Bumis ‘typically’ sold government contracts for cars, houses, leaked study reveals

Malaysian Insider, 20 September, 2011

KUALA LUMPUR, Sept 20 — An unpublished Works Ministry study found that Bumiputera contractors as a rule sold their government contracts to buy luxury cars and houses apart from misusing payments received from the Treasury, according to a leaked US diplomatic cable.

The cable, revealed by whistleblower website WikiLeaks, comes just after Putrajaya agreed to allocate RM8 billion worth of contracts in the country’s most expensive infrastructure project, the Klang Valley Mass Rapid Transit (MRT), which initially set strict rules for its contractors.

The US diplomatic cable quoted a Works Ministry source as saying the “Study on Bumiputera Contractor Leakage” was the result of feedback from various industry sources on failed and successful projects. The report was used by then-Prime Minister Tun Abdullah Ahmad Badawi (picture) to castigate failing Bumiputera businessmen in February 2007.

“The current system of awarding lucrative government contracts to Bumis provides them with a strong economic incentive to simply act as agents, turning over as many projects as possible and taking a cut before handing each one off to a competent non-Bumi implementer.

“This ‘Bumi agent’ system is firmly entrenched in Malaysia. Any effort to make reforms is likely to be resisted not only by well-established Bumis, but also by the non-Bumi implementers who have built up a network of well-oiled agent partnership,” the US Embassy concluded in the report published by the Malaysia-Today news portal.

The US and European Union have called for more transparency and equality in government procurement by Malaysia as part of the free trade agreement talks which have yet to be concluded.

In the leaked cable, the US embassy reported: “The source said the study, which has not been released to the public, revealed that many Bumi contractors typically sold off their tenders for quick money, often to finance expensive cars and houses. The report also found Bumiputera contractors had misused payments received from the government to pay off creditors and that they often sought additional government tenders prior to completing the ones already awarded to them.”

“The official said contractors were irresponsible and had abused the trust given to them by the government which was meant to help Bumiputeras progress,” it added.

The US cable noted that then-Finance Ministry secretary-general Tan Sri Izzudin Dali had disclosed new regulations that Bumiputera contractors seeking government tenders will soon be required to sign an official declaration promising not to sell or subcontract their tender to other races.

“Violators will have their contracts and registrations terminated. Izzudin added that under the new rules contractors undertaking public infrastructure contracts will now be awarded only one project at a time and that projects will be distributed evenly among contractors in the same area or district,” the cable said, quoting Izzudin’s speech on February 16, 2007.

Incidentally, Izzudin recently completed one term as chairman of Syarikat Prasarana Negara Bhd (Prasarana), the original project owners of the MRT which is now owned by a new Finance Ministry unit called MRT Co. Sources said his strictness in selecting successful contractors had delayed the massive infrastructure project.

The cable also quoted then-executive chairman Datuk Moehamad Izat Emir of the Malay Entrepreneurs and Merchants Association as saying payment was the main issue facing the contractors.

“He said that while Abdullah had directed the disbursing agency to pay the contractors within two weeks after completing the work, this often does not happen,” the cable reported, saying Moehamad suggested Bumiputera contractors be trained to upgrade their skills and suggested government-linked companies (GLCs) be required to support these contractors.

It noted that Roslan Awang Chik, of the Malay Contractors Association, shared Moehamad’s view that “competency comes from exposure”.

“He is puzzled why many well-known and qualified Bumiputera contractors were not being awarded government contracts while several unknown ones were. He suggested the government blacklist any contractors found to be selling their tenders,” the cable said, quoting Roslan as saying “they can be considered traitors.”

The US cable was sent to Washington after Abdullah had publicly expressed frustration and disappointment over findings from a recently released Works Ministry report showing 85 per cent of government contracts awarded to Bumiputera contractors.

“They (Bumiputera) do not want to work, do not want to learn, and give little importance to the opportunities provided by the government...

“This approach will only make us hope and wait for aid and subsidies. Such a mentality thrives among the people, including Bumiputera petty traders and contractors,” the report quoted Abdullah as making the comments at a dinner speech on February 13, 2007.

Put phone tax on hold, telcos told

STAR, 11 September 2011

PUTRAJAYA: The Information, Communications and Culture Ministry has “blocked” plans by the telcos to impose a 6% service tax on prepaid mobile phone services.

“I have intimated to the telcos to stop the implementation of the service charge at this untimely hour,” said minister Datuk Seri Dr Rais Yatim.

“I will raise the issue with the Cabinet on Wednesday,” he said yesterday.

“My ministry does not support the move.”

Dr Rais said the Malaysian Communications and Multimedia Commission (MCMC) has also been directed to study the mobile operators' licensing regulations on service tax.

“We will see what the regulations state,” he added.

Dr Rais advised the telcos to think about their subscribers, saying that some of the firms had been reaping profits of between RM800mil and RM1.2bil annually.

“They have been earning attractive profits, notwithstanding paying the levy on behalf of subscribers since 1998,” he said.

Meanwhile, Domestic Trade, Cooperatives and Consumerism Minister Datuk Seri Ismail Sabri Yaakob also planned to bring the issue up at the Cabinet meeting.

He said there had been numerous calls for the telcos to upgrade their services “which had not been taken seriously”.

“Yet, they now want to impose service tax on customers,” he said.

Prime Minister Datuk Seri Najib Tun Razak had on Friday said the plan to impose the service tax from Thursday was not approved by the Finance Ministry, adding that the people were already being burdened by the rising cost of living

Move by telcos to impose 6% tax on prepaid lines comes under fire

STAR, 10 September 2011

KUALA LUMPUR: Calling it difficult to accept, the Prime Minister has joined in the chorus of people against the move by telcos to impose 6% service tax on prepaid mobile phone users.

Datuk Seri Najib Tun Razak said the move comes at a time when the Government was trying to ease the burden of the rakyat’s who are already hit by the rise in living costs.

He added the move was not approved by the Finance Ministry as the decision to impose taxes was taken by the telcos themselves.

“I have received many reactions and feedback from the people,” he told reporters yesterday after launching Maybank’s new corporate logo.

“The move to impose the service tax on consumers is very unpopular and difficult to accept.”

MCA Youth chief Datuk Dr Wee Ka Siong said the service tax was a huge burden to the people.He added mobile phones were an essential item to consumers and played a major role in the daily life with most of the prepaid users coming from the lower-income group.

It was reported that from Sept 15 onwards, prepaid users and those purchasing starter kits would need to pay an extra 6% as telcos agreed they would no longer absorb the service tax, which was introduced in 1998.
Umno Youth chief Khairy Jamaluddin described the decision as “unreasonable”.

“Boss @NajibRazak, the decision to impose tax on prepaid users is unreasonable and it would burden the rakyat. I oppose it. Please review it,” he tweeted.

PKR vice-president Tian Chua said the Government must intervene immediately to help low-income earners.
He also noted that prepaid plans were unfair to users by design as users paid for their usage up front.

Consumer groups were also up in arms over the increase, which they have lambasted as unfair.

Consumers Association of Penang president S.M. Mohamed Idris called on the Malaysian Communications and Multimedia Commission to stall the move.

He added mobile phone prepaid users faced the brunt of unfair terms and conditions imposed on them, especially when the balance in their account was forfeited when they did not reload within the validity period.

He suggested that a prepaid number should have lifetime validity and be activated at the customers convenience.

Muslim Consumers Association Malaysia activist Datuk Nadzim Johan said the increase was unfair and ill-timed when consumers were tightening their belts over the increasing cost of other essential goods.

Fomca secretary-general Muhammad Sha’ani Abdullah said the telcos were already pocketing extra from their customers with their “call block” formula.

“If a telco charges RM0.30 per minute with 30 seconds per block, this means that you pay RM0.15 whether you use the phone for only 10 seconds or 30 seconds,” he said.

“This means the telcos are already making money from the unused seconds. Consumers have already been over-paying for years.”

Husni now says IWK to merge with government unit

Malaysian Insider, 10 September 2011

IPOH, Sept 10 — Putrajaya will merge national sewerage company, Indah Water Konsortium, (IWK) with a government unit, Second Finance Minister Datuk Seri Ahmad Husni Hanadzlah said today, confirming a report by The Malaysian Insider.

Ahmad Husni said the decision was made recently by the National Economic Council.

“The move is an effort to strengthen both entities which are owned by the government. The biggest asset owned by IWK can be redeveloped to benefit the merged entity,” he told reporters after distributing Jalur Gemilang flags to Chemor residents here.

Saying that the merger process had begun, Ahmad Husni, however, declined to disclose the name of the government subsidiary, except to say that IWK would continue to be government-owned after the merger.
IWK is currently wholly-owned by the Ministry of Finance Incorporated.

The Malaysian Insider reported on Thursday that IWK would be privatised into a consortium led by strategic investment agency 1MDB, some 11 years after the government was forced to bail out the national sewerage company from financial difficulties under its previous owners.

Finance Ministry sources told The Malaysian Insider that the 1MDB-led consortium will include water distribution company Puncak Niaga, and that the deal has been given the nod by the Economic Council chaired by Prime Minister Datuk Seri Najib Razak.

However, it is understood that some ministry officials are still scrutinising the deal amidst concerns about its feasibility and worries over whether the government could once again be forced to bail out the company if the latest plan fails.

Under the proposed deal, the 1MDB consortium will acquire IWK for RM1 and take over its debts which include more than RM1.5 billion in loans still owed to the ministry.

The consortium is seeking a 60-year concession from the government and will only pay back the principal amount and interest on the loan over the long term.

IWK to be privatised to 1MDB

By Leslie Lau
Malaysian Insider, 8 September 2011

 

KUALA LUMPUR, Sept 8 — Indah Water Konsortium (IWK) is expected to be privatised soon to a consortium led by strategic investment agency 1MDB, some 11 years after the government was forced to bail out the national sewerage company from financial difficulties under its previous owners, according to sources in the Finance Ministry.
The sources told The Malaysian Insider that the 1MDB-led consortium will include water distribution company Puncak Niaga, and that the deal has been given the nod by the Economic Council chaired by Prime Minister Datuk Seri Najib Razak.

However, it is understood that some ministry officials are still scrutinising the deal because of concerns about its feasibility and worries that the government could once again be forced to bail out the company if the latest plan fails.

Under the proposed deal, the 1MDB consortium will acquire IWK for RM1 and take over its debts which include more than RM1.5 billion in loans still owed to the ministry.

The consortium is seeking a 60-year concession from the government and will only pay back the principal amount and interest on the loan over the long term.

It also has plans to link sewerage charges to water usage.

The plan could spark a new round of controversy because of the lack of transparency surrounding negotiations, with consumers still wary about deals involving IWK.

From Day One, IWK has had problems convincing a sceptical public to pay for separate sewerage charges which had previously been part of the water bill.

In 2000, Tun Dr Mahathir Mohamad’s administration paid nearly RM200 million to nationalise IWK to “safeguard public interest and to avoid service disruptions.”

The nationalisation of IWK was to tackle the company’s debt then of nearly RM700 million.

IWK’s bailout in 2000 exemplified the pitfalls of Dr Mahathir’s privatisation policy in which government-owned assets or resources were allocated or sold to private investors in the hopes of generating profits.

The IWK story began in 1993 when businessman Tan Sri Vincent Tan convinced the government to let a consortium of private interests led by him to take over the ownership, operation and maintenance of more than 2,800 state-owned sewage-treatment plants nationwide.

But IWK subsequently found that many of the treatment plants it inherited from the government were not functioning and costs began escalating.

A nationwide furore also ensued, with many consumers and businesses complaining bitterly about IWK.
Maintaining the plants and staying profitable proved impossible for IWK.

Under pressure, the government also forced the company to reduce its charges.


By 2000 Dr Mahathir’s government then decided to nationalise IWK.

The Najib government’s new plan could attract similar criticisms because it involves 1MDB and Puncak Niaga, a company that is seen as politically connected to Putrajaya.