Water and Politics Just Don't Mix!

Think that all the hullabaloo that has caused the Selangor State not to buy assets from various parties just a matter of pricing. Think again. There is more than meets the eyes here. It is politics up to your ears!

And so B.K. Sidhu writes in the STAR today (4 December 2009)

After two years of negotiations and talk of restructuring of the water assets in Selangor,nothing has come out yet.

Even though the players are still the same, the script will be new and there will be fresh rounds of negotiations as the one holding the purse strings is a new party.

Pengurusan Aset Air Bhd (PAAB) finally gets to enter the game after being shooed away when it tried earlier this year to restructure the water assets in Selangor.

Will PAAB’s offer be more attractive than the two made by the Selangor government for the four concessionaries to hand over their assets or will the players persist in playing hardball? [Politically 'yes'.]

PAAB, a wholly owned unit of Ministry of Finance, was set up to buy water assets – treatment plants, dams and pipes – from 11 states in the country. The water industry has migrated to a licensing regime where all water players need a licence to operate under the Water Services Industry Act 2006 (WSIA).[Seems a lot of federalization has been taking place since the Fire Services pioneered the trend.]

Of all states, Selangor’s water sector is the most fragmented with four private concessionaries – Konsortium Abass Sdn Bhd (Abass), Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (Splash), Puncak Niaga (M) Sdn Bhd (PNSB) and Syarikat Bekalan Air Selangor Sdn Bhd (Syabas). Even the state government owns water assets. Syabas purchases treated water from PNSB, Splash and Abass and distributes it in the Klang Valley.

The Selangor government was entrusted to restructure the assets and hand them to PAAB but there were roadblocks as two of the four concessionaries rejected its offer.[Why? political interference?]

They saw no value in the deal. More so, they would be out of business as the idea was to have the state’s arm, Kumpulan Darul Ehsan Bhd, distribute water in the state after the restructuring.[Another classic red herring.]

The state had offered RM5.7bil in February and RM9.2bil in July. It is a story of an unwilling seller but PAAB’s emergence throws new light on the whole water saga in Selangor. A better deal? [Think so? Think again.]

Highly unlikely. No bag of goodies and even though there are clauses in WSIA under Section 191, Section 192 and Section 114 that give the Energy, Green Technology and Water Minister absolute power to assume control of the assets and business of an existing operator without any form of compensation, it is not the route that PAAB is looking at.[PAAB wants to be seen as a nice guy under the current Federal Government?]

“It is simply the Johor model that will be implemented in Selangor,” a source said. That simply means the assets will be valued at one-time book valuation, which amounts to RM9bil and PAAB will also take over the liabilities.

The concession agreements will be terminated but the existing players get a chance to migrate to a licensing regime which allows them to remain in the business in perpetuity as long as they keep to their key performance indicators. That is the difference with the offer made by Selangor.[So,performance counts, why not even if it is under the State government. Aren't we jumping the gun here?]

Don’t expect any equity restructuring or consolidation; all that has to be market driven. PAAB will make the offer next week and expects to wrap the deal next month.[Whoa,that fast,meh?]

But if players drag their feet and shove the offer back at PAAB, then they will likely not get any capital expenditure nor raw material from PAAB. They would be on their own.[So,what gives?]

Too much time has been wasted and while it is no denying that the concessionaries want the best deal, the restructuring should not be delayed just because one state is taking too much time to complete the restructuring.[Why the hurry?]

Whichever way the deal goes, tariffs must not be hiked up to burden consumers further and that should be the biggest consideration.[Wanna bet?]

B.K. Sidhu hopes for unfiltered clean water every day. I hope she gets her wish.

1Malaysia Clinics-the Bane of Private Practice?

Budget 2010 was certainly an experimental budget. There was nothing in it but skin and bone.

Many felt it was benign,unpalatable and forgettable. In fact some of the measures have been thrown out even before Budget 2010 can be put into force. Case in point: All old jalopies beyond 15 years be subjected to Puspakom inspection before road tax could be renewed. After facing public outcry, it was summarily removed.

Next, came the silly credit card tax. Whoever advised on this must be out of his mind. There will always be those who abuse credit cards. Blacklist them and take them to court. For the others who managed their cards well, should they be penalized? The reply is a flat "No!". However, the mentality of policy makers these days is hard to fathom. Then there is the 5% Real Property Gains Tax(RPGT), a regressive tax resurrected from yesteryear. Non-speculative sellers irrespective of how old their houses are given the sad, bad treatment. How unfair!

The sudden and sneaky introduction of the so-called '1Malaysia clinics' to be manned by medical assistants, instead of doctors, and to be located in urban locales have now piqued nearly all private medical practitioners in the country. In the Klang Valley and other urban conurbations, being in private practice is no longer the same. Gone are the good money raking days. This will certainly put pressure on new private doctors just after their contract with the government sector.

Budget 2010 is an experimental budget in failure. Do you agree?

When can Bursa do Something Right?

'Bungling through' is a better way to describe the actions of Bursa Malaysia than 'muddling through'. First, they do this, then the do that.

Let us reflect what they have done lately. First they changed the index so that you cannot compare it with past performance. Then they change the price margin between trades, almost across the board,save for those high value shares that many cannot trade in.

The result is plain to see. Few foreigners returned. There is little momentum in price movements. Whenever there is a spike, attrition activities bring it right down to almost where it started. Some shares continue to be speculative and yo yo from week to week. Case in point-Time Engineering, RCE, YTL-E Solutions, Redtone and 3A.

The trend of attrition is caused also by board lots of 100 shares. Every time, a minimal board lot gets traded down the price continuum, the shares fell if there is lack of support.

So, expect the market to be like this until the year ends.

Poor Bursar. If only they have a crystal ball to gaze upon to do things right.

Biting the Bullet in UK

Bank bailouts are real headaches and expensive affairs. Don't believe? Ask the current UK government.

They have been paying plenty for bailouts. The current bank bail outs has hit £850 billion (RM4.7 trillion)but the final cost will only be known for years.

A Reuters Report dated December 4th has this to say.

"The independent National Audit Office (NAO) said today the government was justified in asking the public to shore up the shaken sector at the height of last year’s financial crisis — although lending to businesses was likely to miss targets.

“It is difficult to imagine the scale of the consequences for the economy and society if major banks had been allowed to collapse,” said the NAO’s head Amyas Morse.

“But the big question is what all of this will eventually cost the taxpayer.

“As the crisis begins to subside ... the authorities need to put formal arrangements in place to evaluate the effectiveness of the support provided to banks in order to inform future policy makers.”

Britain, along with other countries, partly nationalized some banks and offered guarantees, insurance and loans to the industry after the credit crisis pitched the world into recession in the wake of the collapse of the infamous Wall Street giant Lehman Brothers last year.

The government has put the potential loss to the taxpayer at between a paltry £20 billion to a median fallout of £50 billion, depending on losses on bad assets held by Royal Bank of Scotland and the price at which the state sells stakes in RBS and Lloyds Banking Group.

Sadly, the costs keep mounting. The finance ministry expects to have spent £107 million on advisers alone by next April, with Credit Suisse and Deutsche Bank each appointed on retainers of £200,000 per month for a year, the NAO said. Success fees could reach £5.8 million.

RBS and Lloyds have agreed to lend more to consumers and businesses as part of their bailout. But although both are on target for mortgage lending, lending to businesses is likely to fall short of targets, the NAO said.

RBS agreed to lend an additional £25 billion in 2009-2010, while Lloyds agreed to lend an additional £14 billion to help businesses and consumers weather the credit crisis.

The NAO is an independent body funded by parliament, rather than the government of the day. But it has limited powers and its role is largely to draw attention to cases where it feels public money has been misused.

Which figures do you believe? The Government's or NAO's?

Can you escape the RPGT?

The rush is on. They are stampeding to sell whatever high-value property on their hands before the 5% real property gains tax (RPGT) kicks in on January 2010.

But the important thing is you must know what you are selling. If you have freehold titles, you may have less problems. But if it is a leasehold property you are trying to desperately sell off,your efforts will probably be in vain.

How will these property sellers' great hopes be shattered? If, these need government approval before a sale can be effected,that's how.

A tax specialist tells it like it is. Obtaining official approval could push the sale date to one after Dec 31 — the last day before the reintroduction of RPGT. So your efforts will come to naught!

KPMG Tax Services executive director Tai Lai Kok told the Singapore Business Times that many transactions involving property could require state approval.

Under the RPGT Act, where a contract for the disposal of an asset is conditional and the condition is satisfied (by the exercise of a right under an option or otherwise), the acquisition and disposal of the asset shall be regarded as taking place at the time the contract was made.

Sadly, there are two exceptions: where the acquisition or disposal requires the approval by the government or an authority or committee appointed by the government, the date of disposal shall be the date of such approval; and where the approval is conditional, the date of disposal shall be the date when the last of all such conditions is satisfied.

However, the RPGT Act does not define the term “government” — whether it refers to the state or federal government. In any event, because land matters come under state control, a number of these transactions could invariably require state approval. “Lawyers would need to review the individual title to see what restrictions and caveats there are to ascertain if government approvals are needed.”

Lawyers said that the time taken for states to give their approval varies, some reverting in a month, and some up to six months.

“If the property is already owned by a foreigner, it is likely the transaction would require state approval,” Tai said, adding that “conditional contracts” had become an issue only because of the short “window period” before RPGT is reintroduced.

He noted that the RPGT Act had introduced government approvals only in 2006.

Shortly after that, former prime minister Tun Abdullah Ahmad Badawi allowed a blanket exemption on RPGT effective April 2007 to boost the sector, so the issue was not fully explored.

Moreover, the Finance Ministry and Inland Revenue Board had not come up with a clear indication as to how the conditional contracts apply. “There is a bit of a question mark there,” Tai noted.

The government is expected to rake in RM500 million from RPGT next year when the tax is reintroduced at a flat 5 per cent, notwithstanding the holding period.. This is so sad as it hits the first time seller who are upgrading to better quarters.

This tax was supposed to curb speculation. However, its across-the-board application has upset many who have held their properties for a long time — some for decades, some stretching a few generations — as the value of their assets would have greatly appreciated.

Property players have also criticised the government’s reversal in policy after less than three years as inconsistent and a deterrent to foreign investors.

This week, Gerakan — a component party of the ruling federal coalition Barisan Nasional — urged the government to scrap the proposal to reintroduce RPGT as it is “unfair and inappropriate” since it would impinge on all transactions, including those not of a speculative nature. [I think Gerakan is right here.]

“In view of the serious consequences from the tax especially on the middle and low income groups, we appeal to the government to cancel the proposed 5 per cent RPGT under Budget 2010.”

Will the government listen? Not if the 13th General Election is still far off.

Malaysia: Banking on the Private Sector

Apart from pump-priming efforts, Malaysia anticipates the private sector to promote an extra one to two percentage growth in 2010.

Leveraging on this anticipation would be the unveiling of the country’s new economic model in the coming weeks that would apparently help reshape Malaysia’s economic planning and activities.

Since the Asian economic crisis, reduced private sector participation in investing in growth sectors had warranted the government to bear an unprecedented burden in stimulating the economy.

“The private sector will be the backbone of the economy moving forward. We need increased private sector investments which are now well below levels before 1997-98,” said PM Najib, who is also Finance Minister.

More specifically, the Prime Minister asked the manufacturing sector to improve innovation and actively explore opportunities to develop new product and service areas.

“The manufacturing sector must alter its game plan in order to stay competitive, both regionally and globally. It will remain vital to Malaysia’s economy and holds the key for our nation’s march to ever-higher levels of prosperity,” he said.

In the manufacturing industries, Najib said continued investments in innovation, productivity and information technology would help the country break free from its traditional low-wage business models.

As manufacturing would continue to be the foundation to Malaysia’s economy, it must be aligned with the evolving business environment, he added.

In addition to investments in higher technology and value-added products, the Prime Minister said a highly-skilled workforce proficient in new technologies must also be created.

For this, he asked the private sector to ensure the workforce received continued on-the-job training to help them evolve with increasing demands for the global workplace.

“The growth and development of the manufacturing sector are critical to Malaysia’s future success and prosperity, and we want the sector to be able to thrive in the global marketplace,” he said.

The public sector would play its role in supporting the private sector by focusing on regulatory reforms to eliminate gaps and overlaps, more transparency and improved coordination among relevant government agencies.

Is this mere rhetoric again?

Malaysia: Ingenious Capital Flight

It has been going on since the government's clampdown on money transfer after the 1997 financial debacle.Now this has come to pass.

The Straits Times of Singapore reported that Bank Negara Malaysia has begun cracking down on some money changers to prevent more capital flight from taking place under its very nose. Bankers estimated this could be in excess of several billion US dollars each year.

Since early this year, BNM has closed down 49 money-changing firms after raids by its enforcement division revealed that many operators were illegally remitting funds to countries such as Singapore, the United Kingdom and the United States.

The crackdown has attracted fresh public scrutiny in recent weeks following claims by the country's opposition that several high-profile Malaysians, including a Chief Minister of a state had engaged the services of money changers to transfer vast amounts of money overseas.

Foreign exchange rules stipulate that the transfer of funds overseas can be carried out only by licensed financial institutions, such as banks.

But money changers in Malaysia, which like in many Asian cities are run by people from the Indian sub-continent, have long been a popular conduit because they offer foreign exchange rates that are far more competitive as well as low fees to carry out the fund transfers.

There is also another compelling reason.

“Money changers are used mainly because the money is illicit funds from corruption and activities such as drug trafficking and prostitution,” said Datuk Paul Low, president of Transparency International's Malaysian chapter.

The sums involved are huge. Bankers and government officials said that a single money changer can boast a turnover of roughly RM300 million each month, or about RM3.6 billion annually.

A Bank Negara official said that the crackdown was part of an “ongoing surveillance” of the activities of the country's 875 licensed money changers.

She declined to comment on whether action would be taken against those engaging the services of money changers.

Economists said the central bank's move to shutter the businesses of 49 licensed money changers underscores a deeper malaise afflicting the economy: the flight of capital.

Money leaving the country comes from several sources.

Apart from Malaysians building a retirement nest egg or squirrelling money away to pay for their children's education, bankers and money changers said a bulk of the money leaving the country comprises funds from the country's so-called black economy, which thrives on kickbacks from large public sector contracts and illegal businesses such as drug trafficking and prostitution.

Last month, Transparency International said that Malaysia fell to No. 56, from No. 47 last year, in a league table of 180 countries surveyed around the world, and that graft had hit “alarming” levels.

Bankers also said the growing number of capital flight cases is a reflection of the unease over Malaysia's political and economic future, stemming from rising crime rates and the country's increasingly chaotic politics.

“At one time, the main people taking out money were the Chinese. But these days, a large number of them are the rich Malays,” said one money changer in Kuala Lumpur, who asked not to be named.

Sad but true,smart money leaves for the distant shores when it can no longer find safe haven in a country.

The ATM for Men

I post this in jest. Have fun.