Wednesday, September 16, 2009

Don't just generate hot air. Do something!

I’ve spent a year now on community service. When I quit my full-time job, it was with the intention of spending more time with family and focusing on doing things I enjoyed. However, MP Tony Pua persuaded me to lend a hand for a better Malaysia.

So, I helped to craft the privatize PLUS proposal, which the MCA subsequently decided to support and now the Barisan government under PM Datuk Seri Najib has commissioned a study on Malaysia’s toll highways.

The DAP’s Alternative Budget is on its way, and if all goes well, my book The Budget: How the Government is Spending OUR Money will be published by mid-October. I think it’s a good informative read. Buy a copy and tell me if you agree ; -) It’s not all boring financials – Antares (formerly known as Kit Leee) is working on the illustrations. Mail orders also possible - please send an email with your name, address and phone number to Publishers REFSA will contact you just before the book hits the shelves.

Along the way, I also started this blog, helped in explaining the extent of the Port Klang Free Zone (PKFZ) debacle and worked on other odds and ends …

With that, it’s time to go back to paid work. Circumstances change, and a steady cash flow stream would be nice again. Senior managers at statutory bodies may not know what cash flow is, but the rest of us hard working Malaysians fully understand its importance. No cash flow = no money!

All my work was done pro-bono. The only expense claim I’ve made is for one return (Firefly) flight to Penang. All other expenses such as fuel, toll and parking charges and telephone and other bills I paid myself. No donations came my way, and certainly no trips to Disneyland or private jet flights! I would likely have justified a nice, tidy sum in consulting fees if I’d been hired by the government, but that’s the way it is … In the meantime, hats off to all the dedicated staff and volunteers I’ve met.

As for the people who continually gripe about the state of our country, our education system, the crime rate, our politicians .… We get the government we deserve. If you want things to be different, contribute, whether it be in time, effort or money.

Today is our nation’s birthday. Don’t just sit around spouting hot air. Resolve to do something productive instead.

Thanks for reading. This is the 99th and last post for a while.

Well it's all right, remember to live and let live
Well it's all right, the best you can do is forgive
- The Traveling Wilburys

PS: Just a reminder- PLUS can be privatized at zero cost to the taxpayer. It could be toll-free before 2020!

Tuesday, September 15, 2009

The Budget: How the government is spending OUR money

Finance Minister and Prime Minister Datuk Seri Najib will present Budget 2010 in Parliament on 23 October.

Every year, come this time, there is plenty of speculation about what “goodies” the government will “give” the rakyat. And every year, after the Budget is announced, there are the usual proclamations of “it’s a people’s budget”, “it’s people-friendly”, “it’s a growth budget”.

You may walk away happy with a small income tax cut, or on the fact that cigarette and beer taxes have not gone up. But there is much more to the Budget than just those few ringgit you saved.

The real “goodies” are hidden away from public view. RM47.8bn is being spent on education and training this year. That’s equivalent to RM8,000 for each student in public education. And yet, so many parents feel compelled to send their children to private schools or for private tuition. So, what happened to all that money?

Also, did you know we spend the same amount on defence - RM13.7bn – as we do on healthcare ? Do you think that is the right choice?

My upcoming book, The Budget: How the government is spening OUR money is a guide to how our government raises its funds and how it spends all that money. The federal government alone spends about RM200bn per year. On top of that, there is also spending by state and local governments. Do you think you got your money’s worth?

The first of its kind in Malaysia, this book explains in plain English where the federal government gets its income and what it spends it on. Interested citizens and taxpayers will find this an accessible read, while professionals will, for the first time, find the numbers compiled in a concise format.

Or, just buy it for the illustrations by Antares!

It’ll be in bookstores by mid-October. If you’d like to a copy delivered to you by mail, please send your name, address and phone number to

Publishers REFSA will contact you just before the book hits the shelves. Indicative price is RM25 + RM5 postage within Malaysia.

Wednesday, September 9, 2009


The media shapes our beliefs and prejudices. It can be for the better, or for the worse, insidiously.

I was clearing a pile of old newspapers when I came across a few covering the time in February 2009 when wheel-chair bound Member of Parliament Karpal Singh was confronted by a group of UMNO Youth members.

Under a caption “Face of Fury”, the Star front-paged a picture of MP Gobind Singh shielding the disabled Karpal Singh from the strapping young men seeking to confront him. The New Straits Times said “Parliament Violated”.

Both headlines and the picture (from the Star) skirted the core issue: A mob of young men confronting a disabled MP twice their age could have been construed as an attempt at intimidation. Yes, they had their grievances. But couldn’t they have appointed one representative to present a memo to Karpal? Surely they didn’t need to feel safety in numbers?

Our government says the media has an undue influence on the young. So we have bans and restrictions on depicting Mat Rempit, effeminate men, long-haired males ….. In the same vein, the government and civic elders should display intolerance of boorish behaviour. Downplaying such antics foments a society where civil, reasoned debate is foregone in favour of might is right.

Media influence also extends to politics, of course. Here are headlines which could have been:

“Terengganu UMNO out of control” – remember the Mercs, the disagreement over who should be Menteri Besar and the on-going issues?

“Deputy Prime Minister Defends Disbarred Lawyer” – the UMNO candidate for Permatang Pasir

This is something easily addressed. If you agree the mainstream media has become unduly one-sided, stop consuming it. Don't buy the daily newspaper and watch less tv. Read independent news and good books instead.

Wednesday, September 2, 2009

Should the CEO also be the CFO?

The two most powerful positions in corporate management are of chief executive officer (CEO) and chief financial officer (CFO). The CEO is the boss and sets overall direction. The CFO controls the purse-strings.

Quite often good CEOs and CFOs will disagree. CEOs by nature and expectation have to seek new growth opportunities to expand corporate profits. They would tend to emphasise the rewards over the risks. CFOs are entrusted with financial stewardship. And when it comes to stewardship, being conservative and risk-averse are the preferred traits.

So, that’s how it works in the corporate world. No reasonable board of directors would countenance the CEO also holding the CFO position. There is just too much at stake to have one person holding the two most senior positions.

That’s also how it’s supposed to work in government. The prime minister leads and the finance minister tells him what the government can afford. Perhaps the most celebrated such pair in recent history was telegenic British prime minister Tony Blair and dour Chancellor Gordon Brown.

Over here in Malaysia though, no eyebrows are raised that the prime minister is also the finance minister. This practice began during prime minister Mahathir’s tenure, was continued by Abdullah Badawi and now Najib has continued the practice.

This might explain the deteriorating state of government finances. By 2009, we would have run 12 consecutive years of budget deficits. Our federal government debt alone is expected to reach RM414bn in 2009. This is more than double the RM206bn level nine years ago in 2000.

Put in other ways:
1. Federal government debt today is more than half the size of our entire RM741bn economy.
2. This is a burden that our youth will have to repay. The debt is equivalent to RM20,700 per person, based on about 20m youths (defined as Malaysians aged 39 and below.

Note that the actual debt burden is higher. The RM414bn number excludes debt incurred by other government-linked corporations (GLCs) such as PLUS Expressways and Tenaga Nasional. Other countries which have not embarked on extensive privatisation programmes incur road construction and electrification costs as part of their national budgets. PLUS and Tenaga alone among the GLCs have RM33.3bn of borrowings – equivalent to 8% to the federal government debt. On top of that, there is borrowing by other government-linked entities such as Syarikat Perumahan Nasional Berhad (SPNB), Putrajaya Holdings Sdn Bhd …..

Even more concerning is that we incurred the increasing debt even while we reaped the windfall gains from high oil prices. More in my up-coming book ….

Wednesday, August 26, 2009


Merdeka Day is just around the corner. Here is food for thought from Xanana Gusmao, fighter for independence and the first president of East Timor:

“Independence for East Timor has never been an end in itself but rather is a means. True independence is the recognition of the freedom of others, is the respect for the supreme interests of populations, is the respect for the most basic human rights, is the fundamental right of peoples to determine their own destiny.

When independence is only a trampoline for rulers to enrich the families of a parasitical elite, with the confiscation of peasant lands, and with total disregard and indifference for the miserable living conditions of workers, when independence blinds rulers, greedy for their own well-being and the profits of their grandchildren’s grandchildren and who set the country’s doors wide open for the invasion of international monopolies that ruthlessly destroy the environment, when independence denies the citizens the freedoms to express, to assemble, to organize and to question; when all this happens in a country with its own flag and president, the independence is but a luxurious reality for only a few, and a nightmare for millions of others ….”

Letter from the Commandant, an excerpt of a speech written by Xanana Gusmao while imprisoned in Cipinang, July 1995.

The above is taken from “The Truth and What to Do With It”, Off the Edge, Apr 09.

Sunday, August 23, 2009

Danajamin – multi-billion losses in the making?

The Star on 19 August reported Danajamin Nasional Bhd, the national financial guarantee insurer, has received 2 applications for credit enhancements to raise RM8.4bn of bonds.

Danajamin was set up in May 2009, as part of the “RM60bn” stimulus package announced by the government in March, to ensure that businesses continued to have access to bond market financing.

Here’s what an interested reader says:

“This Danajamin is a disaster waiting to happen.

Bank Negara governor Tan Sri Dr Zeti says "it provides credit enhancements for viable corporations to raise financing from the bond market". But in that, there is a contradiction. If it is viable, then why need enhancements?

This sort of credit enhancement features are typically for bad companies, which cannot access the loan or the bond markets by themselves. The REASON they cannot access these 2 markets is because they are NOT credit worthy.

Banks are experts in credit analysis. In fact, that is the bread-and-butter of lending-based banking. If the banks themselves, who are experts, deem the companies not suitable for loans, then what extra expertise or knowledge does Danajamin have to decide to bear that risk?

There are 9 local banks in Malaysia, 3 Arab banks, 2 Spore banks and 4-5 foreign banks (HSBC, ABN, StanChart etc etc). Collectively, 20 banks can’t be wrong, and Danajamin correct. Secondly, since these companies are not credit worthy, they are prone to default if there is any downturn in the economy.

As such, Danajamin will be laden with non-performing loans (NPLs). Banks have the means to monitor and modify NPLs. How will Danajamin do so?

As I said above, unless Danajamin can claim that they have a better form of credit enhancement than all the 20 banks in the system and that their risk management of potential and actual NPLs is also superior, this is a disaster waiting to happen. Assuming a 20% NPL rate of MYR 18.4 billion is a massive number. Let us cross our fingers that there is no double dip recession in the US.”

To which I would add, Dr Zeti herself was quoted as saying, ““The recent narrowing of spreads between benchmark issuances and triple A rated papers indicates that risk aversion has now eased,” and demand for higher-yielding securities was also beginning to rise, ahead of the recovery in the global economy.

Danajamin might have been justified when markets were frozen. But if markets are recovering and functioning again, it has no raison d’etre.

Note that the RM8.4bn was just for two deals – so we’re talking a massive RM4.2bn size per issue. From my experience, any issue of this size would would be inundated with bankers vying for a slice of the action – for the sizeable fees and the bragging rights.

Wednesday, August 19, 2009

It’s expensive keeping up with the Joneses in the Barisan Nasional

The passionate enter politics to make their ideals of a better nation reality. They enter to serve. Some suffer imprisonment, personal injury or even death in pursuit of their beliefs. They pay the highest price of all.

Things are better in the BN. High prices also have to be paid, but these are merely in ringgit terms. Chow Kum Hor, aide to Transport Minister Datuk Seri Ong Tee Keat, wrote in the New Sunday Times on 16 August that he “… spent a fortune changing my wardrobe and even stopped going to the neighbourhood barber” as he does not want to “… make the boss look bad.”

I guess we shouldn’t be surprised at Chow’s sartorial upgrading. When your boss flies private jets (business class is not good enough?), and your coalition counterparts swan around in handsomely-tailored Italian suits and luxurious Swiss watches one could be forgiven for feeling a little bit insecure.

That’s the BN for you. A preoccupation with style over substance. It doesn’t matter that 400,000 households – about 2 million Malaysians - still live in poverty. Our government must look good!

It also betrays a lack of true self-confidence. What’s important is your ideas and character. Gandhi lead India to independence in a dhoti. Fine, Gandhi is perhaps too ideal an example for our politicians to aspire to. President Barack Obama, leader of the most powerful nation in the world, wears US$1,500 suits which can be bought in department stores. And here at home, DAP leaders look just fine in their regular outfits.

I agree, clothes make the man and first impressions are important. I wouldn’t want our leaders presenting themselves in rags and tatters. But there is no need to spend a small fortune to look good. Consider the picture below, from Malaysiakini.

The DAP elected representatives look smart enough to me. By the way, Tony Pua (far right) didn’t change his wardrobe when he was elected as MP for PJ Utara. In fact, he downgraded. Following a price hike at the Lake Club barber, he now patronises the neighbourhood barber just downstairs of his service centre. And as far as I can remember, Kit Siang and the rest have dressed the same.

Great leaders are often described as having great vision, passion and character. A snappy wardrobe is rarely mentioned.

I’m not saying the DAP leaders carry all the positive qualities. But at least they live and dress like most Malaysians.

The BN in contrast, considers the neighbourhood barber low-class. It’s good enough for millions of Malaysians but not enough for them. If they’re so divorced from the average Malaysian, can they really lead us to a better future?

Wednesday, August 12, 2009

Legoland Iskandar – another bailout on the way?

Legoland Malaysia is coming up in the Iskandar Development Region in Johor. Some 30 million Lego bricks will reportedly be used in the RM750 million theme park, which will boast more than 30 rides, shows and attractions, from roller coasters and boat rides to adventure walks.

Developer Iskandar Investment Berhad (IIB), says the entrance fee will be “affordable for a family of six”. It is so is convinced that Malaysia's first theme park will do well that it has revised projected visitors numbers upwards — from 1 million a year to 1.4 million. Malaysians are expected to make up half of these, with foreigners — mostly Indonesians and Singaporeans — making up the other half.

There is also some good news for adults: The theme park is reportedly expected to create some 5,000 jobs. Production director Tim Burnell of Merlin Entertainments, which will manage the park, was in Johor in July to recruit for some of the jobs. The company was looking to hire model makers, who can earn anywhere between RM1,400 and RM5,000 each.

Sounds well and good. But the financials don’t quite add up:

1. MYR 750 million project cost. Say it is funded 50-50 with equity and debt, ie RM375m each.
2. If they reach the targeted 1.4m visitors a year, and assuming RM100 per person, that is RM114m revenue per year.
3. Interest and salary costs alone will be RM119m! This is based on: Interest RM19m (assuming 5% interest on RM375m borrowings); salaries RM120m (5,000 employees * RM2000 per month * 12 months).
4. That leaves nothing to pay back the borrowings, and we have not even incorporated depreciation, maintenance, utilities ….and what about profits for the shareholders who have put up RM375m?
5. Note that RM100 per person = RM600 for a family of 6. Which is probably too high too be “affordable”. So revenues will be even lower than RM114m.

Wednesday, August 5, 2009

Malaysia’s lead is evaporating

I spent most of the last two weeks in Hanoi and north Vietnam, with a short stop in Singapore. Singapore is as efficient as usual, Hanoi was an eye-opener. Malaysia is not as advanced as we think it is. Or put another way, the rest of Asia is far catching up.

The experience starts with the taxis. Getting one is a breeze, even at the airport. No need to brave touts, nor buy coupons and endure long waits for “official airport taxis”. Just walk straight out and into a regular cab. The cab, by the way, is a nice, spacious newish 1.6-litre Japanese car. Not a cramped, rattling Proton which should have been long-retired.

To help keep cabbies honest, the taxi meters don’t just click off the increasing Dong fare, they also show the distance traveled and time taken, so you know if you’re being taken for a ride. Such a simple solution to meter-rigging. I wonder why we don’t implement this in Malaysia.

The hotel was a pleasant surprise. We’d booked the 3-star Classic Hotel for US$35 (RM130) per night. It looked pretty good on the website, but we were prepared to be disappointed. We weren’t. We got a nice, clean spacious room complete with minibar and flat-screen tv. But what took the cake was a computer, together with free internet access!

I couldn’t help but think of my last local 3-star experience, at an exotically-named hotel in Langkawi. It was so exotic, there was no washbasin in the bathroom! We had to spit straight onto the bathroom floor. One wonders how a ‘hotel’ like that got final operating approvals. Malaysia boleh.

Moving on to the food, any hesitancies we had about street food vanished when we saw the hawkers. The stalls and surroundings were generally cleaner than in Malaysia. Little litter, no obvious rats or cockroaches. And that goes for their markets too.

There are issues of course, including rogue taxi drivers. We were advised to use only a few specific taxi companies. We did, and encountered no problems. Service in the shops and cafes was, in our experience, generally surly or at best, not friendly. But there were gems, including one nice hole-in-the-wall café-owner who took a dish back and waived the charge when we said it wasn’t to our liking.

I can’t help but think it won’t be long before the tables are turned, and travel guide-books to Malaysia become fraught with the warnings we’d become accustomed to when visiting our our less-developed neighbours. Beware of the taxi drivers; street crime is a problem – don’t carry handbags; be very careful with the local food and water – eat only well-cooked food and drink bottled water ….

And one final observation - while some Malaysians are still uncomfortable with the English language, many Vietnamese are eager to pick it up. One cannot accuse them of being unnationalistic. This is a nation that defeated invaders ranging from the Chinese to the French and the Americans. Yet it is enthusiastically embracing the language of its most recent enemy. There is no emotional baggage associated with English. It is the language of commerce and science, and if you want to pursue the path of material success mastery of English is the way to go.

Wednesday, July 15, 2009

Barisan Nasional is the marriage-of-convenience

Some Malaysians are falling for the mainstream media’s portrayal of the Pakatan Rakyat coalition as a marriage-of-convenience, as it relentlessly highlights the disagreements between the coalition partners. Recent differences that come to mind are the Kedah PAS-DAP quarrel and the disunity over PAS’ proposed unity talks with UMNO.

No marriage is perfect. Partners will have disagreements. They may settle it discreetly, argue quietly or fight publicly, but it is a fact, normal adults in normal relationships will have different opinions. And that is what Pakatan Rakyat is going through as the partners work through their relationships to make it even stronger in coming years.

In a marriage-of-convenience on the other hand, one partner has the upper-hand. There is no striving for a greater good. One partner may want a green card or financial security so he or she just grins and bears it, no matter what nonsense the other partner gets up to.

Which quite aptly describes the situation at the Barisan Nasional (BN). There is the façade of unity because the component parties don’t quarrel too much. The reality is that happens because UMNO calls the shots and the others just fall into line.

Take the Port Klang Free Zone scandal. Two weeks ago, Transport Minister Datuk Seri Ong Tee Keat made a principled move by directing Port Klang Authority to withhold payment until studies were completed. A few days later, the Ministry of Finance “instructed” PKA to pay up. This was a clear case of over-stepping boundaries. PKA is part of the Ministry of Transport. The Ministry of Finance did not even have the courtesy of working through the Transport Minister - it sent the “instructions” directly to the PKA board!

And what did the Transport Minister do? Not a peep. His authority has been completely undercut and yet he continues working with UMNO and the BN. Quite unlike the coalition of real partners in Pakatan, where the parties will stand up for their principles and express their real opinions.

So, which is the marriage-of-convenience?

PS. I’m taking a break. Off on a holiday to rest and recharge. Next posting will be on Wed, 5 Aug.

Monday, July 13, 2009

Najib’s “11 people-friendly measures” mere crumbs

The New Sunday Times yesterday was expectedly all agog with its boss’s prime minister Datuk Seri Najib’s 100-day milestone. In addition to 6 National Key Result Areas, he announced 11 people-friendly measures. Really, more smoke than substance. Here’re the 11 measures, and my critique:

1) Increasing taxi permits by 3,000 to be approved over the next three months

Hmm .. who decides who gets the permits? And doesn’t this increase competition for all the other taxi drivers who are still forced to rent permits from influential rent-seeking individuals? They are going to find it even harder to make ends meet. Has anyone even done a proper study on what’s a sustainable number of taxis in KL ie balancing commuter convenience with taxi drivers’ rights to earn a decent, honest living?

Actually, on the subject of permits, it is Najib’s Prime Minister’s office that gets to issue the permits! In a recent reshuffling, the Commercial Vehicles and Licensing Board was transferred to the Prime Minister's office whereas the Transport Ministry should have appeared a more suitable home.

So, right now, as Tony Pua points out, Public Transport, which is one of the 6 National Key Result Areas is a complete recipe for disaster. We have the Prime Minister himself taking care of taxis and public buses, the Finance Ministry championing RapidKL, the Transport Ministry in charge of KTM and LRT, and the Works Ministry overseeing the road transport network.

2) 20% discount for SmartTag and Touch & Go cardholders who pay toll 80 times or more in a month
Great headline and great discount. But meaningless to most people. Do the math.
A worker who works five days a week and pays toll to-and-fro = 5 day week * 2 toll payments per day * 4 weeks a month = 40 toll payments/month.
On weekends, he takes his family out and pays toll a total 8 times per weekend = 32 times per month.
Total = 72 times per month only!

3) Introduction of new Amanah Saham 1Malaysia with an initial size of 10 billion units
You are investing your own money! And bear in mind, this is not capital-guaranteed. It is fund like any other fund, with the usual caveat, “The value of your investment can go up, as well as down”.

4) Drastic measures to reduce crime and fight corruption
Haven’t we heard this before? I’ll believe it when I see it, and I’ll be relieved when this happens and ordinary civic-conscious citizens no longer need to turn criminal to protect their own families. In the meantime, the crime rate is soaring, as Tony Pua highlights.

5) Construction of additional roads in Sabah and Sarawak
6) Upgrading of water and electricity supply in rural areas of Sabah and Sarawak
7) Improving efforts in registering births in Sabah and Sarawak.
52 years after Merdeka, and 46 years after Sabah and Sarawak joined the Federation, a birth-registration system is still not in place and roads, water and electricity are still privileges ???!!!

8) Increasing by RM150m the allocation for Tekun Nasional, with RM15m for young Indian entrepreneurs.
9) Fee for learning to ride motorcycles of Calls B2 and below reduced to RM211
10) 50% discount on licence renewal fee for hawkers in Kuala Lumpur
11) Sale of 44,000 public housing units to people renting them in Kuala Lumpur

Mere crumbs to distract the public while big money continues to be wasted elsewhere.
Just last week, the one-year old Aquatic Centre in Batu Buruk was shut down after it was found to have too many flaws. This centre alone cost RM18m.
Of course, there’s a whole range of other huge money scandals, with the current pinnacle being RM13.5bn and counting at PKFZ. Transport Minister Ong Tee Keat tried to do the right thing by stopping payment, but he was overruled by his UMNO colleagues at the Treasury.

Sunday, July 12, 2009

Since when is “Politician sits with people” news?

Politicians in most mature democracies practice the common touch naturally. They take public transport, kiss babies, mingle with the people they represent…. All that is standard practice which hardly deserve news coverage.

But, in Najib’s 1-Malaysia, the headline on prime page 3 space in the New Sunday Times today is “Najib mingles with the rakyat”. The crux of the article was prime minister Datuk Seri Najib Razak decided to deliver his 100th-day speech at the Kuala Lumpur Convention Centre rather than from his office in Putrajaya. PM Najib, in turn, was appreciative that the coterie of Tan Sri, Datuk Seri and Datuk ministers present deigned to sit together with the people.

That’s a useful reminder of the heights of Barisan Nasional arrogance. It is a noble step for all those titled politicians to “give up protocol” and mix with us, the rakyat they are supposed to serve. It is a sacrifice that we, the rakyat, must appreciate!

Still, I will grant that’s a step in the right direction. Unfortunately, like many Barisan initiatives, it looks skin-deep rather than a DNA-change. Elsewhere, when boss Najib is not present, the lordly instincts revert. Page 13 of today’s New Sunday Times is telling. Kelantan UMNO chief Datuk Mustapa Mohamed said he has “to advise his VIP friends to be extra cautious” and not come and go in flashy cars with police outriders that would annoy the villagers in Manik Urai.

Contrast that with the Pakatan-led state governments. Chief Minister, plain old Encik Lim Guan Eng flies economy class. On a regular basis as he fulfils his duties as Chief Minister and Member of Parliament. Unlike the former BN Menteri Besar of Selangor, who spent RM1.7m visiting Disneyland and lives in an exclusive community, in a house valued at between RM3.5m and RM24m, depending on whom you believe.

Similarly, the 11 people-friendly measures are skin-deep rather than deep-rooted change. More to come …

PS: The print edition of New Sunday Times today captions this as "PM ... mobbed by the crowd ... yesterday". The people in the background seem more interested in something else - notice they are all looking away from the PM!

Wednesday, July 8, 2009

Is the taxpayer paying for AirAsia’s marketing costs?

I received an email from AirAsia recently, proclaiming “No Airport Tax”.

Quite ironic, considering that Prime Minister and Finance Minister Datuk Seri Najib Razak on June 23 in a written reply to Wee Choo Keong (Wangsa Maju – PKR) said Malaysia Airports is negotiating with AirAsia on RM65m of airport taxes that Air Asia owes. “Drastic action cannot be applied … on AirAsia as it would affect the operations at the low-cost carrier terminal (LCCT) and cause a negative result on MAHB as operator and manager of the airport.”

Subsequently, the Edge Daily on June 25th reported the government had appointed a consultant to find a middle path in the dispute between AirAsia and Malaysia Airports. Another consultant? Why? PM Najib has confirmed AirAsia is in arrears to the tune of RM65m.

What is there to discuss? Airlines collect airport tax from passengers just like your restaurant charges you the 5% government service tax. It is a tax collected by the private sector on behalf of the government. The Customs and Excise department quite rightly goes after restaurants and other businesses who charge that 5% but don’t remit the sum to the government. No negotiations. You remit what you collected. Why the special treatment for AirAsia? Its passengers had all paid the airport tax when booking their flights. It is money that they believed was going to the airport, not to AirAsia.

Now Air Asia is offering a “No Airport Tax” promotion. Is AirAsia really absorbing the airport tax? Or is it going to tell Malaysia Airports later on that it cannot afford to pay? In which case, this promotion is being sponsored by the taxpayer!

Air Asia already benefits from extremely one-sided contract terms which are unfair to consumers. Let’s not add taxpayer support .

Thursday, July 2, 2009

Economic reforms – One step forward, one step back .. and watch the implementation

The mainstream media has been trumpeting liberalization measures announced by Prime Minister Datuk Seri Najib Razak at the InvestMalaysia Conference on Tuesday.

Amid the plethora of measures, the one that stands out is removal of the 30% bumiputera quota for companies seeking listing in Malaysia. It is a bold political move indeed, to eliminate this “something for nothing” crutch.

Having said that, the actual impact to bumiputeras is minimal. The pipeline of new listings has hardly been inspiring in recent years. I challenge you to name even one recently-listed prominent company. Also, the policy had been a huge failure in terms of its intention to build bumiputera wealth. PM Najib said RM54bn had been allocated to bumiputeras (I think it is a lot more), but only RM2bn remains. So, bumiputeras kept less than 5% of the amounts allocated to them!

But it is good news, in that it removes a huge impediment to listing. Many owners of successful businesses shied away when told they had to offer 30% of their company to a new “partner” at a large discount. Let’s hope this results in more and better quality listings on Bursa, which would make the stock exchange more attractive and help fuel trading volume.

I am dismayed though, that replacing this 30% quota is another new fund. The RM10bn Ekuinas fund is supposed to invest in “bumiputera companies and entrepreneurs, based on merit”. Such government-run funds have awful records. And what is Ekuinas going to do that existing institutions do not?

A better approach would be to work with the private sector. For example, the government could offer to share the risks of such loans and investments with banks and venture capitalists. It could agree to bear, say, half the losses if the entrepreneurs fail. That way, the process of credit allocation is still primarily private sector driven, which should be more efficient and it saves the government having to build a duplicate infrastructure of officers to administer and monitor the investments.

As for “watch the implementation”, I am referring to the “stern” directives to:
1. Government-investment corporations (GICs) to reduce their stakes in the government-linked corporations (GLCs), in the name of raising free-floats and market liquidity; and
2. The GLCs to divest non-core businesses.

All sensible reasons, and if properly done, will be good for the economy. “Properly” is of course the crucial word. In particular, I want to see:

1. Transparency in the appointments of the brokers and the fees and commissions paid when the GICs reduce their stakes; and
2. Similarly, transparency when the GLCS sell their non-core businesses. Valuations must be fair – the businesses must not be sold at unduly cheap prices to influential parties – and all the costs, including commissions and advisory fees disclosed.

Thursday, June 25, 2009

Top leaders engrossed in child’s play as economy wanes

Deputy prime minister Tan Sri Muhyiddin Yassin and Khazanah Nasional managing director Tan Sri Azman Mokhtar took time out from their busy schedules on Tuesday to launch Kidzania, a RM50 million “educational theme park from Mexico” that will create 400 jobs, reported the Business Times.

Strip away the usual marketing hyperbole and Kidzania appears to be just a glorified play centre and property development project.

“Theme park” for me conjures visions of acres and acres of space a’la Disneyland and Universal Studios. The Kidzania “theme park” will take up merely 60,000 square feet of space in a new mall. That’s equivalent to about 40 modest terrace (link) houses. Not 40 bungalows or mansions, just normal terrace houses.

Also, the project entails the construction of a seven-storey new building. Khazanah is in an 80:20 joint-venture with Boustead Holdings to develop this project. Boustead, developer of the Mutiara Damansara area and owner of the Curve mall in Selangor, will build a seven-storey structure to house KidZania (Picture from Malaysia Insider). KidZania needs only two floors of space, Petaling Jaya really does not need another mall. So why build a completely new property?

Furthermore, I am sure the bulk of the 400 jobs will likely be low-skilled and low-paid. Those who have been to Disneyland, whether at your own or taxpayer expense, know most of the jobs are routine, menial and fulfilled by young people on a temporary basis. Hardly highly-skilled and certainly not creatively or intellectually challenging nor highly-paid.

Still, a job is a job, But, in this case, does it warrant the attentions of not one, but two luminaries? None less than our deputy prime minister himself and the MD of Khazanah, who presides over TENS of billions of investments saw it fit to launch this project. In the meantime, tens of thousands of Malaysians are being thrown out of work, the government deficit is expected to hit a high 10% and sorely-needed capital is fleeing Malaysia, just to name a few items of great import.

On the subject of Khazanah and its multi-billion portfolio, I have three key questions:

1) Khazanah, in its own words, is “committed to building a globally competitive Malaysia by developing the right human capital”. What human capital does Kidzania really develop?

2) Why is Khazanah taking such a large 80% stake in this project? I doubt whether children’s play-centres can be considered among the “sectors that are deemed strategic to the nation's economy” that are supposed to be Khazanah’s focus.

3) What is Khazanah’s expected investment return on this project?

Wednesday, June 24, 2009

The startling lack of integrity at the very top

Should a scholarship defaulter even be considered for the position of director of Petronas, our national oil company?

PM Datuk Seri Najib Razak seems to see no problem. He is reportedly seeking to appoint his special officer, Omar Mustapha, to the board of Petronas. But, the appointment hit a snag when the board of Petronas raised reservations as Omar had reneged on his scholarship obligations.

Omar apparently graduated from Oxford on a scholarship from Petronas in the mid-1990s and worked briefly with the national oil corporation and another government-linked corporation before moving on to join prestigious global consultants McKinsey & Co.

Malaysia Insider carries the article.

Not fulfilling scholarship obligations betrays a lack of integrity and ethics. The scholar owes his fancy degree to contributions from the rakyat. The least he can do is repay that obligation, making good on his debt to the people of Malaysia. Instead, he gallivants of to more lucrative pastures.

Omar can hardly plead financial constraints for reneging on his scholarship commitments. McKinsey consultants are famously well-paid. So, what can the reason be? A misplaced sense of entitlement? Such is the quality of people advising our very top leadership …

Thursday, June 18, 2009

PKFZ – Should we throw good money after bad?

As it stands, the cost of PKFZ is RM7.5bn.

Where do we go from here? The emotional will say we have spent too much to abandon the project.

But rational, standard investment practice is to look forward. Forget the costs already incurred. They are already sunk. What matters is what you can get in the future. And the future, based on Port Klang Authority’s “optimistic” assumptions is a further outlay of RM8.5bn over the next 42 years. We will start making money only in 2051.

Is it worth it? I can’t imagine any sane businessman, or government, for that matter, embarking on an investment with a 42 year payback period, and that too on optimistic projections.

So, the government really should consider an exit strategy. There are many alternatives for RM8.5bn. RM8.5bn is sufficient to build 340,000 low-cost houses. Or 30,000 students can have full scholarships for overseas studies. Or PLUS and LITRAK can be privatized, saving the government billions in compensation to the toll concessionaires and reducing the burden on motorists.

Transport Minister Ong Tee Keat, who is away in France for unspecified reasons, has characterized the proposal that the government cut losses and close down PKFZ as “a premature statement by politicians who think they can make well-informed financial decisions based on a few hours of looking through the PKFZ report”. He said he will let “the financial consultants and management experts work out a more viable solution based on further in-depth studies before a more structured approach and solution is implemented”.

So, another round of studies and fees. But you can’t conjure money from nothing. The fact is based on Port Klang Authority’s own forecasts, a cashflow deficit to 2051 is projected, and that is based on assumptions deemed ‘optimistic’ by reporting accountants PricewaterhouseCoopers.

The core problem is PKFZ was built too fast and at inflated costs. So you have underutilized facilities and punitive interest payments, including on the instalments due to turnkey developer Kuala Dimensi Sdn Bhd (KDSB). The cost base could be addressed if turnkey developer KDSB is taken to task. I would expect the legal team to comb through the various agreements and find a way to reduce the payments due to KDSB.

Doing so, though, would likely result in KDSB not being able to meet its own debt obligations. Bondholders will scream because these bonds were rated investment-grade “AAA” based on the government “guarantees”. But they can seek redress from the bankers and rating agency. We have established that the “guarantees” were really “letters of support” signed by the Minister of Transport. No doubt, they could be “construed as guarantees” but the Ministry of Transport has no authority to issue government guarantees. Only the Ministry of Finance can do that. Surely the bankers and rating agency were aware of this fact? Without the “guarantee”, the bonds would have warranted a much lower rating.

For newcomers, click here for earlier posts on the PKFZ scandal.

Wednesday, June 17, 2009

PKFZ scandal – Printer-friendly report available

The PricewaterhouseCoopers (PwC) report on the PKFZ debacle is now available at Kit Siang’s blog (in the right-hand side panel). This version is more user-friendly and in accordance with the principles of accountability and transparency than the one that was available at the Port Klang Authority (PKA) for 2 weeks only. The PKA version did not allow for hard-copies to be printed.

Reminder: PLUS can be privatized at ZERO incremental cost to the taxpayer

Someone is circulating a story, staying PLUS cannot be privatized because it will “anger East Malaysian Barisan Nasional component parties which control 40% of the coalition.” (Edge Daily June 10)

May I remind you of the DAP proposal to privatize PLUS, at zero cost to the tax-payer, and which we have offered completely free for the benefit of the public. No fees a’la PKFZ.

By the way, the RM8.5bn it will take to keep PKFZ running over the next 42 years is sufficient to privatize PLUS, and Litrak! Based on Port Klang Authority’s own assumptions, which reporting accountants PricewaterhouseCoopers has termed ‘optimistic’, PKFZ will be cumulative cashflow positive only in 2051. I don’t know about you, but I will most likely be dead by then. I would take a toll-free North-South Expressway and LDP which I can enjoy immediately over PKFZ, which may or may not actually make money in 2051.

Sunday, June 14, 2009

Irony: Former chairman of scandal-hit PKFZ launches standards boards!

Deputy Finance Minister Datuk Chor Chee Heung launched Malaysian Institute of Accountant’s new standards boards on June 9.

Datuk Chor had once been chairman of scandal-hit Port Klang Authority (PKA). But, he said, “Other than visiting the PKFZ and receiving reports pertaining to the development of the PKFZ … at every board meeting … I was never involved in any other activities on the PKFZ.” (Edge June 10).

A strangely hands-off approach given that the Auditor-General himself had raised warning points as early as May 2004 and as the cost ballooned 6-fold from under RM2bn to RM13bn and counting … And this man is now Deputy Finance Minister.

Directors are supposed to exercise diligence and oversight, even more so in the case of government bodies like PKA which ultimately belong to the taxpayers. Yet, Datuk Chor seems to think merely receiving reports is sufficient fulfilment of his director duties.

Somewhat ironic then that he officiated at the launch of the Audit and Assurance Standards Board and Ethics Standards Board of the Malaysian Institute of Accountants at no less than the headquarters of the Securities Commission.

“Honesty, integrity, transparency and accountability are the key words in good corporate governance,” said Chor according to the Sun on June 10.

Those words ring hollow in the wake of PKFZ.

Besides fulfillment, or the lack of, of his director duties, Datuk Chor was also in a conflict of interest situation. Reporting accountants PricewaterhouseCoopers noted Datuk Chor was also deputy chairman of Wijaya Global Sdn Bhd, which was linked to a key beneficiary of contracts signed with PKA when he was PKA chairman.

Friday, June 12, 2009

PKFZ scandal – will we actually see accountability?

A “Special Task Force” and two committees have been formed to “take immediate action” on Port Klang Free Zone, so said a Wednesday, 10 June press release by Port Klang Authority (PKA) chairman Dato’ Lee Hwa Beng:

1) The Task Force, comprising lawyers, accountants, quantity surveyors and building cost consultants has to make “in depth analysis and studies within their given scope of expertise and provide PKA the appropriate recommendations, within 2 months, for follow-up actions to be taken by the government”;
2) A Committee of Corporate Governance led by Datuk Paul Low, President of Transparency International Malaysia “shall oversee all future (emphasis mine) governance issues to ensure that lapses that have been identified .. do not recur in future”;
3) At PKFZ level, an Executive Committee has been formed “to plan and monitor the business development of the trade zone”.

More committees, more fees! Yes, we do need to chart the most effective part forward. But just as importantly, we need accountability for the past. Jail terms for wrong-doers. Not just more committees, studies, recommendations, planning and monitoring.

Otherwise, Malaysia is doomed. Because wrongdoers have nothing to fear. It’s OK if you swindle the rakyat of RM13bn. RM13bn that could have been used to build 500,000 low-cost houses; RM13bn that could have sent 43,000 deserving students to further their studies overseas, RM13bn that could be used to give RM1,300 cash to each adult Malaysian. You just suffer a few days, or perhaps weeks, of adverse publicity. After that you can go about enjoying your luxurious life, your overseas holidays, flashy cars ….. when you really should be in jail.

Citizen Nades of the Sun on Wednesday published a good long, list of people who should shed light on the issue. Here’s my summary. Accountability must start from the top down. The top in this case starts from the Ministers of Transport. No guilt is presumed, but some explanations are in order, for a start:

1) Former Ministers of Transport Tun Ling Liong Sik and Tan Sri Chan Kong Choy have to explain how the cost ballooned over 6x from RM1.957bn to RM13bn today despite constant reassurances the project was viable;

2) In addition Transport Minister Chan signed not one, but THREE letters that “can be construed as guarantees”. Such letters can be issued only by the Ministry of Finance. How could he have signed THREE such letters? Was he misadvised? Or did he sign knowing the implications? Either way, the Minister and/or senior civil servants have to answer;

3) The men who held the position of PKA chairman (at different times) through this mess: Senior MCA politicians Datuk Dr Ting Chew Peh, Datuk Yap Pian Hon and Datuk Chor Chee Heng, who is now Deputy Finance Minister.
The chairman is head of the board of directors which governs PKA. The board of is supposed to scrutinize management and guide policies. Yet, the Pricewaterhouse report confirms “a general lack of Board oversight and governance over the Project”.
For example, PKA gave KDSB development contracts on the basis of unfinalised building plans, and as early as May 2004, the Auditor General said PKA did not have sufficient financial resources.
Where was the Board and the Chairman when all these transpired?;

4) Datin Paduka O.C. Phang, former general manager of PKA.

Wednesday, June 10, 2009

When civic-conscious citizens turn criminal

My community is turning “gated”. It started with simple security patrols many years ago, expanded to closures of certain roads with crude barricades earlier this year, and now, proper boom-gates and guard-posts are being constructed. All thanks to dedicated community leaders and supportive residents.

I watch with mixed feelings. On one hand, I certainly feel much safer with the enhanced security scheme, which I have supported from Day 1 of its humble beginnings. On the other hand, I am conscious that we are erecting barriers on public roads, which is a crime.

True, the residents’ association is closing roads with only the bests interests of the community in mind. And the authorities have adopted a hands-off attitude.

But where do we draw the line? Today we barricade a public road with the best of intentions. What next tomorrow? Who decides which intentions are noble enough for the law to be broken? Remember the political party which took over a playground to build a “service centre”? It claimed “good intentions”.

There are two big-picture issues here. One is the failure of the Barisan Nasional government to protect our communities. Crime used to be something that happened to someone else. Now, I personally know people who have been robbed, burgled and mugged. I am sure I am not atypical of the average city-dweller. Our police force needs to be far more effective.

The second issue is rising lawlessness. Laws are necessary for society to function. Laws must be enforced and people must be convinced that justice is even-handed for society to work. At this point, normally law-abiding citizens are now teaching their children that some laws can be ignored if our “intentions are good”. This fear of crime has forced civic-conscious Malaysians to turn criminals themselves, blockading public roads to protect the safety of themselves and their families. What next?

Friday, June 5, 2009

PKFZ scandal – how the cost rose from RM1.9bn to RM7.5bn, and counting

My Maxis is still Max-sick. 8 days after the problems began, one whole week after my first report, Max-sick engineers are “still working on it”. What a clueless bunch. On the other hand, thanks DiGi! Your broadband service has been fast and reliable.

Back to the main subject of this posting, Port Klang Free Zone (PKFZ). Last week, I summarized the story and gave a big picture view of how the cost grew and grew. This week, we shall delve into how those costs actually got added in, and who the beneficiaries were.

Let’s start with just the cost for land purchase and development works. These were originally estimated at RM1.957bn in 2001. As at 31 Dec 2008, that had ballooned by RM1.565bn or 80% to RM3.522bn.

How did that additional RM1.565bn cost happen? First, purchasing the land cost RM646m more than it should have. Port Klang Authority (PKA) paid private company Kuala Dimensi Sdn Bhd (KDSB) RM1,088m for the land via a negotiated direct purchase. It could have compulsorily acquired it, as originally directed by the Ministry of Finance, for RM442m.

That leaves another RM919m to explain (RM1,565m–RM646m=RM919m). That’s mainly due to additional development works and accelerating construction so that the project was completed in just 2 years instead of phasing it in in such a way that it could be self-financing as approved by the Cabinet. PKA was in such a hurry that it signed development agreements based on estimated amounts and without detailed building plans. Effectively, PKA told KDSB, we have money to spend, just build whatever you want and we’ll take it!

So, land and construction costs alone became RM3.522bn. On top of that, because PKA committed to paying KDSB more than it could afford from current cash flows, it agreed to deferred payment terms and had to resort to soft loans from the government. The interest cost of all those deferred payments and soft loans now totals RM3.931bn. Add that to the construction cost and you get the RM7,453bn total as of now.

The deferred payment terms to KDSB are another issue. PKA has to pay 7.5% pa interest to KDSB. Being a statutory body, PKA could have itself raised government-guaranteed debt at 4% pa and paid KDSB cash, saving 3.5% pa of interest payments. On the RM3.522bn development cost, 3.5% is equivalent to RM123m per year of additional payments. The beneficiary? KDSB!

So, who’s behind KDSB? KDSB is wholly-owned by Wijaya Baru Holdings Sdn Bhd (WBHSB). The major shareholder of WBHSB with a 70% stake is Datuk Seri Tiong King Sing, Barisan Nasional MP for Bintulu. Tiong, by the way, is also the chairman of the Barisan Nasional Backbenchers’ Club – the club for BN MPs. I don’t know who owns the other 30% in WBHSB.

KDSB did not keep all the profits itself. Its main contractor was Wijaya Baru Sdn Bhd (WBSB). WBSB is 45%-owned by Wijaya Baru Global Berhad, which in turn is 32%-owned by Tiong. I don’t have the details of the other shareholders. Wijaya Baru Global’s chairman is Datuk Seri Abdul Azim Zabidi, former UMNO treasurer. Azim is also a board member of KDSB. Wijaya Baru Global’s deputy CEO is UMNO Kapar deputy division chief Datuk Faisal Abdullah.

So there you have it. The cost over-runs and some of the beneficiaries. The police and MACC have been awfully quiet about any investigations so far. Perhaps they are too busy watching Men in Black.

Wednesday, June 3, 2009

Maxis is guilty of fraud

I was going to give you more on the PKFZ scandal, but had to waste countless hours since Saturday dealing with Max-sick and its clueless “technical support” personnel.

Yup, my Max-sick broadband is on the blink again. The problems started Friday, but I was still able to get a steady, albeit slow connection via EDGE technology. On Saturday, the line kept dropping. By Monday evening, Max-sick was dead. Cue countless calls to Max-sick's “customer service” and a home visit by an unskilled vendor who insisted it was a modem problem when I was 1000% sure it wasn't. True enough, he changed the modem and still there's no service.

Finally, yesterday (Tuesday) evening, someone called and said Max-sick had “escalated my problem up to the engineering team”. What? I had complained on Saturday!!! It takes them THREE days to “escalate” the problem? Whatever happened to service integrity? Internet connection is a necessity nowadays. I rely on it to work and earn income. No internet = pissed off customers and lost opportunities. Yet when I asked Max-sick if they are at least going to waive my monthly fee, they said “they have to close the file first”, whatever that means.

Maxis is guilty of fraud. It is charging for a service (broadband) which it is not delivering. It's like a travel agent selling you a 5-star holiday package including accommodation at the Shangri-la, but dumping you into Rumah Tumpangan Ah Fatt instead. Actually it's worse than that. Maxis is not delivering ANY service at all. So, Maxis charges us for 5-star hotels but leaves us sleeping in the streets. In the meantime, it has the gall to continue aggressively selling Broadband packages. I know because I was accosted yesterday evening by yet another Maxis vendor! Needless to say, I gave him a piece of my mind, telling him he was selling a non-existent service.

But we consumers are powerless. There is no choice. Streamyx is equally bad, and I doubt that Celcom Broadband can outperform its sister company. In a situation like this, it is the regulator that has to protect the consumer against rapacious large companies.

So, where is our regulator? Incompetent like much of the Barisan Nasional government. Sigh. Next elections are so far away. In the meantime, we are stuck with a government that the majority of peninsular Malaysians did not vote for. Please, fellow citizens in Sabah and Sarawak – next elections help us kick out this useless administration.

And in case you're wondering, I had to drive out, incurring petrol and parking expense and spending unnecessary time, to find a place with wi-fi so I could upload this.

Friday, May 29, 2009

Cost of PKFZ scandal – RM500 for every single Malaysian, and counting

I spent the morning at the Port Klang Authority with the DAP team, scrutinising the appendices to the Port Klang Free Zone (PKFZ) report that was made public yesterday. The experience was slightly better than when we checked out the toll concession agreements earlier this year. Nicely-printed main reports are available. The appendices though, are available for review for only 2 weeks, and restrictions apply – they cannot be photocopied or photographed. But we can take notes on our computers, which is a relief for people like me with scrawly hand-writing.

It is a mound of dirt, so I'm sure there'll be plenty of coverage by Kit Siang, Tony, et al. I'll just help with the background for starters:

The players are:
1) Port Klang Authority (PKA), a statutory body under the Ministry of Transport.
2) PKA decided to set up Port Klang Free Zone (PKFZ), an integrated 1,000 acre zone offering facilities for international cargo distribution.
3) To design, construct and finance PKFZ, private company Kumpulan Dimensi Sdn Bhd (KDSB) was appointed as the turnkey developer.

There are all sorts of conflict of interest and performance issues surrounding KDSB and its appointment which I shall leave to others to highlight. Moving on the the billions of ringgit that were lost and stand to be lost:

1) The cost originally estimated in 2001 was RM1.957bn for land and development works.
2) This had escalated to RM4.947bn as at 31 Dec 2008. (The cost for land and development works alone had jumped to RM3.522bn. In addition, because PKFZ had to borrow to fund the development, there was RM1.425bn of interest costs).
3) The Ministry of Finance (MoF) extended a soft loan of RM4.632bn to PKA to help fund PKFZ.
4) Even though the MoF loan is soft (on friendly terms), some interest still has to be paid. This works out to RM2.506bn, taking the total project cost to RM7.453bn.

So, as of 31 Dec 2008, the tax-payer was already down by over RM7bn! It gets worse:

1) Based on its own assumptions, Port Klang Authority will be in cumulative cash flow deficit for the next 42 years, until 2041. Put another way, PKA starts making money only in 2042.
2) PKA's assumptions, needless to say, appear overly-optimistic (email me if you want details).
3) The Reporting Accountants PricewaterhouseCoopers (PWC) say PKA will not be able to repay the Ministry of Finance the soft loans as scheduled, based on PKA's own (optimistic) assumptions. These loans will have to be restructured, leading to an additional RM5bn of interest costs.
4) So, ultimately, the total project will cost RM12.453bn. That’s RM500 for each and every one of us.
5) Bear in mind, the RM12.453bn estimate is based on PKA's optimistic assumptions.
6) If we make more realistic assumptions, the total cost will be much higher. I'm guess-timating RM20bn+!

So, where do we go from here? Speaking from a logical angle, the RM7.453bn total cost so far is gone and burnt. We must look forward. And looking forward, we're talking about a further loss of at least RM8.5bn, based on PKA's own optimistic assumptions. This is based on RM5bn just for project-financing (point 4 above) and, in addition, PKFZ is expected to burn another RM3.5bn of cash to finance its operating cash flow over 2008-2041.

Can the government walk away? Should the government walk away and save at least RM8.5bn? By the way, that RM8.5bn will go a long way to privatising PLUS!

How TIA can make a lasting impact

Here’s my prediction: By 2012, three years after the launch of the Terengganu Investment Authority (TIA), the average Terengganu citizen will be pretty much unaffected by the billions of ringgit spent. Ultimately, when the projects are completed, when the land-flippers and contractors have collected their millions and hundreds of thousands or ringgit, the rakyat will be left with only poorly-constructed, under-utilised buildings which start falling apart very quickly.

TIA is perpetuating the myth that all it takes to develop a nation is infrastructure. Just build fancy new buildings and we’ll achieve developed status! It’s not that simple. It has already been proven in Malaysia – building first-world infrastructure WILL NOT take us to first-world status. Developed status is also about the soft issues – education, culture, civil society ….

Putrajaya, KLIA and the KLCC Twin Towers are the best case studies. These were supposed to be icons of a developed Malaysia. Now, after barely ten years, Putrajaya is already crumbling and KLIA is beset with the same taxi touts and illegal parking problems that plagued Subang. The KLCC Twin Towers area, in an ironic way, has turned out to symbolize Malaysia. Within KLCC itself, swanky stores cater to rich tourists and the professional Malaysians engendered by the NEP, but just 50 metres outside, rogue taxi drivers over-charge with impunity and across the road along Jalan Ampang, poor itinerant traders set up shop in the evenings, cooking on make-shift stoves.

But perhaps I am wrong, and TIA will not just be a mega-project play. Let’s say TIA does attract serious oil and gas specialists to set up shop in Terengganu, spending billions on capital investment. How many Terengganu folk are actually qualified to work in those specialized, highly-technical fields? Households in Terengganu are the second-poorest in Malaysia. It will look a lot like the British days, when foreigners held the senior positions and locals had to be content with the low-level jobs.

TIA would make a much more meaningful and lasting impact on Terengganu if it starts from the ground up. Let’s start with education. Use the money to fund the best teachers and offer good facilities. Build the proficiency of Terengganu children in English, Math and Science. Educate the next generation of Terengganu. Only then, seek the high-value, highly-specialised industries, when Terengganu people themselves can take full advantage of the employment opportunities

More to come. I’m off now to Port Klang to view the report on the Port Klang Free Zone (PKFZ) debacle with your hard-working DAP MPs. This time, I hope I’m not again forced to go back to pen-and-paper.

Wednesday, May 27, 2009

TIA shaping up to be another mega-project ploy

The Terengganu Investment Authority (TIA) was well-covered by the weekend press, including the Star and the Edge Weekly. “Well-covered” in the sense of plenty of news pages being devoted to this RM11bn fund, which, by the way, is equivalent to ladening RM11,000 of debt on every single one of the 1million Terengganu folk!

Not surprisingly, hard, penetrating questions were rare. Like, “How exactly will the average Terengganu citizen benefit from all this?”

Based on the reported comments by CEO Sharol Azral Ibrahim Halmi and executive director of business development Casey Tan, TIA will be yet another launch pad for huge construction mega-projects that will benefit a few cronies, a few hundred Class-F contractors (want to bet they’ll mainly be UMNO-related?) and a few thousand, mainly foreign, construction workers.

Consider just two examples:
1) CEO Sharol said TIA is “taking a masterplan approach to build a resort with private villas and other amenities as well as retirement homes”. TIA will invest US$1.8bn and expects a foreign investor to match this sum. That works out to nearly RM13bn, which coincidentally is about the same sum reportedly frittered away in the Port Klang Free Zone debacle;

2) An even worse idea comes from Tang: “It will be a tourism play. The land will be acquired from the state and sold at a higher price to the master developer.” Hello? Land-flipping was a major issue at PKFZ. Influential private parties acquired land cheaply from the state and subsequently resold it at far higher prices. What the private party gains, the state loses – why can’t the state sell it at the higher price in the first place, and use the proceeds to fund state development. Why is TIA, a sovereign fund which aspires to best-practices, even considering this approach?

Coming full circle to my original question, after the land is bought and sold, after the spanking new buildings are constructed … how will the average Terengganu resident be better off?

More to come …

Tuesday, May 19, 2009

Terengganu’s ‘Sovereign Wealth Fund’ is anything but

“The country’s first state-established sovereign wealth fund, Terengganu Investment Authority (TIA), with an initial fund of RM11bil, has identified several high-impact investment projects in the tourism, energy and agriculture sectors in the state and around the country,” reports the Star today, Tuesday May 19.

Unfortunately, as with most financial-related topics associated with the Barisan Nasional (BN) government, there are far more questions than answers. Here are just three big ones, to start off with:

1) First, funding. TIA will reportedly raise RM5bn in bonds backed by a federal government guarantee. PM Najib reportedly said “There’s no money involved” (The Edge Daily, May 19). Hello? Has he been keeping up to-date on the multi-billion ringgit Klang Port scandal which involved dubiously granted government guarantees?

The bigger question though, is why TIA needs a government guarantee in the first place. TIA will also reportedly have RM6bn ‘raised through the assignment to TIA of some of the future oil royalties due to the state.” RM6bn is already a huge some of money to start off with. Why the rush to add RM5bn of federal government-guaranteed debt on top of that?

2) Second, objectives. TIA chief executive officer and former executive partner at Accenture, Shahrol Halmi said, “The key objectives of TIA’s investment strategy are … ensure the development of long-term sustainable economic and social programmes for the state.”

Elsewhere in the world, the whole point of sovereign wealth funds (SWFs) is to invest windfall gains from high resource prices wisely, OUTSIDE the home country. SWFs came about because resource-rich countries found that their own economies were too small to effectively deploy all the income coming in from their trade surpluses. Rather than have too much money chasing to few goods, leading to unproductive investments and domestic property price inflation, countries such as Norway chose to set up SWFs in order to effectively invest the money overseas for a rainy day.

Over here, TIA is proposing to invest within Terengganu. Yes, a major political issue is the people of oil-rich Terengganu do not appear to have reaped any benefits from record-high oil prices. But, that’s an issue with the BN federal and state government delivery mechanism. How does TIA fit in with the local government? In fact, the presence of TIA could actually deter investment by private investors, as it could be perceived that TIA will be given undue advantages. SWFs should have no business in their home countries!

3) Third, accountability. Media reports say TIA will have a “triple-tier check and balance system comprising the board of directors, a board of advisers and a senior management team.” I say a system is only as good as its people. Note that the board of advisers will include the Prime Minister or the Finance Minister, in his stead. Far better if politicians stay out completely and leave it to professionals.

Also, the best accountability is via public disclosure. Dare we hope that TIA will adopt best practices as per the Government Pension Fund of Norway? (Contrary to its name, this fund is entirely funded by surplus wealth from Norwegian petroleum income – no government guarantees! – and is professionally managed). I invite you to check their website. Information including ALL the shares held by the fund are available for quick and easy download!

I have other issues, including the so-called “experienced personnel” involved in running the fund. Right now, the list is very narrow and, by accident or design, seems to consist primarily of one ethnic group only. I know for a fact, having worked for MNCs, that financial services talent encompasses the entire globe from Caucasians to sub-continent Indians to mainland Chinese. If TIA truly intends to be world-class, its hiring policies need to be world-class too.

Tuesday, May 12, 2009

What about respect for the rakyat?

Perak Regent Raja Dr Nazrin Shah had to wait five hours to deliver his opening address to the Perak State Assembly due to the shenanigans last Thursday. As he was taking his seat, menteri besar, as reaffirmed by the High Court yesterday, Datuk Seri Mohd Nizar Jamaluddin requested to raise an objection on the forceful and illegal means employed by the Barisan Nasional to remove speaker V. Sivakumar.

The New Straits Times reported the Raja Muda then asked Nizar and the DAP’s Datuk Ngeh Koo Ham to approach him. The Raja Muda told the duo: “I don’t want to get involved in this. I just want to give my speech, so respect my speech, when I am giving it. You understand that? If you want to work with me in future, you have to respect my speech. Understand?
“So go and tell that." (to the Pakatan Rakyat state assemblymen)

The Raja Muda can demand respect due to his position as a constitutional monarch. Who will accord respect for the rakyat’s wishes? Only a minority of Perak folk voted for the Barisan Nasional. The majority of the people of Perak do not want a Barisan Nasional state government.

How have we come to the situation where the minority is allowed to rule over the majority? What does this say for the future of Malaysia? We took a huge step away from democracy last week. I fear we are on the path to kleptocracy. Dare I see a glimmer of hope following yesterday's court decision?

Wednesday, May 6, 2009

On ex-PMs becoming “advisors” …

Tun Abdullah Badawi is now advisor to Malaysia Airlines. The Malaysian Insider says “The Najib administration has manoeuvered around a potentially delicate situation … keeping Tun Dr Mahathir Mohamad as Petronas advisor.”

Apparently there is a “tradition” for a recently retired prime minister to be given the prestigious advisor position in the national oil company. This can’t be a long “tradition”. Petronas was formed only in the 1970s after our first prime minister Tunku Abdul Rahman had retired. Our second prime minister Tun Abdul Razak passed away in office. Tun Hussein Onn was the first such ex-PM “advisor”. And Tun M is the second.

I wonder why this “tradition” developed. The scope and terms of reference of these “advisors” has never been officially disclosed. It is less of an issue in the case of unlisted Petronas. But Malaysia Airlines is a public-listed company, with directors elected by shareholders. Where does Tun Abdullah sit in the overall scheme of corporate governance?

It would be wonderful if Tun Abdullah declines this ‘honour’ and nips this dubious “tradition” in the bud. Cushy GLC (government-linked corporate) positions should not become part of the expected retirement package for ex-PMs.

It would be far more meaningful if ex-PMs apply their influence to champion projects that benefit the ordinary rakyat. For instance, I am thinking of the Tun Hussein Onn Eye Hospital, a wonderful hospital that provides affordable specialist eye-care. Jeff Ooi was a very satisfied patient; and so was I.

Wednesday, April 29, 2009

Malaysians are poor – based on our tax records

Only 1 million or so Malaysians pay tax. That’s 10% of the working population. Take a look around you. 9 out of 10 adults you see don’t pay tax. That’s a phenomenally narrow tax base. 1 million Malaysians are paying for the government services for all 24 million of us; 26 million if you include the (legal) foreigners.

Or perhaps it’s more accurate to say 1 million Malaysians are paying for the “work” done by our government, which includes trips to Disneyland, Mount Everest and other exotic locations.

Hafiz Noor’s musings on income tax got me thinking.

Firstly, are the vast majority of Malaysians that poor, that 9 million working Malaysians don’t pay tax?

Secondly, if the core issues are not addressed, more and more Malaysians will do their utmost to avoid tax. Because, we don’t seem to be getting our money’s worth.

One function of taxation is to raise revenue to fund social services such as roads, schools, hospitals and security. Yet, in Malaysia, we 1) pay tolls, 2) are forced to send our children for private education, 3) go to private hospitals when we are very ill and 4) engage private security to patrol our home neighbourhoods because of the rising crime rates. Another function is redistribution, that is to take from the rich to help the poor. No right thinking human should be against that. But how much of that do we see going on in Malaysia? We see billions of ringgit being squandered on follies and some scandal or other; and on the other hand there are so many obvious examples of poverty.

So, where did all our tax money go? This lack of accountability fuels the sense of injustice by the taxpayer and increasing efforts to avoid or downright evade tax. Why pay tax when “the government is going to waste it anyway”?

Which brings me to the broader, third issue. There are about 12 million eligible voters. The fact tbat only a fraction of these voters pay taxes is fertile ground for populist politicians offering voters short-term goodies at the expense of longer term economic disaster.

Voters will be tempted to vote for whoever offers cheap petrol/electricity/[insert whatever you want here] because they don’t have to cover the cost. The only way the costs can be covered would be to raise taxes. Our taxes, once you factor in the indirect taxes, are already among the highest in the world. Raise them further and the brain drain will get worse. We will face economic ruin when our best and brightest are all gone.

How can we get around this? One – break the addiction to cheap foreign labour so that Malaysians can move up the value chain and earn enough income to pay taxes. Two - accountability by the government – so we know where our tax money is going and feel we have a stake in its spending. Dare we hope for the report on the Port Klang Free Zone problems to be made public; and just as importantly, the people responsible held accountable and penalized?

Saturday, April 25, 2009

Is the next bull run here? (2)

The US equity market is still going great guns. So, is the bear market over? Last week, I pointed to a fundamental research piece offering one view.

This week, I came across another interesting piece. This one is from the technical research perspective.

For the uninitiated, here’s one technical mantra:
In a bull market, advances accompanied by increasing volume or declines on diminishing volume are taken to be bullish. Conversely, in a bear market, declines are accompanied by increasing volume and advances show diminishing volume. Volume should always be studied as a trend (relative to what has preceded) – Richard Russel, The Dow Theory Today.

Check out Hussman Funds for the full article.

Tuesday, April 21, 2009

Where are the good Malaysian employers?

The best employers in Malaysia are foreign, based on a study by human resource consultancy Hewitt Associates in conjunction with The Edge, The Edge Financial Daily and Asian Strategy and Leadership Institute (ASLI).

Only two home-grown firms made it to the Top 10 – property developer SP Setia at No 6 and Telekom Malaysia at No 10.

That's a sad indictment of 53 years of Barisan Nasional (BN) rule. BN economic policy is characterised by secure monopolies, oligopolies or various protections for industries ranging from autos to banks, gambling, telecoms and satellite tv.

All this protection resulted in some very rich businessmen emerging – enough to support the largest Ferrari showroom outside Italy. That's right – the RM20m showroom was officially opened on 31 March in a glittering ceremony graced by royalty.

So, we can been proud that our richest can now compete with the best in the world. On the other end of the scale though, our workers are forced to compete against the most lowly-skilled in a race to the bottom for the lowest wages and worst working conditions.

The BN government often defends protectionist measures as necessary to defend the rakyat's interests. The survey results suggest otherwise. Opening more industries to foreign competition could lead to better working conditions and remuneration for the ordinary worker.

For the record, the top 10 employers are:

1. The Ritz-Carlton, Kuala Lumpur
2. American Express (M) Sdn Bhd
3. Four Seasons Resort Langkawi, Malaysia
4. Federal Express Services (M) Sdn Bhd
5. Agilent Technologies
6. SP Setia Berhad
7. Hilton Kuala Lumpur
8. Intel Technology Sdn Bhd
9. Golden Arches Restaurants Sdn Bhd 10.
Telekom Malaysia Bhd

Monday, April 20, 2009

What’s happening in Perak?

For those confused by the plethora of articles, or, like me, are just too tired of this whole imbroglio to wade through all the reports, here’s a summary of the situation.
The mainstream media reports Barisan Nasional (BN) now has an undisputed majority in Perak following the Federal Court’s recent declaration that Speaker V. Sivakumar’s suspension of UMNO’s Datuk Seri Zambry Abd Kadir and his six executive councillors are null and void. Combined with the earlier ruling that it is the Election Commission (EC) and not the Speaker that decides an electoral vacancy, it is said BN now holds a 31-28 majority in the state assembly, including the three party-hoppers.
The alternative media on the other hand points out that only two declarations sought by the BN applicants were granted, which were to declare null and void the suspensions for Zambry and also his exco. The Federal Court omitted the application to declare that Zambry and his exco have the right to attend and take part in all assembly meetings. Constitutionally, the Speaker has full power in the assembly. If that is the case, then Pakatan holds a 28-24 majority as Zambry and his six exco members would be barred by the Speaker.
N.H. Chan, a former Court of Appeal judge writing in Malaysiakini says the relevant law, in the present context, is Article 72 of the Federal Constitution which states:
(1) The validity of any proceedings in the Legislative Assembly of any State shall not be questioned in any court.
(2) No person shall be liable to any proceedings in any court in respect of anything said or any vote given by him when taking part in proceedings of the Legislative Assembly of any State or of any committee thereof.
(3) No person shall be liable to any proceedings in any court in respect of anything published by or under the authority of the Legislative Assembly of any State.
Following the Federal Court decision, the Perak state assembly secretary Abdullah Antong Sabri, without the consent of Speaker V Sivakumar, issued a notice convening the Perak state assembly on May 7. Speaker Sivakumar subsequently suspended him indefinitely for this act of ‘insubordination’ and appointed Misbahul Munir Mardukhas, the political secretary of recently-elected Bukit Gantang MP Mohd Nizar Jamaluddin, as his replacement. “Meanwhile, the purported sitting on May 7 cannot proceed, pending clarification,” he said, adding that he would write a letter to the palace to seek clarification if the palace had given permission for an assembly to be convened.
So, that’s where we stand. A real constitutional mess with the BN quite ironically hamstrung by the various constitutional changes it had put through in the past which reduced the scope for judical review of the legislative branch. My hope? Prime Minister Najib will stop this BN attempt to impose a BN government in Perak that the majority of Perak rakyat did NOT vote for. Focus on fixing the economy and the states you rule, deliver “People First, Performance Now” and in the next elections you can convince the rakyat you deserve to be the government.

Friday, April 17, 2009

Is the next bull run here?

I’m often asked if economic recovery is around the corner and the bear market is gone. I share the views of Jack McHugh at the Big Picture:

“Nothing sows the seeds of doubt in the minds of money managers quite like a bear market rally. Thoughts like, “Is the bottom in?”, and “Am I missing a once in a generation buying opportunity at the beginning of a great new bull market?” cause institutional investors to reach for the antacid tablets. For many of them, losing money in a bear market is no sin, as long as everyone else is taking on water, too. But missing out on the gains of a bull market is a career-threatening problem. As such, large investors are all competing to strain their eyes in looking for Ben Bernanke’s “green shoots”. They almost hunger for the early bits of growth that often presage an economic recovery. What they forget is that many of these green shoots will turn out to be weeds, or, what’s worse, be lost to a spring frost.

I’m not trying to be an eternal pessimist, either, since there are indeed some hopeful signs. As you can see from the articles below, the credit markets are starting to pick up. Even if prices in the dicier parts of fixed income aren’t up as much as are stocks since March 6, they are starting to tick higher. LIBOR continues to recede, high yield bond issuance is climbing off the mat, and even carry traders are beginning to feel safe enough to re-establish risky positions. With all the cash now gushing out of Washington, I suppose these nascent signs of improvement should be both expected and welcomed. But since one of the primary goals of these scribblings is to offer a perspective that is ever mindful of risk management, I would like to call everyone’s attention to the fact that these same hopeful signs were on display in the autumn of 2007 and the spring of 2008.

The spring of 2009 may yet bring more upside for investors, but they should be mindful of the fact that when individuals, corporations, and even some countries all try to delever on a global basis, false springs are more the rule than the exception. After the 1929 crash, the Hoover administration spied similarly hopeful signs in the U.S. economy. “Recovery is just around the corner”, is first attributed to economist, Irving Fisher, but Team Hoover repeated this phrase and variations of it right up until he was crushed by the landslide election of FDR in 1932. It is true the U.S. economy in 2009 has yet to see the massive reversals suffered during the Great Depression, but the root causes of each period — easy monetary policy and an over-reliance on debt — are the same.

What’s different this time is that Mr. Bernanke and the successive Treasury Secretaries he’s teamed up with have long since ditched conventional policy responses. It’s been said, and I agree, that trying to foster sustained growth in an economy weighed down by too much debt is like trying to start a sustainable fire using wet logs. The matches and gasoline (some stimulus and a low funds rate) didn’t work on our debt-soaked economy, so Mr. Bernanke is resorting to the blowtorches and rocket fuel (a lot of stimulus and quantitative easing). I don’t know enough about the chemistry of combustion to accurately predict what will happen next. But my advice would be to stand well back and wait to see what happens next. I’ll risk being underinvested during this rally. Even if he’s successful, Mr. Bernanke might set fire to more than just the logs.”

Wednesday, April 15, 2009

Goldman’s missing month …

Floyd Norris of the New York Times has an astute observation:

“Goldman Sachs reported a profit of $1.8 billion in the first quarter, and plans to sell $5 billion in stock and get out of the government’s clutches, if it can.

How did it do that? One way was to hide a lot of losses in not-so-plain sight.

Goldman’s 2008 fiscal year ended Nov. 30. This year the company is switching to a calendar year. The leaves December as an orphan month, one that will be largely ignored. In Goldman’s earnings statement, and in most of the news reports, the quarter ended March 31 is compared to the quarter last year that ended in February.

The orphan month featured — surprise — lots of write-offs. The pretax loss was $1.3 billion, and the after-tax loss was $780 million.

Would the firm have had a profit if it had stuck to its old calendar, and had to include December and exclude March?”

Tuesday, April 14, 2009

When competition is bad ...

Watch out! Your weekly dose of English Premier League (EPL) could get a lot more expensive next year.

The rights to broadcast EPL are auctioned off every few years. Right now Astro holds the Malaysian broadcast rights until 2010. Bidding for the 2010-2013 EPL rights will commence later this year.

The Edge last week reported that Telekom Malaysia may decide to bid for these rights. Telekom is looking to launch broadband tv. Securing the hugely popular EPL franchise will almost certainly mean a few hundred thousand new subscribers, giving its service a substantial boost.

Conversely, Telekom's gain would be Astro's loss. Astro without EPL would not be very attractive to many.

Which means we could see a very intense bidding war between Astro and Telekom.

Competition is usually good. It is normally the best way to better products and services and lower prices for consumers. But in this case, the winner of any Astro-Telekom competition is not the Malaysian consumer. It is the multi-millionaire EPL footballers, managers and hangers-on. They will enjoy the benefits of whatever expensive price that Astro or Telekom pays. Malaysian consumers will foot the ultimate bill.

Regular readers will know I am all for free markets, competition and transparency. However, sometimes, markets do fail. This is a clear case of market failure, when a few hundred EPL magnates make more millions, paid for by millions of Malaysians who earn just a few hundred ringgit a week.

We have already experienced one round. Astro subscribers may remember sports became a lot more costly in 2007. Prior to that, Astro had a comfortable lock on the rights to televise EPL in Malaysia. That changed in 2007, when Astro suddenly found competition while it was bidding for the EPL rights for 2007-2010. It bid very high to secure the rights, and then raised subscription fees to cover its costs.

When markets fail, higher authorities must step in. Khazanah could play a role, as it is a shareholder in both Telekom and Astro. Could it prevail on the two companies to cooperate instead of compete? In the first place, I don't see how Telekom is going to deliver broadband tv on its decrepit Streamyx platform. Rather than pay so much and giving WAGS even more to splurge on frivolous luxuries, it should use the money to improve its services.

Or if it is too much to ask for Khazanah to arbitrate between two competing companies, the government should set up one umbrella organisation to bid for EPL rights for Malaysia. Since there will be only one bidder from Malaysia, the price should be much lower. This organisation can then sell the rights to Telekom, Astro and any other interested party. Any profits can be deployed to good use – whether charity, public transport, sports development ...