experience and knowledge gained may well help others avoid making similar mistakes.  This kind of transparent evaluation regarding the execution challenges faced by entrepreneurs and entry point projects was sadly lacking in the ETP Annual Report. The pace of private investments is well behind the ETP targets in terms of the share of private to public investments.

    In the next instalment of this series which will cover Enterprise, the second E in our DEEDs framework to dissect the ETP Annual Report, we shall uncover more evidence showing why the gaudy investment figures highlighted under the ETP should not be taken at face value.

    About this series and DEEDS

    Earlier this year, we published a series assessing PEMANDU and the ETP on the goals, plans and targets stated in the ETP Roadmap document. To facilitate constructive discourse and in keeping with the spirit of the alphabet soup of NKEAs, NKRAs, SRIs, EPPs, and GNI surrounding the entire GTP, we evaluated PEMANDU and the ETP on its DEEDS — Data transparency, Execution, Enterprise, Diversity and Socio-Economic Impact. The 8 Focus Papers in this Critique of the ETP Series, together with related infographics and a powerpoint presentation can be found at www.refsa.org. — REFSA (Research for Social Advancement)

    * Dr Ong Kian Ming holds a PhD in Political Science from Duke University and Economics degrees from the University of Cambridge and the London School of Economics. He is attached to UCSI University, which has been named as the project owner of two entry point projects (EPPs). To avoid any potential conflict of interest, he will not make references to or analyse these two EPPs. 

    * REFSA (Research for Social Advancement) executive director Teh Chi-Chang holds a first-class degree in Accounting & Financial Analysis from the University of Warwick, an MBA from the University of Cambridge and the CFA (Chartered Financial Analyst) charter. Prior to joining REFSA, he headed highly-regarded investment research teams covering Malaysia, and was himself highly-ranked as an analyst. 

    This article was published by The Malaysian Insider.

    Read Dr. Ong’s critiques of the ETP in full here.

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