The Commission of Audit (CA) has released the performance audit report “Management of Macao Investment and Development Limited”, in which it reviewed the documents of Macao Investment and Development Limited (hereinafter referred to as “MID”) from March 2011 to June 2020, and explored whether MID used the public funds reasonably in the process of planning and selecting the development and management model for the Guangdong - Macao Traditional Chinese Medicine Science and Technology Industrial Park.
The audit report pointed out that since its establishment in 2011, MID has striven to develop the Guangdong - Macao Traditional Chinese Medicine Science and Technology Industrial Park, which is the first cooperation project of the Framework Agreement on Cooperation between Guangdong and Macao, and the other project, Guangdong - Macao Cooperation Pilot Zone in Zhongshan city, was launched in November 2015 to provide opportunities and create conditions for the diversification of Macao’s economy. As at 31 December 2019, MID had a total of 21 subsidiaries, including 17 operating under the Industrial Park project and four operating under the Zhongshan project. As at 31 December 2019, after six capital injections, the capital of MID was 9.285 billion patacas, and the total amount spent on investment projects was 8.964 billion patacas, of which 8.074 billion patacas was invested in Industrial Park project and 890 million patacas was invested in Zhongshan project.
In order to implement the cooperation between Guangdong and Macao in promoting the development and management of the Industrial Park project in Hengqin New Area, MID and the shareholder representing Hengqin, Zhuhai, registered and established the Industrial Park Company in November 2011 ( MID held a 51% shareholding and the shareholder representing Hengqin, Zhuhai, held a 49%). In August 2016, the paid-up capital of the Industrial Park Company increased from 1.2 billion renminbi to 1.96 billion renminbi since MID increased the capital; therefore, the shareholding held by MID was raised from 51% to 70%, and it had control over the management of the company. After that, the paid-up capital of the Industrial Park Company received from MID was increased to 1.372 billion renminbi (about 1.698 billion patacas). In July 2019, the paid-up capital of MID (Hengqin) was increased from about 4.396 billion renminbi to about 5.394 billion renminbi (about 6.376 billion patacas), and MID (Hengqin) wholly owned ten subsidiaries. In order to implement the proposal of “separation of asset-light and asset-heavy”, the ten subsidiaries, which have the right to use the land of the Park and originally belonged to the Industrial Park Company, transferred to the subsidiary wholly owned by MID. These subsidiaries do not have the board of directors, and the chairman of the board of MID is their executive director.
When MID estimated the development costs in 2016, it considered that the entire Park would be developed in the model of self-financed construction, and took this estimates as reference for applying for future annual funding from SAR Government. This arrangement was based on the “lease only and not for sale” principle. Audit report reviewed the process of MID choosing the development model for the Industrial Park, and found that before MID decided to adopt the development model of self-financed construction, there was no analysis of the pros and cons of each development model and also no cost estimate between different models, reflecting that MID lacked a comprehensive and in-depth consideration in the important decisions. The audit result shows that if MID had made comprehensive analyses and comparison previously, the decision maker would have been aware of the pros and cons as well as the cost of each development model, and the result of adopting the principle of “lease only and not for sale” was that SAR Government had to invest billions of dollars in financing the construction.
The audit also discovered that MID adopted the most expensive development model – self-financed construction – mainly because of the principle of “not selling land”, but at the same time, it also arranged some measures to prepare for the land sale in the future, showing that there were contradictions between the decisions and the actual arrangement.
In 2019, when MID revised the estimate according to the 2018 version of new planning, it only mentioned that the related optimization had comparative advantages; as for costs, it stated that there was no discrepancy in the amount of investment. However, according to the estimate in 2019, the total amount of investment in the Industrial Park reached to 16.353 billion renminbi, increasing around 2.6 billion renminbi compared to the estimate of 13.768 billion renminbi in 2014. For the substantial increase in the total estimated cost, MID did not clearly indicate that how much benefits this changes could bring, the definite result it expected to achieve and the analysis it carried out. So far, it is confirmed that MID would need to invest 6.501 billion renminbi for the self-financed construction projects, and if it continues to adopt this development model for the other land, its shareholders would need to invest an additional 8.262 billion renminbi.
Regarding to the management model of the hotel project, MID had never considered and compared the pros and cons of operating the hotel by itself and by the enterprises which have established in the Park. On the contrary, it decided to operate by itself at the beginning without considering the other choice of renting it to the enterprises in the Park for operation, and in the supplementary explanation, the justifications for this decision were inconsistent. One of the crucial considerations in the decision to setting up the hotel project in 2017 was that the consultancy estimated that the internal rate of return was 8.3% based on a 10-year operating period, but MID failed to provide the relevant analysis document or work record on the review of the rate of return, and even did not obtain the formal study report (it only had the PowerPoint presentation document and the Excel prepared by the consultancy). In 2020, the original consultancy and the newly-hired consultancy reached the conclusion that the internal rate of return was adjusted to 6.2% based on a 20-year operating period, which is significantly lower than the original expectation when the project was set up.
In the general comments, CA pointed out that SAR Government established MID with a very obvious target: through a series of initiatives such as participating in regional economic and trade cooperation and commencing investment projects, it will perform its function for the sustainable development of Macao’s economy and the continuous promotion of foreign economic and trade business. As a public capital enterprise, before deciding to spend a large amount of public funds, MID must explain how to recover the cost and get the return on investment to shareholders in a clear and detailed way, in order to prove that this public investment is value-for-money. This could facilitate the proper supervision of shareholders in the future, and at the same time allay public concerns on the continuous increase in project cost. Since there are still uncertainties as to whether the current development model can recover the cost and get the profit, MID has to review each problem one by one, including the necessity of establishing a large number of subsidiaries and the establishment of a viable inspection mechanism, and the positioning and operational model of the Industrial Park, as well as properly analyzing the investment risk of opening the thematic hotel. More importantly, MID has to consider the development models and development plan of the Industrial Park land seriously to ensure that the tasks entrusted by the country were completed in a serious manner, with a view to making contributions and setting a good sample for Guangdong-Macao cooperation. CA will also timely review the other investments of MID and its subsidiaries in order to urge them to strengthen their management and enhance the system, thus further facilitating the regional cooperation and promoting the industrial diversification in Macao.
The report was previously submitted to the Chief Executive and it can be downloaded from the Commission of Audit’s website (http://www.ca.gov.mo), also it is freely available at the Commission of Audit Office from today during office hours.
