• ETP: Part 5 — The ETP so far is just a handful of mega-projects

    ETP: Part 5 — The ETP so far is just a handful of mega-projects
    Dr. Ong Kian Ming & Teh Chi-Chang

    Just two mega-projects and oil, gas and energy, really. Behind the apparently impressive RM176 billion of investments achieved in the ETP so far is a sobering picture. The MRT and Petronas’ RAPID mega-projects make up 55 per cent of total investments in Entry Point Projects (EPPs). Going by National Key Economic Area, 53 per cent of investments were in just one NKEA — Oil, Gas & Energy.

    Zero progress in Financial Services. Not a single EPP has been announced in this NKEA which is targeted to deliver up to 15 per cent of the income boost envisaged in the ETP. The Kuala Lumpur International Financial District is not a Financial Services EPP and is not even mentioned in Bank Negara’s Financial Services Blueprint 2011 to 2020. Is PEMANDU in sync with the key financial regulators Bank Negara and the Securities Commission?

    Broad-based investments are necessary to transform Malaysia. The RM800 billion of investments targeted by the ETP are spread across 131 EPPs in 12 NKEAs. This will deliver the broad-based growth that will turn Malaysia into the high-income nation that PEMANDU envisages.  But progress has been skewed towards just one NKEA and a few mega-projects. The ETP currently appears to be business-as-usual, government-linked mega-projects rather than private sector-led transformation.

    By design or necessity? The initial focus on a few mega-projects and one NKEA might be a sensible strategy. Or it might have been forced by the lack of private sector interest in the ETP. PEMANDU will no doubt claim the former. We think it is the latter. Time will tell. We shall be monitoring.

    ● The ETP is about transforming Malaysia through 131 projects across 12 National Key Economic Areas (NKEAs).

    ● Investments achieved so far are mainly due to just two mega-projects, and are dominated by the Oil, Gas & Energy NKEA.

    ● There has been zero progress in the Financial Services NKEA which is crucial to high-income jobs.

    ● Right now, the ETP appears to be business-as-usual, government-linked mega-projects; not private sector-led transformation.

    Diversity of projects is as important as size of investment

    The ETP team at PEMANDU has achieved nearly a quarter of its investment target in just over a year. RM176 billion of investments in EPPs (Entry Point Projects) have been announced. This is equivalent to 22 per cent of the cumulative RM800 billion investments targeted for the entire ETP until the year 2020.

    That is indeed a remarkable achievement. However, the ETP is not just about large investment numbers. Those investments must ultimately transform Malaysia into a high-income nation. To that end, the ETP Roadmap chose to prioritise 131 Entry Point Projects (EPPs) across 12 National Key Economic Areas (NKEAs).

    The 12 NKEAs are a broad mix, ranging from service-based economic activities such as Business and Financial Services to heavy engineering-oriented Oil, Gas and Energy projects. The EPPs range in size from RM3 million to RM84 billion.

    Zero progress on financial services NKEA

    We now focus on Diversity — the second “D” in our DEEDS framework. We compare the composition of the EPPs heralded in the eight ETP updates with the spread envisioned in the ETP Roadmap Report.

    How spread out are the 114 EPPs and RM176 billion of committed investments achieved so far? A diverse distribution of project sizes across the 12 NKEAs indicates a healthy and balanced progress. Conversely, a narrow distribution raises questions about the lack of broad progress and concerns about the overall viability of the ETP.

    The prognosis is poor:

    1. Mega-projects dominate. Just two projects — the MRT and RAPID by Petronas — account for 55 per cent of the investments so far.

    2. Just one NKEA accounts for the majority of investments. The Oil, Gas & Energy NKEA contributed 53 per cent of the investments so far. In fact, six of the top 10 investments so far are in this NKEA.

    3. Of greater concern is that there is no EPP in the Financial Services NKEA.

    Is PEMANDU in sync with Bank Negara and the Securities Commission?

    Financial Services is mainly under the purview of Bank Negara Malaysia and the Securities Commission — key policy “enablers”, in PEMANDU’s parlance. Bank Negara recently released its Financial Services Blueprint 2011 to 2020.

    Nearly all of the EPPs under the Financial Services NKEA can be found in the Blueprint. However, the similarity ends there. The language and thrust of the Blueprint differ markedly from that of the ETP Roadmap and the ETP updates. We found only one mention of the ETP and no reference whatsoever to the other metrics that PEMANDU emphasises — EPPs, incremental GNI contribution and amount of public and private sector investments.

    The Financial Services NKEA is important to the ETP. PEMANDU anticipates it will contribute RM121 billion or up to 15 per cent of the incremental GNI (gross national income) targeted. It is imperative that progress within this very important NKEA be tracked. It would be most helpful if PEMANDU, together with the two other main stakeholders — Bank Negara and the Securities Commission — would issue a joint communiqué clarifying the likely investments, jobs and incremental GNI contribution from this NKEA in the short, medium and long term.

    KL International Financial District is not a Financial Services EPP

    The proposed Kuala Lumpur International Financial District (KLIFD) by 1MDB was initially listed as a common enabler under the Financial Services NKEA. KLIFD was subsequently elevated to EPP status, but reclassified under the Greater KL/Klang Valley NKEA. The reclassification is puzzling. The scant details are worrying. The fact that KLIFD is not mentioned at all in Bank Negara’s Financial Services Blueprint 2011 to 2020 is alarming.

    The ETP Roadmap Report says, “The Kuala Lumpur International Financial District … will allow Kuala Lumpur to attract higher calibre financial human talent to together help promote a vibrant financial services industry. This will also raise Malaysia’s profile in the international arena and support the country’s brand.”

    But buildings alone cannot make a financial centre. What is more important is the soft infrastructure — the rules and regulations and general environment — fostered by Bank Negara as the primary regulator. The Labuan International Business and Financial Centre (Labuan IBFC) is mentioned 25 times in Bank Negara’s Blueprint. KLIFD is conspicuous in its omission.

    The absence of clear support from Bank Negara and its reclassification into the Greater KL/Klang Valley NKEA suggests that the Kuala Lumpur International Financial District is another massive construction project rather than an important foundation of efforts to develop the financial services sector. This view is given credence by the various tax incentives granted to KLIFD in the 2012 Budget announced by Prime Minister Datuk Seri Najib Razak.

    The inducement for more new office space is puzzling. International real estate service firm CB Richard Ellis Malaysia points out that projects such as the KLIFD would exacerbate the oversupply in Kuala Lumpur. In this environment, it is even more crucial that policy enablers such as Bank Negara are fully on board to help create new opportunities and demand to fill the fresh supply of office space.

    Progress so far is just mega-projects and one NKEA 

    Leaving aside Financial Services, the diversity of EPPs still leaves much to be desired. The EPPs are heavily skewed towards a handful of mega-projects and one NKEA in particular:

    1. Firstly, just two mega-EPPs — the RAPID project by Petronas and the MRT — contribute 55 per cent or RM97 billion of the announced RM176 billion investments#.

    2. Secondly, investments in EPPs in the Oil, Gas and Energy NKEA dominate. Oil, Gas and Energy EPPs make up 53 per cent or RM94 billion of the announced investments.

    From another perspective, 6 of the top 10 EPPs are in this NKEA.

    The reliance on just two projects and the slant towards the Oil, Gas & Energy NKEA would be even more pronounced if:

    1. The now much higher cost of the MRT is used. The RM36.6 billion investment value still being officially cited is a 2009 estimate subject to inflation. Also, the cost of land acquisition and rolling stock is not included. Some reports suggest the cost is now in the region of twice as much;

    2. Investment numbers for the intensification of exploration activities by Petronas and the formation of the Malaysian Nuclear Power Corporation announced in Updates 5 and 6 respectively are included. The investment figures for these two very large EPPS were surprisingly not given by PEMANDU when they were announced during the updates.

    Based on the Roadmap, the nuclear power plant (EPP 11) is expected to generate RM21.3 billion of investments while the Petronas activities (EPP 3) will contribute RM18.4 billion. Including these numbers, Oil, Gas and Energy NKEA would have accounted for even more of the total investments in EPPs announced so far.

    Three mega-projects make up nearly two-thirds of non-Oil, Gas & Energy NKEAs

    It might be argued that PEMANDU is a victim of its own success in stimulating EPPs within the Oil, Gas & Energy NKEA. The RM94 billion of investments committed to this NKEA so far is already 83 per cent of the RM113 billion envisaged throughout the entire ETP period.

    The massive investments here would naturally dwarf the other NKEAs. However, leaving aside the heavy reliance on Oil, Gas & Energy, the same diversity issues afflict the other 11 NKEAs:

    1. The slant towards mega-projects is even more pronounced. Just three mega-projects — the MRT, TUKAR and Karambunai Integrated Resort — account for RM52 billion or nearly two-thirds of non-Oil, Gas & Energy EPPS;

    2. Just one NKEA — Greater KL/Klang Valley — accounts for RM40 billion or nearly half of investments within the non-Oil, Gas & Energy NKEAs. The Palm Oil, Agriculture and Business Services NKEAs languish at the bottom. And recall that there are no Financial Services sector EPPs.

    Excluding the three mega-projects, just RM30 billion of investments was generated across the 11 non-Oil, Gas & Energy NKEAs last year. To meet its ETP target, PEMANDU must generate RM67 billion per year of investments for the remaining period of the ETP. Can it pick up the pace?

    The ETP Roadmap does outline some other ambitious projects. But these are also projects we are dubious about. Our scepticism is further fuelled by PEMANDU not mentioning the investment numbers when it announced these EPPs in its updates. Two examples are: 1. The Unified Malaysia Sale (EPP 11) under the Wholesale and Retail NKEA. In the Roadmap, the EPP is supposed to generate RM4.7 billion of investments. We think RM4.7 billion is a massive amount merely to organise a sale; and we noticed hardly any publicity from May to August last year when the sale supposedly took place. No figures were given when this EPP was announced in Update 6; and

    2. The Invest KL EPP under the Greater KL/Klang Valley NKEA. Attracting 100 of the World’s Most Dynamic Firms within Priority Sectors (EPP1) is supposed to require funding of RM82.2 billion. Invest KL was announced as an EPP in Update 7, without numbers. We think RM82.2 billion to attract 100 firms is very expensive — it works out to RM820 million per firm. For example, the global financial hub of oil services giant Schlumberger announced so far is expected to need only RM268 million of investment.

    Grade “C” for diversity

    Nevertheless, in keeping with our commitment to evaluating PEMANDU on its own terms, we shall not pass judgment on these projects at this juncture. However, we would also remind readers that private investments are running at only about half the target rate, which we covered in Part 4 — Private Enterprises are Rejecting the ETP.

    PEMANDU now has the dual task of catching up on EPPs in NKEAs besides Oil, Gas & Energy and stimulating private investments. For now, we grade PEMANDU “C” for Diversity — its ability to deliver a variety of EPPs across a broad swathe of sectors.

    The jury is still out on whether the focus on a few mega-projects and one NKEA is driven by design or necessity. On the one hand, it is sensible to prioritise the large-ticket items. On the other hand, the focus on government-linked mega-projects might have been forced by the tepid private sector response to the ETP. Time will tell. We shall be monitoring.

    Appendix 1: Breakdown of Projected Investments by NKEA, EPPs and Business Opportunities

    The RM1.4 trillion total investments that PEMANDU prefers to highlight comprises RM800 billion of investments in EPPs and RM600 billion in 60 business opportunities identified in the ETP Roadmap Report.

    Business opportunities “capture the potential of the sector to grow organically. Some business opportunities will be triggered by the successful execution of EPPs”.

    In its ETP Updates, PEMANDU furnishes information only on EPPs. Business Opportunities are not covered in the ETP Updates. As such, we consider RM800 billion the appropriate investment benchmark when evaluating PEMANDU’s progress so far on generating investments.

    Appendix 2: The gap between progress on number of EPPs announced and investment values

    Astute readers will wonder at the gap between the number of EPPs announced and the total investments so far. 87 per cent or 114 out of a total 131 EPPs have been announced. However, the RM176 billion of investments announced lags far behind at just 22 per cent of the total expected.

    Using a simple ratio suggests that announced investments should be RM696 billion. Why the large gap? There are two main reasons:

    1. PEMANDU omits investment numbers for some announced EPPs. The nuclear power plant, Petronas intensification activities, Unified Malaysia Sale and Invest KL mentioned in this Focus Paper are examples of EPPs which have been announced but for which investment figures were not disclosed;

    2. Not all the investment value in each EPP is realised when it is announced. For example, RM39 billion is the figure given for EPP 12 — Improving Rates, Mix and Quality of Hotels in Malaysia. However, the projects announced so far — Majestic (Update 2), Datai (Update 3) and Pulau Gaya (Update 3) — total less than RM3 billion in committed investments.

    Whether the total investment expected in this and other similar EPPs is realistic or can ultimately be realised, we leave to the judgment of our readers and the good hands of the ETP team at PEMANDU.

    The story so far

    Part 1, “Let’s evaluate PEMANDU on its DEEDS”, introduced this series. We assess PEMANDU and the ETP on the goals, plans and targets stated in the ETP Roadmap document. Doing so facilitates constructive debate as it uses the framework which PEMANDU has chosen to work within. In that vein, and in keeping with the spirit of the alphabet soup of NKEAs, NKRAs, SRIs, EPPs, GNI surrounding the entire GTP, we evaluate PEMANDU and the ETP on its DEEDS:

    Data transparency was covered in Part 2, “We won’t really be twice as rich in 2020”. We declared, “It does not compute!” PEMANDU’s target is to double nominal income per capita to RM48,000 by 2020. But using its forecasts for income and population growth, and inflation, the target should be RM54,145, not RM48,000. Can this “roadmap to transformation” be trusted when even the basic maths is wrong?

    Execution took three Focus Papers:

    Part 3(i), “PEMANDU strengthens the ‘know-who’ cancer”, focuses on PEMANDU’s practice of taking credit for pre-existing projects and its role in cutting red tape. PEMANDU is institutionalising the role of middleman if it cuts red tape only for EPPs. Malaysian innovation, creativity and productivity will continue to lag if long-term policy changes are not made. It does not matter how good your product or idea is, or how efficiently you can make it, it depends on who you know to get it through the system.

    Part 3 (ii), “The hothouse labs probably killed innovation” posits that large companies would naturally dominate the vaunted “labs” that chose the EPPs. Also, the tight eight-week time frame to research best practices, distil them and support them with detailed analysis would have incentivised participants to select EPPs for which research was already ready, rather than pursue genuinely transformative alternatives.

    Part 3 (iii), “Doubtful EPPs; doubtful achievements and due diligence” says the selection of projects with very little hope of success as EPPs raises serious doubts about the due diligence process at PEMANDU. The RM10 billion Karambunai Integrated Resort needs 2.8 million visitors per year to break even — more than all the travellers arriving at Kota Kinabalu airport! The multi-billion ringgit plan to transform Tanjong Agas from a fishing village to a petrochemical hub has REFSA aghast. It creates redundant infrastructure, and goes against the government’s own master plan identifying the already established Kertih and Gebeng as the focus areas for such activities in the Eastern Corridor Economic Region (ECER).

    Enterprise is severely lacking so far. Part 4, “Private enterprises are rejecting the ETP” highlights that the private sector makes up only 35 per cent of the total investments in EPPs, far below the 60 per cent that PEMANDU says is required to take Malaysia to high-income status by 2020. It is understandable that priority is given to government-led, big-ticket infrastructure project in the early days of the ETP. However, PEMANDU’s attempt to paint a rosier picture by citing figures excluding large public sector projects like the MRT draws suspicion that something is amiss. REFSA debunks PEMANDU’s selective figures with a simple cake analogy and some telling numbers.

    Note on PEMANDU’s response

    Upon hearing that we were writing an evaluation of the ETP, the communications team at PEMANDU kindly arranged interviews with a director from the minister’s office who is also the director of the Oil, Gas and Energy & Financial Services NKEAs, the director of the Wholesale and Retail (W&R) NKEA and the assistant director of the Tourism NKEA. We are grateful for these interviews and will include clarification points from these interviews in our evaluation. These interviews were recorded by the ETP communications team and we hope that they would be made available online for public access. —REFSA (Research for Social Advancement)

    * Dr Ong Kian Ming and Teh Chi-Chang wrote this analysis for REFSA.

    This article was published by The Malaysian Insider.

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

  • The Great Debate’s political impact – one week later

    One week after the debate between MCA president Dr Chua Soi Lek and DAP secretary-general and Penang Chief Minister Lim Guan Eng, after the passions have cooled down and the arguments digested, what is the likely political impact, if any, moving forward?

    What most Malaysians may not have realised is the one cardinal rule associated with political debates – “Don’t Screw Up”. Most of the members of audience would not remember the substantive points made by politicians on salient issues during these debates but almost all of them would remember if any political gaffes were made.

    For Richard Nixon, it was not so much something he said but rather his body language – nervous, withdrawn and sweating profusely – that made his younger, confident and more relaxed opponent, John F Kennedy, look more appealing in their first 1960 presidential debate.

    More recently, during a debate featuring aspiring Republican presidential candidates, Rick Perry, the governor of Texas, infamously uttered “oops” when he could not remember the name of the third federal agency he had promised he would abolish. In other words, impressions of the debate matter more than the actual substance of the debate.

    Undoubtedly, the lasting impression and the most significant political gaffe made from this debate did not involve either of the political leaders but came from a member of the audience who posed a question/made a statement directed towards Lim.

    jessie ooi 05Jessie Ooi, an MCA member and ‘caretaker’ of the Selayang parliamentary area, accused the Penang chief minister of putting additional burdens on the people by raising the assessment rates and by towing cars parked illegally after 10.30pm, even though the streets were empty at that time. I suspect that neither Ms Ooi nor the two political leaders realised that the 38 seconds used to pose that question would make her an Internet sensation almost overnight.

    One week after the debate, she remains a widely debated topic, especially among the Chinese community. Judging from the over 40,000 comments which have been posted on her Facebook fan page and the many thousands of other mostly negative comments in the rest of cyberspace – Twitter,YouTube, blogs, news items – she has sparked a greater backlash than when Ibrahim Ali handed out white packets to senior citizens during a Perkasa Chinese New Year event.

    Her accidental rise to infamy has, to a large extent, taken some of the positive attention that Chua may have received as a result of him daring to go face-to-face against the DAP’s secretary-general and Penang chief minister. More worrying for the MCA is the very real possibility that the massive outpouring of anger/scorn/derision targeted at Ms Ooi could translate into a further loss of support by the MCA among the Chinese community.

    ‘Cheap shot’ at Tee Keat

    The second likely lasting impression from the debate is Chua’s ‘cheap shot’ at former MCA president Ong Tee Keat. When responding to Lim’s reference to Ong’s admission to a US embassy official that the Chinese community in Malaysia had the perception that they were just getting ‘crumbs’ from the government, Chua seemed to take great pride in declaring that MCA had gotten rid of this non-performing leader after less than a year in office.

    azlanNot surprisingly, this prompted an immediate response from Ong who tweeted ‘But I wonder if he (referring to Chua) is not rottened, why MCA has got such a nosedive support’ (sic).

    There was no question that Chua was intent on going all out to attack the DAP, especially with regard to its relationship with PAS.

    While he raised some salient points, such as the lack of a comprehensive governing agenda on the part of Pakatan, his ‘swipe’ against Ong probably left a deeper impression than his attacks on the DAP.

    By doing so, he allowed himself to be thought of as a vindictive and sarcastic person rather than someone who was raising relevant issues for public consideration. This move by Chua, coupled with the aggressive questions posed and statements made against Lim by the various MCA supporters and leaders from the floor, left the impression that MCA was more interested in making personal attacks than to debate and discuss policy issues.

    Lim’s usual strategy of promoting the policies and accomplishments of the Penang state government probably exacerbated this perception.

    The third likely impact may not get fully played out on the national stage until a later time. Chua has been doggedly trying to use the issue of Islam, the Islamic state and PAS to attack the DAP. But often, much of what he has said can and has been interpreted as insulting or belittling Islam. For example, he used arguments from a book – ‘Malaysia and the Club of Doom’ – to equate Islam with all sorts of negative indicators such as corruption and low literacy

    NONEIn the Tenang by-election, he infamously criticised the PAS candidate for not wanting to shake hands with men during the campaign. In this debate, many Malays who were tuning into Astro Awani got a chance to listen to Chua’s non-stop attacks against DAP for being powerless against PAS to establish an Islamic state or to implement more Islamic leaning policies such as the banning of cinemas and not finding new locations for pork abattoirs.

    Here, Chua is stepping on thin ice since he may end up losing more Malay support for the MCA than the little support he can gain from the Chinese community, given the relative lack of salience on this issue.

    Potential backlash

    If his statements regarding Islam in this debate, together with some of his statements made in other context, gain a wider audience among the Malays, the potential backlash against the MCA could be significant enough to cause MCA to lose a few more parliamentary and state seats.

    This is not to say that Lim gave a stellar performance and that Chua had a dismal outing. Both achieved most of their stated objectives. Lim did not want to just discuss issues of interest to the Chinese community but went beyond by bringing in corruption, economic management and his record in Penang. Chua wanted to show that he could go toe- to-toe with Lim and take him on in areas of supposed vulnerability such as hudud and PAS’ intention to set up an Islamic state.

    Both also had some shortcomings. Lim failed to draw attention to some of the successes of other Pakatan states especially Selangor.

    And he let slip the opportunity to re-emphasise DAP’s firm commitment against the implementation of hudud and the establishment of an Islamic state. Chua failed to bring up the prime minister’s name even once and no mention was made of any of Najib Abdul Razak’s transformation policies.

    But these points have probably been forgotten by the public, including those who witnessed the debate live on TV or as a member of the audience. What counts are the lasting impressions from this debate and from this perspective, the negatives are much more apparent for the MCA than for the DAP.

    Finally, if the next debate between these two leaders in English / BM, takes place as originally promised, it would ramp up pressure on Najib to have a much more politically significant debate with opposition leader Anwar Ibrahim. If this debate were to take place, the same cardinal rule would apply – “Don’t Screw Up!” In the meantime, all of us political junkies will be waiting expectantly.


    ONG KIAN MING holds a PhD in Political Science from Duke University.

    This article was published by Malaysiakini.

  • ETP: Part 4 – Private enterprises are rejecting the ETP

    ETP: Part 4 – Private enterprises are rejecting the ETP
    Dr. Ong Kian Ming & Teh Chi-Chang

    The very basis of the ETP is in jeopardy. A key foundation of the ETP is that the private sector is to lead the massive RM1.4 trillion of investments needed to catapult Malaysia to high-income status by 2020. But the 35 per cent private sector share of ETP investments to date is far below target. The RM114 billion investments by government and GLCs are nearly double the RM62 billion invested by the private sector.

    PEMANDU obfuscating again

    PEMANDU responds that private sector investments are closer to the targeted 60 per cent share if big-ticket public sector projects like the MRT are excluded. This is intellectually dishonest. The ETP Roadmap Report includes such projects in its desired investment mix. There is no justification to exclude them. It is akin to giving a recipe for a rich chocolate cake and then saying it is not fattening if you exclude the calories from the butter.

    Is PEMANDU attempting to cover up tepid private sector response?

    We would expect the big-ticket, long-gestation infrastructure projects to be prioritised in the early days of the ETP. However, PEMANDU has chosen to obfuscate rather than clarify. Is it because the gap between the desired 60 per cent private sector target and the current 30 per cent is unlikely to be bridged?

    Grade ‘E’ for developing private sector enterprise

    PEMANDU includes big-ticket projects when it trumpets its headline numbers, and excludes them when inconvenient. If private sector investment is lagging, hiding behind different sets of data will not take us to high-income status. PEMANDU must take the bull by the horns. Explaining the issues and the remedial measures being taken is crucial if economic transformation is to be achieved.

    Has the ETP fostered private enterprise?

    A key foundation of the ETP1 is that the private sector is to lead the massive amounts of investments needed to catapult Malaysia to high-income status by 2020. The ETP Roadmap Report says:

    “the projects and opportunities identified will be mainly funded from private sources. The Government’s role will be that of an active facilitator of the private sector through resource and policy support, rather than the principal driver, as it has been in the past.”

    This is consistent with the “government knows best era is over” ethos of the government’s other economic plans including the 10th Malaysia Plan and the New Economic Model.

    The ETP says RM1.4 trillion of investment is required to take Malaysia to high-income status by 2020. Of this, 92 per cent is to come from the private sector with the balance 8 per cent from the public sector (the government).

    Note that the ETP considers government-linked companies (GLCs) as “private sector” and includes them in the 92 per cent private sector total. We take issue with PEMANDU on that definition, which we delve into in Appendix 1. We consider GLCs as a separate class, and the desired split is 60:32:8 – 60 per cent from the “true” private sector, 32 per cent from GLCs and 8 per cent from the government.

    Attracting private sector, non-GLC investments is crucial to the transformation objective of making the private sector the main driver of economic growth. The very basis of the ETP is in jeopardy if private sector investment is not forthcoming.

    In this paper we focus on Enterprise — the second “E” in the DEEDs framework with which we are evaluating PEMANDU and the ETP. How effective has PEMANDU been in steering the ETP towards this paramount goal of restoring the private sector as the engine of growth for Malaysia?

    Based on number of projects, the ratio of private:GLC:public projects of the 113 EPPs announced so far is 64:12:24:

    • The 64 per cent private sector participation is close to the 60 per cent target;

    • GLCs at 12 per cent are far behind the 32 per cent target;

    • Government at 24 per cent is far ahead of the 8 per cent public sector target.

    However, the private sector projects are of relatively small value, averaging just RM864 million per project. This would be even smaller at RM704 million per project if we exclude the two doubtful multi-billion projects we covered last week in Part 3 (iii): Doubtful EPPs; doubtful projects and due diligence — the Karambunai Integrated Resort and the Tanjong Agas petrochemical park.

    The government projects are far larger, averaging out at RM1,630 million per project. The GLC ones are massive, averaging RM4,957 million each — nearly RM5 billion per project. In fact, GLC and government investments total RM114 billion — nearly double the RM62 billion from the private sector.

    Based on investment values of the EPPs, the private:GLC:public projects split is 35:40:256.

    • Private sector investments at 35 per cent of the total value are far below the 60 per cent desired;

    • GLC investments at 40 per cent are above the 32 per cent target;

    • The government investment share at 25 per cent is more than triple the desired 8 per cent. In fact, it will be even higher if the increased cost of the MRT is used. This 25 per cent share is based on the original RM37 billion budget for the MRT. The estimated cost since then has ballooned.

    PEMANDU is trying to have its cake and eat it

    Opposition Leader Datuk Seri Anwar Ibrahim observed that, “a high proportion of the EPPs (upon which the success of the ETP hinges on) are nothing more than large-scale infrastructure projects that will consume a large amount of public money either directly from the public coffers or through funding arrangements with GLCs / GLICs”.

    PEMANDU’s response:

    • It acknowledged that about RM67 billion or 39 per cent of the total investment up to November 2011 was contributed by GLCs. However, it pointed out that the percentage falls to 6 per cent if the RM60 billion RAPID project by Petronas is excluded.

    • Similarly, it said the private sector:public sector ratio (including GLC investment) stands at 75:25. But it also suggested that if GLC investments are excluded, the private to public investment ratio is 60:408.

    This is not an isolated example. In response to other similar criticisms, PEMANDU has also trotted out numbers that exclude the MRT and RAPID projects which then takes the private / public investment ratio much closer to the desired 92:8 ratio.

    This is yet another case of PEMANDU obfuscation. It is disingenuous to suggest that the private/public investment ratio would be closer to the ETP targets if certain investments are excluded. The ETP is a holistic plan which includes desired investment targets from the private sector, GLCs and the public sector.

    There is no justification for excluding particular projects such as the MRT from the investment ratio calculations. The ETP Roadmap Report already includes the MRT project in its targeted 60:32:8 private:GLC:public investment mix. There is no reason why separate calculations which exclude the MRT project should be highlighted.

    On the one hand, in its updates, PEMANDU trumpets the massive amounts of investments and its excellent progress towards its ambitious target. This large total rightly includes investments from all parties — the private sector, GLCs and the public sector.

    On the other hand, when it is pointed out that private sector participation is lagging, PEMANDU trots out statistics which exclude certain projects. This is intellectually dishonest.

    PEMANDU can’t have its cake and eat it:

    • If it wishes to include the mega-billion GLC and government projects towards its total RM1.4 trillion target, then it has to accept the ensuing ratios which are heavily skewed towards GLC/ public sector investments.

    • If it wishes to exclude GLC/public sector investments in its ratio calculations, then it must also exclude them from its headline investment numbers — which would then be far behind schedule.

    Going back to the cake analogy, PEMANDU’s response is akin to saying this delicious chocolate cake is not fattening if you exclude the calories from the butter and icing. The cake has to be eaten in its entirety. You can’t take out the butter!

    Is PEMANDU attempting to cover up tepid private sector response?

    There really should be no problem with public sector investment being heavier in the early stages of the ETP. The targeted 60:32:8 private:GLC:public ratio is a long-term one over the course of the ETP until 2020.

    In fact, we would expect government to feature more prominently in the early days. The government would naturally be expected to pursue very big-ticket, long-gestation, infrastructure projects like the MRT. So, it would actually be sensible for PEMANDU to prioritise these over smaller-ticket, shorter-time frame private sector projects.

    However, instead of taking this line, PEMANDU has chosen to obfuscate and cherry-pick. It includes GLC and government projects when it suits its case, and excludes them when it does not.

    Is it because there is no visibility in the pipeline for private sector EPPs? Is it because it is unlikely that the gap between the desired 60 per cent private sector investment ratio and the current 35 per cent will be closed?

    In fact, because the private sector is already lagging, the ratio of private sector investment must rise to 64 per cent from now to 2020 in order to meet the desired target. That is a massive increase from the 35 per cent today. Also, because private sector projects will be smaller than the massive multi-billion ringgit GLC and government investments such as the MRT and RAPID, PEMANDU will have to foster a large number of private sector EPPs.

    Can PEMANDU do so? Only time will tell. We shall be monitoring.

    In the meantime, PEMANDU gets an “E” for developing private sector Enterprise. While a fair number of private sector-driven EPPs have been named, the ETP is still too focused on big ticket government-linked projects in order to drive the headline investment, GNI contribution and job numbers.

    What can PEMANDU do?

    PEMANDU must take the bull by horns and address the root causes of why the private sector does not have sufficient confidence in the long-term potential of the country to invest large amounts of capital in long-term projects in Malaysia. To do this, PEMANDU should:

    1. Stick to a consistent data set that includes all EPPs in all its statistics;

    2. Explain the issues and the remedial measures being taken where there are deviations from the targets; and

    3. Stop obfuscating by cherry-picking and trotting out statistics that exclude certain projects. This is unproductive and intellectually dishonest.

    If private sector investment is lagging, hiding behind different sets of data will not take us to high-income status. PEMANDU must demonstrate that it is able to mobilise the private sector to drive economic growth through the EPPs.

    A related concern is that a small number of EPPs, mostly in the Oil, Gas and Energy NKEA, constitute the bulk of investment numbers.

    We will discuss this in detail in Part 5 next week, when we evaluate the Distribution of EPPs across the NKEAs, the second ‘D’ in our “DEEDS” framework.

    Appendix 1: GLCs are NOT similar to private sector players

    PEMANDU believes government-linked companies (GLCs) should be considered as being similar to other players in the private sector:

    “The reality is that GLCs must be considered as part of the private sector as they compete on a commercial basis in their respective sectors, and are accountable for their annual profit and loss performance.”

    But this statement flies in the face of the reality that many GLCs can run at a loss over long periods of time because there is the underlying assumption that, at the end of the day, the government will bail them out if necessary. Malaysian Airlines, for example, is a GLC that has to compete against other airlines in the international and domestic markets but there is little chance that it will be allowed to go bust.

    Also, some of these GLCs have government-granted monopolies or legacy economies of scale. For example, Telekom is dominant in the fixed line aspect of telecommunications, Tenaga has a monopoly on electricity transmission and Petronas is charged with stewarding our country’s oil wealth.

    We do not deny that GLC-led EPPs can make important economic contributions to the country. But counting EPPs associated with such GLCs as private sector initiatives overstates the private sector role. It makes private sector participation appear larger than it really is.

    Notable examples of EPPs helmed by monopolistic GLCs include:

    • The massive RM60 billion RAPID project by Petronas;

    • Other Petronas EPPs including efforts to rejuvenate existing fields through Enhanced Oil Recovery (EOR) under EPP1, develop small fields through innovative solutions under EPP2 and intensify exploration activities under EPP313;

    • RM4 billion investment by Tenaga to build additional and upgrade existing infrastructure under the Oil, Gas and Energy NKEA;

    • RM486 million investment by Malaysian Airports to transform KLIA into a retail hub under the Wholesale and Retail NKEA;

    • RM418 million investment led by Telekom Malaysia to lay the Cahaya Malaysia Cable System linking Malaysia to Japan and Hong Kong.

    About this series

    Critics of PEMANDU and the ETP thus far have tended to focus on the expensive costs incurred by PEMANDU and its consultants, accusations of style prevailing over substance, the execution of specific projects and its apparently lofty, unrealistic targets.

    We think these issues can be further debated, but these questions ultimately boil down to PEMANDU’s raison d’être. PEMANDU is already a fait accompli. Debating its existence serves no useful purpose at this point. Instead, we evaluate PEMANDU and the ETP on its own terms by looking at the goals, plans and targets outlined in the ETP Roadmap document. Doing so facilitates constructive debate as it uses the same framework which PEMANDU has chosen to work within.

    In that vein, and in keeping with the spirit of the alphabet soup of NKEAs, NKRAs, SRIs, EPPs, GNI surrounding the entire GTP, we evaluate PEMANDU and the ETP on its DEEDS:

    1. Data transparency — the ease with which an independent analyst can evaluate the figures relevant to the ETP and its targets;

    2. Execution — the progress, or lack thereof, of announced EPPs (Entry Point Projects);

    3. Enterprise — whether the target of stimulating private investment is being achieved. The ETP aims for a 92:8 split between private and public investments;

    4. Distribution — the distribution of EPPs across the NKEAs (National Key Economic Areas), which shows whether a healthy balance of projects is being maintained; and

    5. Socio-economic impact — an evaluation of the main beneficiaries of the economic activities generated by the EPPs. — REFSA (Research for Social Advancement)

    * Dr Ong Kian Ming and Teh Chi-Chang wrote this analysis for REFSA.

    This article was published at The Malaysian Insider.

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

  • ETP: Part 3 (iii) — Two dud projects

    Doubtful EPPs; doubtful achievements and due diligence

    Some PEMANDU “achievements” are doubtful. The Karambunai Integrated Resort and Tanjong Agas Oil and Gas Park do not appear viable and their private sector developers are financially weak. These two EPPs alone account for 7 per cent of the total investments trumpeted by PEMANDU during the first year of the ETP. Their inclusion weakens the credibility of the headline investments, national income and job accretion that PEMANDU claims to have achieved.

    Karambunai IR — expensive and crowded? The investment cost for this project in rural Sabah soared from RM3 billion to nearly RM10 billion in the six short months from its first mention before the ETP was launched to its final incarnation as an EPP. At this price, we estimate it needs 2.8 million visitors per year to break even — more than all the passengers arriving at Kota Kinabalu airport!

    Aghast at Tanjong Agas. The massive investment and construction work in this fishing village will result in infrastructure that duplicates the thriving towns of Kertih and Gebeng, which are the stated focus areas for oil and gas activities in the Eastern Corridor Economic Region. PEMANDU will no doubt deny that the infrastructure is redundant, and maintain that the transformation of this village is unrelated to its location in Pekan, the parliamentary constituency of Prime Minister Datuk Seri Najib Razak.

    “D’ for execution — where is the due diligence? Karambunai in its current form is clearly unviable. Tanjong Agas is contrary to the government’s own Eastern Corridor master plan. Taxpayer funding for Karambunai soared six-fold in six months, from RM100 million to RM600 million. The single largest investor in Tanjong Agas is reportedly contributing barely any equity funding. Straight answers from PEMANDU would be appreciated.

    Some very large EPPs are potential “duds”. The projects do not appear viable and their shareholders are financially weak.

    ● Karambunai IR needs more visitors than all the arrivals at Kota Kinabalu airport to break even; Tanjong Agas goes against the government’s own Eastern Corridor master plan.

    ● Stripping these out would dent the massive investments, income and job creation that PEMANDU trumpets.

    ● PEMANDU gets a “D” for Execution. The whole process from the labs that selected the EPPs to the actual implementation is riddled with defects.

    The execution process at PEMANDU troubles REFSA

    Success of the ETP (Economic Transformation Programme) boils down to execution of the individual EPPs (Entry-Point Projects). All the EPPs collectively add investments, national income and jobs to the ultimate goal of taking Malaysia to high-income status by 2020.

    PEMANDU, based on its updates, is showing a crisp pace of execution. But below the surface gloss, REFSA sees deeper issues surrounding the execution of the ETP — the “E” in the DEEDs framework with which we are evaluating PEMANDU and the ETP.

    ● Part 3 (i) PEMANDU strengthens the know-who cancer:

    a) Suggested that some of the quick pace of implementation was due to PEMANDU taking credit for projects already under way which were subsequently named as EPPs; and

    b) Pointed out that PEMANDU is institutionalising the role of middleman if it cuts red tape on a case-by-case basis for EPPs. This reinforces the “know-who” culture that is killing Malaysian innovation, creativity and productivity. It does not matter how good your product or idea is, or how efficiently you can make it, it depends on who you know to get it through the system.

    ● Part 3 (ii) The hothouse labs probably killed innovation examined the NKEA lab process. We highlighted:

    a) The high-pressure NKEA lab process was more conducive to incumbent companies with pre-existing business plans rather than start-ups with genuinely transformative ideas; and

    b) The private sector participants would be championing their own interests first and national transformation second. A glaring example is the missing automotive sector. It is not one of the NKEAs, despite the huge sums of taxpayer and Petronas money that have gone into supporting our national cars.

    In this third and final part of our evaluation we use the examples of two massive but economically tenuous EPPs to illustrate potential shortcomings in the due diligence process while selecting EPPs.

    Some EPPs are questionable

    We see possible “dud” projects — projects with very little hope of success — among the EPPs announced. We shall illustrate by spotlighting the Karambunai Integrated Resort City EPP under the Tourism NKEA and the Tanjong Agas Oil and Gas Logistics and Industrial Park EPP under the Oil, Gas and Energy NKEA.

    Our concerns:

    ● Start with the financial feasibility of these EPPs;

    ● Extend to the qualifications, experience and track record or lack thereof of the private sector partners; and

    ● Widen to the reliability of the investment, GNI and job creation figures associated with these EPPs

    Karambunai — how to triple your investment in six months!

    Perhaps the most serious example of a possible dud EPP is the RM9.6 billion Karambunai Integrated Resort City (Karambunai IR) announced in the 5th ETP update on April 19,  2011.

    Karambunai IR is actually an example of a pre-ETP project that was subsumed as an EPP. It received its first major mention in early October 2010 by no less than the prime minister himself:

    ● At that time, during the Budget speech, it was presented as a RM3 billion project to develop an integrated eco-nature resort in Karambunai;

    ● A few weeks later, in mid-October, Karambunai IR was presented as an EPP in the ETP Roadmap Report with a projected RM6.7 billion investment value;

    ● Six months later, when announced as an EPP in the 5th ETP update in April 2011, the investment cost had jumped to RM9.6 billion!

    All in, the project investment cost had more than tripled in the span of just half a year from RM3 billion in October 2010 to nearly RM10 billion by April 2011. This massive escalation in the project cost has never been explained, which is particularly astonishing given the huge sum involved.

    It may be asserted that the inflated investment between the time of the prime minister’s budget speech and its inclusion in the ETP Roadmap Report a fortnight later was due to value-enhancing activities by PEMANDU.

    That might indeed be the case. But under PEMANDU’s watch, in the short six-month period from October 2010 when the ETP Roadmap was launched to April 2011 when Karambunai IR was highlighted in the 5th ETP update:

    ● The investment numbers ballooned from RM6.7 billion to RM9.6 billion;

    ● The expected GNI (gross national income) contribution soared 13-fold from RM707 million to RM9.3 billion;

    ● The jobs created were inflated from 7,700 to 11,000.

    It beggars belief how the Karambunai IR’s business model could have been restructured to add so much more value, income and jobs in such a short span of time:

    ● Either the initial model was deeply flawed and left too much low-hanging fruit to reap, or the new plans are way too optimistic.

    ● Neither explanation reflects well on PEMANDU’s due diligence process for selecting EPPs and verifying the expected contributions to GNI and job creation.

    In fact, investment analysts and market observers were already querying the viability of the initial RM3 billion project, particularly doubting the ability of project developer Karambunai Corp Berhad. The Star reported the following in October 2010:

    Still, scepticism abounds on Karambunai’s ability to execute this grand plan, not least because of its weak financial status. The company has been in the red for the past three financial years…. In addition, it has piled on huge debts with short-term borrowings of RM192.07 million and long-term borrowings of RM283.77 million.

    It was widely perceived that such a massive investment in rural Sabah would be financially viable only if the project included a licence to operate a casino. In Karambunai IR’s case, such conjectures gained further credence from:

    ● The “integrated resort” terminology used to describe this project. “Integrated resort” was the less-emotive term used by the Singapore government to help persuade its citizens that tourism resorts incorporating casinos were in the best long-term interests of the country;

    ● Three of the four integrated resorts named as examples in the ETP Roadmap Report have significant casino operations — Marina Bay Sands and Resorts World Sentosa in Singapore and the Atlantis in the Bahamas. The third — Palm Resort in Dubai — is backed by a government that had to be rescued by its neighbour Abu Dhabi during the 2008/09 financial crisis;

    ● The majority shareholder of Karambunai Corp Berhad, Tan Sri Chen Lip Keong, also controls Nagacorp, which operates a casino in Cambodia; and

    ● The fact that the project appears financially unviable without a casino.

    Both Karambunai and PEMANDU have denied that Karambunai IR would include a casino. Malaysians may well be sceptical of such denials. The case of Ascott Sports comes to mind; the government initially denied a sports-betting licence had been issued, then admitted a “conditional” licence had been given and subsequently withdrew the licence following public opprobrium.

    There is also another interesting denial. Petaling Tin, which owns some of the land involved, denied signing “any agreement with any parties pertaining to the resort project, and there are no corporate developments that warrant future disclosures to the stock exchange at this juncture”. This announcement was made on April 19, 2011, the day of the 5th ETP update in which Karambunai IR was announced.

    But taking the denials at face value, it is startling that PEMANDU accepted this project as an EPP. Even a cursory examination suggests the project is unviable without the boost from a lucrative casino licence.

    Our analysis shows that Karambunai IR would have to attract an exceptionally large crowd spending extraordinary amounts of money on lodging, entertainment and food and beverage to be viable.

    Even after giving Karambunai IR the benefit of the doubt by assuming it manages to attract very big spenders and earns high profit margins, Karambunai IR would have to entertain over 2.8 million visitors per year just to cover its basic costs. This is more than the 2.5 million passengers arriving at Kota Kinabalu airport every year!

    It is mind-boggling that PEMANDU accepted this project as an EPP given the obvious doubts about its financial viability. It is astounding that PEMANDU has committed at least RM600 million of government funds to this project. And we wonder about the veracity of the rapidly increasing investment, gross income contribution and job creation numbers.

    Tanjong Agas — or Tanjong Tanpa-gas?

    The issues surrounding the Tanjong Agas Oil and Gas and Logistics Industrial Park in Pahang announced in the 2nd ETP update are similar to those afflicting the Karambunai IR.

    Firstly, like Karambunai IR, this is a “recycled” project. It was originally launched in February 2009, but featured in October 2010 as an EPP during the launch of the ETP Roadmap.

    Secondly, like Karambunai, it is likely that this project will require taxpayers’ money from the Facilitation Fund:

    ● At its launch in 2009, it was said that RM8 billion would be invested to equip the park with shipyards, fabrication yards, supply-based fabrication for repairs and lay-ups, liquefied natural gas and petroleum terminals, dredger yards, liquid-bulk terminals and dockyards;

    ● Under the ETP update, the initial investment listed for this EPP was RM3 billion from 2011 to 2012. Of this amount, RM300 million will come from the Facilitation Fund from the 10th Malaysia Plan.

    Thirdly, like Karambunai, the investment requires fund-raising which seems beyond the ability of the companies involved in the project:

    ● The concessionaire to develop the park, Tanjong Agas Supply Base and Marine Services Sdn Bhd (TASBMS), 30 per cent-owned by the Pahang State Development Corporation (PKNP), is to invest RM2 billion;

    ● The balance RM6 billion is to come from seven private companies.

    TASBMS itself reportedly aims to borrow the entire RM2 billion needed from KAF Investment Bank and “hoped the federal government would financially support the state’s growth”. Is it furnishing any equity at all?

    Next, one wonders how seven unknown private companies can hope to raise RM6 billion, particularly when details of the park are poorly publicised.

    Taking a step back, why Tanjong Agas in the first place? Tanjong Agas does not feature in the Eastern Corridor Economic Region (ECER). Kertih and Gebeng were identified as the two focus areas for oil, gas and petrochemical clusters.

    Gebeng already houses major oil and gas industry names including BP Chemicals and BASF Petronas Chemicals. It is also well connected, with direct pipelines and a railway line to Kuantan Port, a mere five kilometres away, with centralised tankage facilities and container and bulk liquid port services.

    Tanjong Agas is a greenfield requiring massive investment. One cannot help but wonder who will be the beneficiaries of the contracts to conduct land reclamation, deepen the harbour, construct the port facilities and build the roads leading to this new industrial park.

    Would our readers be aghast to learn that Tanjong Agas is located in Pekan, which also happens to be the parliamentary constituency of Prime Minister Najib?  Perhaps we are being too cynical. Perhaps the massive development of this particular fishing village, instead of others, is completely unrelated to its illustrious parliamentary representative.

    With all these questions surrounding this Tanjong Agas project, it is not surprising that some have drawn parallels between this project and the Port Klang Free Zone fiasco. Would the taxpayer once again be left to pick up the bill if this project fails to take off?

    “D” for execution — where is the due diligence?

    PEMANDU rates poorly on the entire value chain from conceptualisation to execution of EPPs:

    1. Firstly, the financial viability of at least some projects is dubious. This brings to mind the practice of “recycling: — the naming of existing projects as EPPs. Cynics would ask why these projects would need the shot in the arm of being declared EPPs if they were already viable in the first place. And we have pointed out that PEMANDU stepping in to give its “seal of approval” even for good projects reinforces the know-who rather than know-how culture;

    2. Secondly, the qualifications, expertise and track record of some investors and project owners are weak. Besides the owners of the Karambunai IR and Tanjong Agas projects highlighted here, another example is the widely disparaged 1 Malaysia email ETP for which financially-distressed Tricubes Berhad was selected as the private sector partner;

    3. Thirdly, this leads us to regard with scepticism the attainability of the vital statistics of these projects that are included in the ETP progress updates — the investment values, gross national income (GNI) contributions and jobs created;

    4. Which then leads to doubts about the veracity of the astounding achievements touted at each ETP update. The two possible “dud” projects highlighted here have investments that total RM12.6 billion or 7 per cent of the projected RM177 billion of total investments committed during the first year of the ETP;

    What if these are just the tip of the iceberg? How many other potential “duds” are there among the 113 EPPs announced so far?

    It might be suggested that the highly-paid team at PEMANDU and its expensive consultants are not in a position to question the investment value, GNI contribution and jobs created by private stakeholders involved in any EPP. But this would be irresponsible for three reasons:

    1. Some of these projects involve the spending of taxpayers’ money. For example, the government will contribute at least RM600 million to the Karambunai IR project;

    2. The amount of public money involved is tied to the expected investment value of the project. This is a very important point.  There is an incentive for the private stakeholders to inflate the expected cost of their projects in order to increase the amount of Facilitation Funds which they can apply for from the Public Private Partnership Unit (UKAS);

    Continuing with the Karambunai IR example, it is unclear if the public funding requirement has also increased with the subsequent ballooning of the project cost from RM6.7 billion to RM10 billion;

    3. These figures contribute to the overall investment, GNI contribution and jobs created targets which are trumpeted by PEMANDU in its ETP updates and press releases. If the basis of these numbers is suspect, then the validity of PEMANDU’s claimed progress in taking us to the end goal of a high-income nation is questionable.

    What should Pemandu do?

    Doing the following will bolster credence of PEMANDU’s claimed progress and lead to more confidence in the economic viability as well as the numbers and figures associated with EPPs:

    1. Back up the impressive headline numbers in each ETP update with a detailed progress update on each EPP including the amount of public and private investment already spent;

    2. Work with the potential EPP owners to make sure that the figures of interest are economically and financially sound;

    3. Be willing to oust EPPs from the ETP if subsequent analysis or events render them economically unsound. On this matter, PEMANDU should:

    a) Avoid projects such as 1 Malaysia Email which explicitly seek the government or government agencies as a core customer;

    b) Be especially careful with projects backed by the politically influential. These projects must be able to pass exceptional scrutiny; and

    c) Avoid “recap” projects, especially those which have been in existence before the ETP such as Karambunai IR; and

    4. Be ready to exclude investment, incremental GNI and job figures from individual EPPs which have been announced but cannot be executed.

    About this series

    Critics of PEMANDU and the ETP thus far have tended to focus on the expensive costs incurred by PEMANDU and its consultants, accusations of style prevailing over substance, the execution of specific projects and its apparently lofty, unrealistic targets.

    We think these issues can be further debated, but these questions ultimately boil down to PEMANDU’s raison d’être. PEMANDU is already a fait accompli. Debating its existence serves no useful purpose at this point. Instead, we evaluate PEMANDU and the ETP on its own terms by looking at the goals, plans and targets outlined in the ETP Roadmap document. Doing so facilitates constructive debate as it uses the same framework which PEMANDU has chosen to work within.

    In that vein, and in keeping with the spirit of the alphabet soup of NKEAs, NKRAs, SRIs, EPPs, GNI surrounding the entire GTP, we evaluate PEMANDU and the ETP on its DEEDS:

    1. Data transparency — the ease with which an independent analyst can evaluate the figures relevant to the ETP and its targets;

    2. Execution — the progress, or lack thereof, of announced EPPs (Entry Point Projects);

    3. Enterprise — whether the target of stimulating private investment is being achieved. The ETP aims for a 92:8 split between private and public investments;

    4. Distribution — the distribution of EPPs across the NKEAs (National Key Economic Areas), which shows whether a healthy balance of projects is being maintained; and

    5. Socio-economic impact — an evaluation of the main beneficiaries of the economic activities generated by the EPPs. — REFSA (Research for Social Advancement)

    * Dr Ong Kian Ming and Teh Chi-Chang wrote this analysis for REFSA.

    This article was published by The Malaysian Insider.

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

  • ETP Part 3 (ii) — The hothouse labs probably killed innovation

    The ETP resulted from 12 “labs”. Each lab comprised 30-50 experts who had eight weeks to research best practices and innovations, distil them in intense brainstorming sessions and support them with detailed analysis. The result was 131 Entry-Point Projects (EPPs) across 12 National Key Economic Areas (NKEAs) that would maximise gross national income with minimal public-funding support. Such is the PEMANDU narration.

    Truly transformative ideas may have had no chance. Much was made of the private sector participation. But large companies would naturally dominate. Start-up companies, even if invited, cannot afford to release staff for eight weeks. Consider this example: 10 years ago, Microsoft, IBM and HP would have dominated any lab to transform the IT industry. Google was a cash-strapped start-up, Apple was in disarray and Facebook did not even exist. The incumbents would have been free to promote pet projects and stifle their competition.

    Hothouse environment favoured incumbents with existing business plans.The tight time frame incentivised lab participants to select EPPs for which research was ready, rather than pursue alternatives. In addition, private sector participants would be expected to lobby heavily for their pet projects. Their duty is to maximise profits, not embark on public service ventures. Unless properly steered, the labs would be inclined to select heavily-promoted projects rather than the most transformative.

    We see at least two “dud” multi-billion ringgit projects. Their viability is questionable, their developers financially weak and taxpayer funding is required. Their selection as EPPs suggests serious weaknesses at the labs.

    Much is made of the private sector participation in the labs that selected the Entry-Point Projects (EPPs).

    ● But the “hothouse” environment was inhospitable to genuinely transformative ideas.

    ● The intense pressure would have incentivised lab participants to select projects for which groundwork was already laid, rather than explore alternatives.

    ● Also, the private sector experts would be oriented towards profit rather than national transformation. Note the glaring absence of autos as a National Key Economic Area (NKEA).

    Fundamental defects in the lab process

    PEMANDU  makes much of the 12 NKEA “labs” that brought together 500 experts from the private and pubic sectors to define and detail the ETP. These labs, in eight short weeks, detailed and defined the 131 EPPs (Entry-Point Projects) across the 12 NKEAs (National Key Economic areas) that make up the ETP.

    In Part (ii) of our focus on Execution — the “E” in the DEEDS framework with which we are evaluating the ETP — we highlight two core defects of the lab process:

    ● Unless properly guided by an independent, experienced and knowledgeable chairman, each lab would end up promoting the interests of the most vocal of the private sector participants, which might not necessarily be the most transformative projects.

    Private sector participants in the lab would be expected to lobby intensively for their pet projects. In fact, they would be guilty of mismanagement if they did not. Private sector managers are expected to maximise profits for their shareholders, not embark on social service ventures;

    ● The projects ultimately selected as EPPs and promoted by PEMANDU may kill genuinely transformative ideas being pursued by small companies outside.

    The labs would favour the status quo and existing large companies rather than start-ups. Cash-strapped start-ups cannot afford to release staff for two months to attend labs. Large companies can send widely experienced lobbyists.

    Consider this: three of the biggest new developments in IT are Google, Facebook and Apple’s renewed success. Yet, they would have been poorly represented in any lab set up 10 years ago to transform the IT industry. That lab would have been dominated by experts from the likes of IBM, Microsoft and HP (Hewlett-Packard) doing their best to cement their respective companies leadership. They certainly would not be nurturing potential competitors or transformative ideas.

    Hothouse environment would have stifled innovation

    The problem is exacerbated by the tight time frame in which the labs operated. Each lab had just eight weeks to deliver transformative projects. In this short period, 30 to 50 experts in each lab had to:

    ● Fact-find and research best practices, success stories and innovations;

    ● Distil these through “intense collaborative sessions of brainstorming”; and

    ● Syndicate them in more than 640 meetings with major stakeholders such as ministers and key government agencies.

    In this type of hothouse environment, it is the loudest and most persuasive voice that tends to be heard, which is not necessarily the most rational one.

    Also, good ideas which require more intensive research and analysis are likely to be jettisoned in favour of projects for which groundwork is already in place. For example, let us consider the lab for the Tourism NKEA which yielded the Karamabunai Integrated Resort (Karambunai IR) as one of its EPPs.

    ● Participants from Karambunai Corp Bhd would have a clear interest in promoting the idea of an integrated resort, since they already had plans drawn up prior to the ETP lab;

    ● The time constraints and pressure to deliver would incentivise the PEMANDU staff and consultants to turn Karambunai’s plans into an EPP. Indeed, this is what seems to have happened. Karambunai Corp Bhd, in an announcement to Bursa Malaysia, said PEMANDU chose to use “drawings from Karambunai which has copyrights source and status”;

    ● It would also not be surprising if PEMANDU took the project at face value without scrutinising the investment, incremental gross national income (GNI) and jobs created numbers, given the intense time-pressure.

    Why isn’t the auto sector one of the 12 NKEAs?

    Our concern about private sector interests trumping genuinely transformative ideas is not academic. There is a glaring omission from the 12 NKEAs (National Key Economic Areas) prioritised by the government under the ETP.

    The 12 NKEAs are Agriculture; Business Services; Education, Electronics and Electrical; Financial Services; Healthcare; Greater KL/Klang Valley; Oil, Gas and Energy; Palm Oil; Communications, Content and Infrastructure; Tourism; and Wholesale and Retail.

    Where is the automotive sector?

    Malaysian taxpayers and Petronas have supported Proton, our national car company, for 25 years. Proton cars are actually 53 per cent cheaper in Saudi Arabia than they are at home here in Malaysia.

    “We have to protect our national car industry” is the justification given for the heavy tariffs and other obstacles placed on foreign cars in Malaysia. That being the case, why is the auto sector not classified as an NKEA?

    On the other hand, if the government no longer deems the automotive sector as a priority sector, then tariffs and other forms of protection should be completely removed. The sector should be liberalised and open competition allowed, which will lead to cheaper cars for all Malaysians.

    The exclusion of the auto industry puzzles industry experts such as Yamin Wong of the New Straits Times:

    “It (Proton) is the only independent car company in Southeast Asia that has the full competency to build a car and with the management capability to absorb foreign car technology … It is a strategic asset that should be allowed to work for the country, i.e. be another regional car hub.”

    Malaysia is the largest passenger car market in ASEAN. But the foreign automakers are investing heavily in Thailand instead, where the rules are clearer and environment more liberal.

    Yamin points out that Proton has a state-of-the-art car manufacturing plant running significantly below capacity in Tanjung Malim. Foreign brands seeking preferential tariffs and entry into the ASEAN auto market should be encouraged to utilise the excess capacity. This would also create a whole network of supporting industries and thousands of jobs.

    Why did this not happen? Why was the massive auto sector left out of the ETP? Yamin’s sources suggest private sector interests trumped national considerations. As REFSA points out, the primary loyalty of the private sector experts is to themselves and their bosses.

    REFSA is not censuring these private sector participants. They acted perfectly rationally — they have their families and businesses to look after. Rather, it is the ETP process that was fatally flawed. The leaders of the ETP fell for these ideas that promoted the status quo instead of guiding the process towards really transformative and value-adding economic activities.

    Potential “dud” projects

    There is an even more serious problem than the acceptance of EPPs that preserve the status quo. At least these projects are viable and will generate some investment and create some jobs. Even worse are potential “dud” projects — projects with little chance for success if they are pursued as presently planned.

    We see at least two projects of questionable viability, with financially weak private sector partners and which require taxpayer support. And no, the widely disparaged 1 Malaysia email ETP for which financially-distressed Tricubes Berhad is the private sector partner is not one of them.

    Tricubes is small potatoes relative to these two projects. These two projects run into billions of ringgit and are seeking hundreds of millions of ringgit of taxpayer funding. Their selection as EPPs suggests serious weaknesses at the labs and with the due diligence process at PEMANDU.

    About this series

    Critics of PEMANDU and the ETP thus far have tended to focus on the expensive costs incurred by PEMANDU and its consultants, accusations of style prevailing over substance, the execution of specific projects (such as the MRT and 1 Malaysia email) and its apparently lofty, unrealistic targets.

    We think these issues can be further debated, but these questions ultimately boil down to PEMANDU’s raison d’être.  PEMANDU is already a fait accompli. Debating its existence serves no useful purpose at this point.

    Instead, we evaluate PEMANDU and the ETP on its own terms by looking at the goals, plans and targets outlined in the ETP Roadmap document. Doing so facilitates constructive debate as it uses the same framework which PEMANDU has chosen to work within.

    In that vein, and in keeping with the spirit of the alphabet soup of NKEAs, NKRAs, SRIs, EPPs, GNI surrounding the entire GTP, we evaluate PEMANDU and the ETP on its DEEDS:

    1. Data transparency — the ease with which an independent analyst can evaluate the figures relevant to the ETP and its targets;

    2. Execution — the progress, or lack thereof, of announced EPPs (Entry-Point Projects);

    3. Enterprise — whether the target of stimulating private investment is being achieved. The ETP aims for a 92:8 split between private and public investments;

    4. Distribution — the distribution of EPPs across the NKEAs (National Key Economic Areas), which shows whether a healthy balance of projects is being maintained; and

    5. Socio-economic impact — an evaluation of the main beneficiaries of the economic activities generated by the EPPs. —  REFSA (Research for Social Advancement)

    * Dr Ong Kian Ming and Teh Chi-Chang wrote this analysis for REFSA.

    This article was published by The Malaysian Insider.

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

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