Frankly Speaking: Apr 19-25, 2010

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Best consultancy money can buy?Even though the fees that public relations consultants charge are known to be steep, the government’s RM76.82 million payment to international communications consultancy Apco Worldwide for a year’s contract surely qualifies as a princely sum.
To hear Minister in the Prime Minister’s Department Datuk Seri Mohamed Nazri Aziz tell Parliament last week, the money was in payment for public affairs and government affairs services (US$1.08 million) and strategic communications, public relations and press outreach (US$23.13 million).
That information, although the outcome of a bit of prodding from the opposition, is hardly enough to satisfy the basic question of whether the government received value for money for the public funds it used to obtain the firm’s services. Further, it is curious that Nazri’s disclosure nullifies his earlier statement that the amount paid to Apco was RM28 million.
Is there more to it? Does the bill include money paid to lobbyists in Washington, presumably to advance Malaysia’s strategic and economic interests? What payments, if any, were there for editorial write-ups in international newspapers and magazines? Equally important, what yardsticks are being used to measure the effectiveness of Apco’s consultancy, which includes promoting the concept of 1Malaysia?
For perspective, it is useful to note that the payment to Apco is more than the RM70 million allocated in the 2010 Budget for the Paya Peda Dam project, which will increase water supply capacity to the padi irrigation scheme in Besut, Terengganu. In the previous Budget, the same sum was allocated to train 5,600 nurses in public and private training colleges.
This is a prime example of the need for transparency in public spending to ensure that funds are put to optimal use for the nation’s benefit, and that financial prudence remains the keystone of the administration.

Bond holders get burntBondholders who subscribed to the RM1.4 billion Senai Desaru Expressway papers must be seething. Two weeks ago, the bonds were downgraded from AA3 to C1 — virtually turning the papers into junk.
When the bondholders close their books next, they will have to mark down the value of these debt papers, which will certainly be a painful exercise.
What’s perplexing is that the traffic volume of Senai-Desaru Expressway is not even 10% of the original projection made when the fund raising documents were presented to bondholders. According RAM Rating, the average daily traffic was merely 6,300 vehicles during the first five months after the tolling started in October last year.
It will only be a matter of time before the low traffic volume results in the management company, Senai-Desaru Expressway Bhd (SDEB), experiencing a severe cash flow problem. In fact RAM has expressed concern that the company may default on the first principal payment that is due in December next year.
What went wrong is obvious. Who did the traffic projections? It is normal for new highways not to meet their forecast traffic flow in the first few years. But should it differ by as much as 90% from the original projection? If the margin of error is wide, why bother with the projections in the first place?
Did someone get their assumptions wrong in projecting the traffic flow? Or was it merely a sloppy job just to raise the funds?
RAM did not reveal the forecast figures. Assuming the traffic volume is 9.5% of the original estimate, the forecast should be roughly 66,3000 vehicles a day. Compare this with PLUS Expressway,  which is plied by 1.07 million vehicles a day, and the SPRINT Highway’s 184,000. Was the forecast too optimistic?
Perhaps not. Then, probably, the highway should not have been built at such a cost in the first place.

See-through procurementIt is indeed ironic that the recently launched MyProcurement portal, which has broken new ground in the public disclosure regime, has exposed the government to strong criticism about discrepancies in contract values, huge errors in data and apparent proxy deals, among other things.
The examples cited by the opposition are certainly strange. Among these were a company whose main shareholder is not yet 23 years old but had won RM53.40 million in awards in the past six months. Another oddity was that the contracts, which were mainly for the supply of food to boarding schools, varied greatly from RM420,000 to RM3.91 million each. How the food bills could be so vastly different in price is a question that begs an answer.
Transparency in public processes, especially in procurement, should be vigorously pursued because it is crucial for good governance.  The goal should be full disclosure, including information on the successful tenderer, the dates the tenders were received, and those who failed and the price and technical specifications required.
However, the real issue is to adopt full disclosure for all contracts, especially the big-ticket items. Take the Second Penang Bridge project, for example. Last month, Parliament was told that the land highway package of the project will be implemented via open tender. That’s all well and good. It would have been much more fruitful, however, if the entire project had been opened up for competitive bidding. The savings on the RM4.3 billion construction cost, RM285 million development cost and yet unknown variation costs, leaving aside the RM100 million for compensation, is now a moot question.
More transparency in big-ticket items will go a long way towards dispelling rent-seeking.  Let’s not quibble over small procurements and instead focus on the big expenditures.

This article appeared in Corporate page of The Edge Malaysia, Issue 802, Apr 19 - 25, 2010