| KUALA LUMPUR
KUALA LUMPUR On an idyllic coast in Malaysia, private investors are planning a world-class "eco-nature resort" as one part of the government's ambitious $444 billion economic makeover that it hopes will help leapfrog the country to developed-nation status by 2020.
But the price-tag on the proposed integrated resort on Borneo island, complete with a theme park and mangrove research centre, has more than tripled to $3.1 billion and there are doubts about whether it will be built.
Although the eco-resort is only a small part of the sweeping Economic Transformation Programme (ETP) - which includes a badly needed mass transit system for Kuala Lumpur - questions about the property development reflect skepticism that the programme can attract the level of private investment needed to meet its goals.
"The ETP hasn't been able to escape the impression that Malaysia can come up with good solutions but cannot implement them," said Ibrahim Suffian, a political commentator and the head of Merdeka Centre, a Kuala Lumpur polling firm.
A key target is to have private investors fund 60 percent of the ETP. Two years after its creation, the programme is leaning heavily on state spending - through 2011, fully-private companies accounted for less than 35 percent - even as the Southeast Asian nation posts impressive growth rates the government credits partly to its masterplan.
ETP leader Idris Jala, the charismatic former head of Malaysian Airline System, told Reuters in an email the overall transformation programme is working and the "numbers are there." He called state spending a necessary downpayment for "catalytic" investments that will spur others.
If the ETP ends up largely relying on state funding, that could pressure Malaysia's public finances, which have been weakening. The national debt has risen to more than 53 percent of gross domestic product from around 40 percent in 2008. The level is not a threat to stability, but that could change if there's a deep global financial crisis or if Malaysia fails to pass fiscal reforms after elections that Najib must call by April.
THROWBACK TO THE PAST?
Critics contend that the ETP is a snazzy throwback to Malaysian mega-projects that failed to deliver, from a multimedia "super corridor", derailed by the 1997-98 Asian financial crisis and dotcom bust, to "BioValley", a planned bio-tech hub that sank after its 2003 launch.
Launched by Prime Minister Najib Razak in 2010, the ETP aims to channel investments to high growth areas to end a string of years when Malaysia recorded decent, though unspectacular, growth.
It includes structural reforms to boost competitiveness and efficiency as well as reduce the state's heavy hand in the economy by divesting stakes in 33 companies. The target: to more than double per-capita income to $15,000 by 2020 from $6,700 in 2009.
Petronas, Malaysia's national oil company and traditional cash cow, is going to be a major supplier of investment. Data from Petronas, the ETP and confirmed media reports indicates that some 130.4 billion ringgit ($42 billion), or 9.5 percent of the full programme through 2020, will come from projects involving the oil company.
At the end of 2011, according to official figures, investors had "committed" to spend 179.2 billion ringgit -- which includes 9.6 billion ringgit for the planned Borneo resort -- and 12.9 billion ringgit had been spent.
The government unit managing the ETP, known as Pemandu, says that 94 billion ringgit of the 179.2 billion, or 52.5 percent, came from "private" investors -- but that includes government-linked companies with some non-state ownership.
When such companies are excluded, private investors account for only 60 billion ringgit, or 33.5 percent. Pemandu says that the private sector's share "is expected to become closer" to the 60 percent target.
The ETP's effect "is much more limited than it is claiming," said Ong Kian Ming of the opposition-linked think-tank Research for Social Advancement. "It's aiming to do more than any government agency can."
Malaysia's economy posted robust 5.4 percent annual growth in the second quarter, beating even the most optimistic private forecasts, led by a 26.1 percent jump in private and public investments. Christian de Guzman, senior analyst at Moody's in Singapore, said the GDP figures showed that private investment "has come back in a fairly meaningful way."
Jala said that as catalysts, ETP projects are meant to prompt additional investment "not just within the industry but for the economy in general."
But Abdul Jalil Abdul Rasheed, who helps manage $3 billion as CEO of Aberdeen Islamic Asset Management in Kuala Lumpur, is worried that the lion's share of the billions in private investments needed for the ETP will come from government-linked companies who then raise funds by issuing bonds.
"These bonds then get government guarantees, making the government's debt position even more worrying should a default happen. I don't think the government should guarantee bonds," he said.
The ETP's second biggest item, after refinery and petrochemical development, is the Mass Rapid Transit project to vastly expand the capacity of Kuala Lumpur's clogged transport system. In January 2011, the ETP estimated it would require public investments of 36.6 billion ringgit, although more recent private estimates suggest around 50 billion ringgit.
For the project, to be mostly public funded, contracts worth some 15.5 billion ringgit have been awarded. But it won't be commercially viable without government support to keep ticket prices affordable, said Yeah Kim Leng, group chief economist for RAM Holdings Bhd, Malaysia's largest ratings agency.
"The government will have to bear a significant portion of the capital expenditure," he said.
For Jala, the long-term net economic benefit in reduced commuting time, property development near new lines and improved "connectivity" significantly outweighs the project's cost.
CHALLENGING VESTED INTERESTS
The iPad-toting experts at Pemandu, whose name is a contraction of Performance Management and Delivery Unit, display a zeal unseen before in Malaysia's bloated public sector.
Insiders say frosty encounters are commonplace between the agency's mostly overseas educated staff and some government ministries as they try to shift deeply entrenched practices and challenge vested interests.
Pemandu held dozens of brainstorming sessions with experts from industry, government and NGOs to come up with the ETP's goals, a marked departure from Malaysia's state-centric development approach.
Ong of the opposition-linked think tank has doubts about some ETP projects, particularly the eco-resort in Sabah state, named Karambunai Integrated Resort City. Its projected cost swelled from 3 billion ringgit, the figure Najib gave when announcing it in 2010, to 9.6 billion ringgit in the ETP's progress report in April 2011.
He said that projections of how much the resort can generate in revenue and jobs appear optimistic unless it can include a casino - which is unlikely to be approved in majority-Muslim Malaysia. Just to break even, in Ong's view, the resort would need 2.8 million visitors per year - about the total the state had in 2011, according to the Sabah Tourism Board.
Karambunai Corp (KRBN.KL), which has posted losses in each of the past five years, will provide the land for the project while a consortium led by its president Chen Lip Keong, who has invested in a casino in Cambodia, is meant to develop the resort. The company declined Reuters' request for an interview.
Jala said the project's owners have repeatedly stressed their commitment to seeing the resort through, but added: "To be clear, Pemandu does not guarantee the success of any of its projects."
($1 = 3.11 ringgit)
(Additional reporting by Yantoultra Ngui and Niluksi Koswanage. Editing by Stuart Grudgings and Richard Borsuk)