This article first appeared in The Edge Malaysia Weekly on December 25, 2023 - December 31, 2023

AS recently as 10 years ago, few Penangites, particularly those living on the island, would have thought that land in Batu Kawan, on the mainland, would be highly sought after by multinational corporations (MNCs) and local large companies for the setting up of their manufacturing base.

The 1,151-acre Batu Kawan Industrial Park (BKIP) currently houses about 160 companies, including big names such as Micron Technology Inc, Lam Research Corp, DexCom Inc, Simmtech Holdings Co Ltd, ViTrox Corp Bhd, Greatech Technology Bhd, Applied Engineering Technology (M) Sdn Bhd and QES Group Bhd.

Fresh investments that flocked to BKIP also drove real estate developments and economic activities to a part of the state that used to be a backwater.

BKIP is an undeniable success story that other states would not mind replicating. Unfortunately, the state’s plan to expand Phase 2 of the industrial park development (BKIP2) met with public outcry. The critics were not against the expansion, but the way in which the deal was handled. 

The plan was aborted within a month after it was made public.

The Penang government has no one to blame but itself, perhaps. If the joint develop­ment partnership with private company Umech Land Sdn Bhd had not been done in a hush-hush manner, it might not have been terminated. It was actually wise of the state government to launch BKIP2 to ride the success that it had created.

Furthermore, US-China trade tensions had prompted many companies to carry out geographical diversification. Penang is seen as being in the sweet spot to attract such investments from MNCs, particularly those in the semiconductor-related and medical equipment industries, considering the ecosystem that has been developed in the state over the decades. As an extension of BKIP, BKIP2 would be able to capture such investments.

The Penang government decided to take a different path for BKIP2, though.

Instead of developing it on its own, as it did in the first phase, the state wanted to jointly develop it with a private company — Umech Land in particular, in which Sunway Bhd owns a 70% stake. The remaining 30% stake in Umech Land is held by Karen Cheng Pui Kwan (21%) and Nathaniel Rajakumar (9%).

Sunway emerged as a Umech Land shareholder via the subscription of new shares on Sept 25 — two days before the signing of the joint development agreement (JDA).

Penang Development Corp (PDC) signed the JDA with Umech Land on Sept 27 for the industrial development project. As a public-listed entity, Sunway then announced to Bursa Malaysia the involvement of its 70%-owned subsidiary Sunway Bukit Gambier Sdn Bhd in the development in Batu Kawan.

Under the JDA, as the owner of the 558.96 acres in Batu Kawan, PDC had to ensure the availability of land for the proposed develop­ment and provide reasonable assistance in the approvals of both the master plan and other necessary requirements for the proposed development.

In return, PDC would be entitled to a payment of RM646 million, to be disbursed in instalments by Umech Land via internal funds within 48 months.

As the master developer, Umech Land would bear the costs and expenses of undertaking all developments, including the construction of a bridge, access roads and supporting infrastructure.

Umech Land would also be entitled to all monies, proceeds and profits derived from the development of the industrial park after deducting PDC’s entitlement and all develop­ment costs, including infrastructure costs and other charges payable.

As it turned out, the JDA came under fire from all sides and concerns were raised about governance. The state government and Penang Chief Minister Chow Kon Yeow were criticised for not being transparent in selecting the joint development partner. In defence, Chow said everything was done above board.

The JDA was perceived as nothing more than a land sale agreement. Unlike Phase 1 of BKIP, the state government would have left the development in private hands had the deal materialised.

The Penang Chinese Chamber of Commerce (PCCC) asked the state why it did not undertake an open tender, commenting that the price tag of RM646 million, or RM27 psf, significantly undervalued the land.

Addressing PCCC’s concerns, Chow, who is PDC chairman, explained that Umech Construction Sdn Bhd first expressed interest in the industrial park project at Expo Dubai 2020, citing financial support from Dubai. He said PDC had wanted to jointly develop an industrial park in Byram but no one expressed interest, as the land was located next to the Pulau Burung landfill.

In a press statement, Chow disclosed that a “committee” was set up on Nov 28 last year to examine Umech Construction’s proposal to participate in the industrial park project. Members of the committee included Prof Dr P Ramasamy Palanisamy, then deputy chief minister of Penang II, and Datuk Seri Lee Kah Choon, then PDC director and special investment adviser to the chief minister of Penang.

Adding fuel to the fire after Chow’s clarifi­cation, Ramasamy and Lee declared that no due diligence was done on the land deal. Ramasamy pointed out that he was not aware of the presence of Sunway and Umech Land, as the company that participated in the subcommittee meeting on Nov 28, 2022, was Umech Construction, which has shareholders in common with Umech Land in Cheng and Nathaniel.

Notably, Umech Construction had a paid-up capital of RM10 million and a gearing ratio of 215% as at Dec 31, 2021. Its financial capability is questionable, in view of the estimated RM3.1 billion in development costs for the proposed BKIP2.

It is unclear whether it was because of Umech Construction’s weak financial position that Umech Land signed the JDA with PDC instead. And the reason will remain unknown to the public.

However, Umech Land is no better, as it is very much a dormant company with no revenue and only minimal losses over the years. 

As the wave of criticism grew stronger, PDC announced the termination of the JDA in mid-October.

In a statement, PDC’s board of directors said the change in the majority shareholders of Umech Land’s equity structure, which was done without PDC’s knowledge or approval, “is a serious issue and cannot be accepted by the board of PDC”.

The board of PDC has maintained, however, that the process of selecting Umech Land was transparent and in line with PDC policy.

Upon termination of the contract, PDC was instructed to advertise for a request for proposal to collaborate with PDC to develop BKIP2, the statement added.

PDC has learnt the hard way about partnering with private companies for the development of an industrial park. BKIP2 is a wise move for the state and country. If the plans had been carried out according to procedure, no one would have come under fire and the project would have been carried out without controversy. 

For that, it is one of our turkeys of 2023.

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