Frankly Speaking

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All eyes on auditorsLast week, water concessionaire Puncak Niaga Holdings Bhd announced its financial results, stating that it had made a net profit of RM46.7 million on the back of RM494.2 million in revenue for its third quarter ended September this year.

While all this looks swell, Puncak says in the notes accompanying its financial statements that among the reasons for the better showing is “an amount of RM339 million being water tariff compensation for the first, second and third quarters of 2009 (nine months) arising from the delay in water tariff revision… The water tariff compensation has been submitted to the Selangor state government and is currently awaiting payment”.

To recap, Syarikat Bekalan Air Selangor Sdn Bhd as part of its concession agreement had a scheduled tariff of 37% due in January this year. But the state government is not allowing that for various reasons, which has prompted Puncak to claim compensation.

Judging by Puncak’s statements, it would seem that the state government is willing to pay the compensation. But that is in stark contrast to what the state government has in mind. As a matter of fact, the state’s message that it will not consider any compensation has been made quite clear.

That being the case, what is it that has prompted Puncak to include the compensation payment as part of its unaudited results?

Should there have been some form of consensus from the state that it will pay compensation before Puncak decides to add the compensation amount in its books? How will the auditors treat the compensation payment? Will it be approved by the external accountants?

It will be interesting to see if the final accounts get a clean bill of health, especially with the compensation payments as part of the profits.
A puny fine for TingBursa Malaysia publicly reprimanded Ekran Bhd’s seven directors and fined them a total of RM630,000, including a RM500,000 fine for its executive chairman Tan Sri Ting Pek Khiing, for breaching the exchange’s listing requirements.

The fine of RM630,000 is a big sum for the man in the street. But it is just a fraction of the RM712.9 million that Ting took from the company as an advance in return for the injection of some of his private assets in 1996/97. To add insult to injury, the amount has been long overdue — for more than 10 years.

As part of a settlement that was reached eight years ago, Ekran’s shareholders gave approval for the RM712.9 million to be repaid to the company by way of RM357.64 million in cash and the remaining RM355.29 million in the form of assets.

But Ting has only repaid RM91.2 million in cash, that also partly by diverting proceeds from the sale of his interest in a brokerage firm. He also injected assets worth RM155.3 million into Ekran, which is probably worth much less now.

Ting defaulted on all his obligations over the years while he was winning several jobs from the government through his private vehicle Global Upline Sdn Bhd.

Ekran entered into a fourth supplemental settlement agreement in March last year, with Ting having to repay a sum of RM408.17 million to the company. The new settlement allowed him to delay the last cash payment until December 2010, as opposed to September 2004 as per the original settlement plan.

Coming back to the present, Bursa says the directors had erred as they failed to disclose the fourth supplemental settlement agreement to shareholders, and did not obtain shareholders’ consent on the matter. Furthermore, the board had failed to hire an independent adviser. But the crux of the matter is, Ting is taking his time to pay off his debts to Ekran. In the meantime, the minorities of the company are suffering as the company faces a possible delisting. Under the circumstances, what Ekran’s directors need is a heftier fine.
A tale of two tendersWhile Syarikat Prasarana Negara Bhd’s announcement of the pre-qualification tender for the civil works portion of the LRT extension projects has managed to send construction players into a tizzy, there still remains the question of why the tender document was priced so low.

For just RM300, any qualified construction player, regardless of size, could pick up the tender document. Compare this with a recent tender by Prasarana for the rebuilding of a bus depot comprising a three-storey office building and gas station, among others, for bumiputera contractors, the price for which tender document was set at RM1,700.

Last week, it was reported that some 136 contractors had acquired the tender document for the LRT extension works. But is more really better in this scenario?

The low price tag is to allow Prasarana to farm out the purportedly RM7 billion project to as many parties as possible, hence helping stimulate the local construction scene.

But it should be noted that if the civil works portion is divided too thinly, not only will there be quality issues, but the construction companies will not benefit.

More than that, this is no mere construction project. It is the biggest undertaking by the government so far to revamp Kuala Lumpur’s public transport system. And while its efforts to make the tender as open as possible from the start should be applauded, with a project of such importance and which is supposed to be on the fast track, why doesn’t Prasarana separate the wheat from the chaff right from the start?
This article appeared in Corporate page of The Edge Malaysia, Issue 783, Nov 30-Dec 6, 2009.