Thursday, June 25, 2009
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
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
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
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
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
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
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
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
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.