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Audit Commission criticises government investment firm for ignoring cost efficiency in TCM park investment

In a report released Friday, the CA criticised the publicly funded Macau Investment and Development Limited for ignoring cost-efficiency principles when making decisions on how to develop the park.

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PUBLISHED

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Less than 1 minute Minutes

In a hard-hitting report released on Friday, the Commission of Audit (CA) criticised the publicly funded Macau Investment and Development Limited – which was set up by the Macao government in 2011 tasked with developing a traditional Chinese medicine industrial park in Hengqin (a cooperation project between Guangdong and Macao) – for ignoring cost-efficiency principles when making decisions on how to develop the park.

The report says that the Macau Investment and Development Limited (MID) has failed to carefully study the suitable development model when making major decisions on the development of the park.

The report also says that the company estimated that it would need to invest an additional 8.26 billion yuan (MOP 10.05 billion) to complete the outstanding projects in the park if it would decide to continue adopting the most cost-consuming development model (self-financed construction and operation) for these projects, as it did for its completed and ongoing projects.

The report criticised the company for failing to make careful investment decisions bearing in mind that it has been using “a lot of” public money for the TCM park’s development.

The Macao and Guangdong governments signed their Framework Agreement on Cooperation between Guangdong and Macao in March 2011, according to which the Traditional Chinese Medicine Science and Technology Industrial Park of Cooperation between Guangdong and Macao was to be set up in Hengqin with the aim of helping Macao’s economic diversification drive.

According to the report, the Macao government established Macao Investment and Development Limited in June 2011 as a way of joining the development of the TCM industrial park in Hengqin. In November 2011, Macau Investment and Development Limited and the Hengqin authorities (represented by Zhuhai Da Heng Qin Investment Limited) jointly set up the Guangdong-Macao Traditional Chinese Medicine Technology Industrial Park Development Company Limited in Hengqin for the development of the TCM industrial park there. Macau Investment and Development Limited initially held 51 per cent of the shares, before increasing its capital in the industrial park development company in 2016. It has held 70 per cent of the shares since then.

According to the report, the Guangdong-Macao Traditional Chinese Medicine Technology Industrial Park Development Company Limited acquired the land use right of a 500,000 square-metre plot from the Hengqin authorities in January 2012 for the development of the TCM industrial park.

6 possible models

The report pointed out that to develop a TCM industrial park, there are usually six development models available, and the model selected – the model of self-financed construction and operation – is the most expensive of the six models for the major developer of an industrial park to develop.

According to the report, Macau Investment and Development Limited told auditors that apart for some plots in the park whose development models were still open, it had decided to adopt the development model of self-financed construction and operation for all the other plots in the park. In its estimate drafted last year, Macau Investment and Development Limited estimated that it has invested 6.5 billion yuan in projects on the plots where the self-financed development model has been adopted.

According to the report, Macau Investment and Development Limited estimated last year that it would need to invest 14.76 billion yuan to complete all the planned projects in the park. The report says that if Macau Investment and Development Limited would also adopt the model of self-financed construction and operation for the development of the other plots for which the company has still not decided the development model, it would need to invest an additional 8.26 billion yuan (14.76 billion yuan minus 6.5 billion yuan).

The report says that as early as 2016 Macau Investment and Development Limited decided to adopt the model of self-financed construction and operation to develop the whole park without considering other possible models.

The report says that Macau Investment and Development Limited has never carried out careful studies to compare the pros and cons of different development models when it was making decisions on how to develop projects for the TCM park.

The report says that had the company adopted other suitable models for the development of projects in the TCM park, it could possibly have saved “billions” of yuan.

Draft for discussion only

The report also says that Macau Investment and Development Limited decided in 2017 to self develop a 2.6-billion-yuan wellness hotel – Ruilian Wellness (Hengqin) Resort – in the park (to be built and run by itself) only based on a “PPT” (PowerPoint presentation document) which indicated that it was a “draft for discussion only” prepared by a consultancy. The report says that the company presented its decision to the Macao government’s then policy secretary based on the “draft for discussion only” without a formal final report. The company hired the consultancy to study the suitable development model for the wellness hotel.

Meanwhile, Secretary for Economy and Finance Lei Wai Nong said in a statement on Friday that he has ordered Macau Investment and Development Limited to thoroughly review its current management and operation model.

Lei succeeded Lionel Leong Vai Tac at the helm of the government’s economy and finance portfolio last December.

(The Macau Post Daily/Macao News)
Photo by Government Information Bureau (GCS)

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