The Sarawak government has for the first time publicly acknowledged that its capital-intensive investment in the state's 'trend-setting' hi-tech industry is 'risky'.

"We have to take risks as we realise the gestation period may be long," Chief Minister Abdul Taib Mahmud told reporters at the state legislative assembly after winding-up the debate on the state budget 2005 yesterday.

However, he justified the investment on the ground of ushering the state into the hi-tech manufacturing era.

The state government has borrowed heavily and pumped in more than RM3 billion to set up one of the country's two wafer fabs in the Sama Jaya Free Industrial Zone (SJFIZ) on the outskirts of Kuching City.

Taib described the project under1st Silicon (M) Sdn Bhd (in which the Sarawak government through its agency Sarawak Economic Development Corporation (SEDC) holds a majority equity stake) as 'a trend-setter' and 'catalyst' for development.

"(As such), 1st Silicon should never be looked upon as a business venture," he added.

Taib said it is anticipated that more than half of future employment opportunities will come from the hi-tech sector.

"Sarawak cannot afford to be left out of that just because we happen to be 500 miles off track from the centre of major investments and just because our own population is scattered over 5,000 villages," he added.

Was there a serious study?

Commenting on this today, a senior academician said it is a highly risky investment which should have been subjected to a rigorous due diligence process before the decision to invest was made.

"Was the decision to invest subject to a critical investment risk analysis and market survey? Was there a serious study undertaken evaluating these? Or did the state government only bring in people/consultants who would say nice things to them and so justify the state's huge investment without any critical dissent?" he asked.

The academician, who requested anonymity, said he was not impressed with Taib saying it is a risky investment now.

"He should have said this well ahead of the investment decision and consulted widely about the risks involved. Instead, everything was and continues to be rather hush-hush," he added.

In his winding-up speech which touched a lot on this issue, the chief minister did not mention how much the state government had exactly invested in or borrowed for 1st Silicon, although opposition DAP asked for the figures during the debate.

"We have put in a lot of our own money but the fact that we could borrow means that the project is good," was all he said.

Second State Finance Minister Wong Soon Koh told the assembly earlier in the week that 1st Silicon - an independent semi-conductor foundry that produces processed wafers for manufacturers in the communications and consumer electronics sectors - expected a sales revenue this year of a total RM320 million.

Making it 'look good'

An international rating agency Standard & Poor's recent statement reported that the state government was setting up a special purpose vehicle to take over the assets of 1st Silicon and leasing them back to 1st Silicon.

Sole opposition state assemblyperson Chiew Chin Sing (DAP-Kidurong), when debating the budget speech, said this was clearly intended to make 1st Silicon 'look good' after coming under the burden of having to service expensive loans.

Standard & Poor recently stated that the 1st Silicon's investment had weighed down heavily on SEDC which last year did not include it in its accounts otherwise the corporation would have shown a loss of nearly RM680 million instead of a profit of RM65 million.

"If the accounts were consolidated, SEDC would have reported a large net loss of RM668.4 million for 2003 compared with its profit for the same period of RM64.4 million," it said.

The agency, however, assigned SEDC a 'BBB+' rating with stable outlook on the expectation that SEDC will continue to enjoy support from the state government.

At the same time, it also commented that the credit-worthiness of Sarawak was constrained by its large contingent liabilities, particularly the state government's involvement in the relatively risky 1st Silicon project.

1st Silicon employs about 1,000 people, 85 percent of whom are Sarawakians.

TONY THIEN is malaysiakini 's Sarawak-based stringer.