Frankly Speaking: June 28-July 4, 2010

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Getting gold from sandIt is mind-boggling that billions of ringgit worth of sand is being mined illegally, and ineffective enforcement of the law allows the culprits to steal the state-owned resource with impunity.As Malaysian Anti-Corruption Commission (MACC) investigations director Mustafar Ali asked a daily last week, “How difficult is it to keep track of slow-moving barges carrying 5,000 tonnes of sand?”
It is reported that illegal sand mining is rampant in Selangor, Johor, Perak and Pahang. It is commendable that the MACC has arrested 43 people in the first three months of this year in connection with sand smuggling, including 30 enforcement officers. However, corruption in the rank and file or even high up in the administrative hierarchy is just a symptom of the problem with the management of natural resources.
Just about anyone can say that the remedy would need to go deeper than that. An effective solution, to put it simply, must be straightforward, should simplify the regulatory process and shift the onus of ensuring compliance from the regulator onto those who will profit from gaining access to the resource.
In this regard, the Selangor government’s decision to allow only one state-owned firm — Kumpulan Semesta Sdn Bhd — to engage in sand mining in the state may not be the best solution. A better way may have been for the state government to parcel out the known sand resources to several concessionaires after valuing the amount of sand in each concession area. Today, thanks to satellite imagery, that task has been greatly simplified.
Thereafter, for the length of the concession period, it would be the concession holder’s responsibility to pay the state a predetermined rate for extracting sand and to periodically submit audited financial reports of its business activities. Furthermore, this would relieve the state of the burden of monitoring sand deposits in the state to prevent illegal mining. The concessionaire would be only too keen to stop such pilfering.

Khazanah’s uphill battleKhazanah Nasional Bhd is facing an uphill task in its fight to acquire up to 51% equity interest in Singapore-listed healthcare group Parkway Holdings Ltd.
The government investment fund already owns a 24% stake in Parkway and faces formidable opposition from Fortis Group in getting its partial offer through to Parkway’s shareholders.
Independent adviser Morgan Stanley has opined that Khazanah’s offer of S$3.78 per share is not “compelling” enough for shareholders to consider because a successful partial offer would see a change in control of Parkway.
But that is not the biggest hurdle for Khazanah. It is the board of Parkway which is dominated by representatives from Fortis. Khazanah has to get the board’s approval before its offer can be presented to the shareholders.
The existing 13-member board has two representatives from Khazanah and seven from Fortis. There are four independent directors, one of whom was nominated by Fortis. So, in a nutshell, Fortis has majority control of the board.
It is therefore obvious that Khazanah’s proposal will not get past  the Parkway board, which will have to decide whether to approve Khazanah’s partial offer and present it to the shareholders by July 8.
Can Khazanah dare to hope that its offer will get through?
Considering the present composition of the board and the unfavourable valuation report from Morgan Stanley, this is highly unlikely.
The question is, does Khazanah have an alternative plan? Or will the invincible hand of the Singapore authorities ensure that the offer is duly considered by the board and put to the shareholders directly for a decision? Considering that Fortis is an interested party and has the option to make a counter-bid, the directors linked to the Indian company should not be allowed to vote. But will this happen, or rather will the authorities see to it that it does?

Is there a role for Prasarana?The excitement caused by public infrastructure projects has reached a feverish pitch, but it does not concern the extension of the light rail transit (LRT) lines. Rather, it is about the RM36 billion mass rail transit (MRT) project proposed by Gamuda Bhd and MMC Corp Bhd.
According to reports, the proposal came about because Gamuda and MMC saw a need for an MRT system in the Klang Valley. They believe the current plan for extensions and a new LRT line would be insufficient.
For all intents and purposes, it’s a public-private initiative, with Gamuda-MMC holding the reins. And while portions of the contract will be put out to tender, most are expecting the tunnelling portion — the biggest cost — to go to Gamuda-MMC given its experience.
But no one seems to be asking where Syarikat Prasarana Negara Bhd will fit in all of this. Prasarana is the sole holder of all public transport assets in the Klang Valley and Penang. But there has been no mention that Prasarana will own the assets or more importantly, have a say in how the contracts will be awarded and priced.
While this may change, there is no question that given its role, Prasarana should be involved from the very start. The organisation’s very purpose is to oversee the running of public transport, and given that the MRT system will serve a crucial hub in the Klang Valley, Prasarana should play a part from conception to birth.
The way Prasarana has been structured  ensures transparency. Tenders are posted on its website and are open for all who meet the requirements.
In the past, we have witnessed how the government had to take over public infrastructure projects, such as the LRT and monorail, which were constructed at high costs but were not commercially viable. The projects were awarded on a directly negotiated basis, but in the end, public funds were utilised to buy the projects from the private owners.
The plain truth is that public infrastructure is never run for profit; it is run for the good of the people. But it has to be done in the right way — by keeping costs as low as possible.

This article appeared in Corporate page of The Edge Malaysia, Issue 812, June 28-July 4, 2010