Mahathir reviews privatization

Mahathir reviews privatization

By Brendan Pereira

KUALA LUMPUR: When Malaysia's new Finance Minister eases into a comfortable leather chair at his office soon, he might feel like a late-comer to a party.

The reason: He could be walking right smack into the middle of a clean-up of the country's privatization program.

He will not have to worry about charting the road map of incompetence, inefficiency and corruption that has been a rigid collar around this Malaysian policy.

He will just have to continue the shoveling started by its architect, Prime Minister Mahathir Mohamad.

Over the past few weeks, the Malaysian leader has shelved a RM6-billion (S$2.8-billion) rescue plan for privatized light-rail projects, ordered a quiet review of several controversial deals and told a small circle of government officials that the risk- free ride to corporate riches enjoyed by a clutch of Malay high- profile entrepreneurs is over.

There is some pressure from within the government to look more closely at the privatization of the country's postal services, a deal hurried through in the last days of Tun Daim Zainuddin's tenure as the Finance Minister.

On May 24, Phileo Allied, a finance services company listed on the Kuala Lumpur Stock Exchange, announced that it was buying Pos Malaysia from the Finance Ministry for RM800 million.

Government officials told The Straits Times that the deal did not get the usual rubber-stamp of the Cabinet and there is some pressure to review its terms and valuation of assets.

To be sure, Dr Mahathir is not dismantling the privatization program, a cornerstone of the country's three-decade-long affirmative action aimed at increasing Malay ownership of the corporate and economic pie.

What he may be attempting to do is turn back the clock and save the policy from being decimated by the people it was meant to serve -- the Malays.

Already, the fundamentalist party Parti Islam SeMalaysia (PAS), acutely aware of a palpable dissatisfaction among Malays over wealth and contracts flowing into the hands of a few, has promised to review privatization if voted into power in 2004.

Its president, Datuk Fadzil Noor, told The Straits Times: "If we decide to keep privatization, it will be anchored on the basis of public interest.

"Those parties involved must also have the financial ability to see through a project and not expect any government help."

Ironically, removing the safety net is what Dr Mahathir has to do if he is to make peace with former supporters of his government, and convince them that the excesses of the past will not be repeated.

For a start, he has started to distance himself from some of the more unpopular decisions fronted by his former finance minister.

Few have been as unpopular as the Employee Provident Fund's (EPF) purchase of TimedotCom's initial public offering. The EPF invested RM269 million in the IPO, which was 75 percent undersubscribed.

TimedotCom is a subsidiary of Time Engineering, a company controlled by Renong, the former investment arm of Malaysia's ruling political party.

The pension fund's investment prompted the union movement to threaten to go on strike and stoked an unusual level of behind- the-scenes criticism against the top leadership by UMNO members.

Tun Daim's resignation from all government positions has been a safety valve. It released the build-up of tension within the party.

UMNO insiders say that the Prime Minister knew very little about the use of pension funds to bail out TimedotCom.

At a meeting of Barisan Nasional representatives, he said that he was unable to brief members on the details of the deal because he was in the dark.

He turned to his second-in-command, Datuk Seri Abdullah Badawi, and asked him to explain why the pension fund had invested heavily in the IPO.

The Deputy Prime Minister was unable to do so. Apart from what had been written in the newspapers that day, he too knew little of the mechanics of the deal. The duty to explain was delegated to Tun Daim.

A man of few words at the best of times, the former finance minister explained in a few terse sentences why the EPF had taken a tranche of TimedotCom shares. He then walked back and took his seat.

That episode gave ruling-party politicians the clearest signal that the PM and his trusted lieutenant were not on the same page.

On hindsight, it also explained why Mahathir wrote to the Malaysian Trades Union Congress and assured it that EPF money will not again be used to bail out financially-strapped businesses or individuals.

He has to make good that guarantee. This is after all a country where "what are you going to do next" is infinitely more valuable than a 20-year track record.

Also, in the past, many of the unpopular and questionable decisions on the award of tenders could have been laid at the door of the finance minister.

Today, that man is on the sidelines and Mahathir is handling the finance portfolio.

In short, if there is a political fall-out from any of the privatization programs, he won't be able to shrug his shoulders.

UMNO politicians say that they are happy that the Mahathir administration appears to be playing hardball with several companies run by well-connected Malay businessmen.

Late last year, the government proposed to take over the light-rail ventures with a RM6-billion bond issue.

Under the plan, the government would assume all debts owed by Sistem Transit Aliran Ringan and Putra, a unit of Tan Sri Halim Saad's Renong conglomerate.

In addition, the concessionaires would have received compensation from the state and retained management rights with a government-guaranteed rate of return. A sweet deal. But mindful that the old way of doing things was becoming less tolerable even with staunch party men, the plan was reviewed recently.

Under the new plan, the government will assume total liabilities of RM5.5 billion. The question of compensating the concessionaires for surrendering their licenses is still up in the air.

The Straits Times understands that a steering committee has been set up to examine if compensation should be paid and, if so, how much.

Said a government official: "A lot of funds have been expended on the light-rail project. So while it is fair that people are not left out of pocket, it is also necessary to show that certain people are not being rewarded. The public is watching us."

Expect the same scrutiny when contracts to build the massive dam in Bakun, Sarawak, are given out soon.

-- The Straits Times/Asia News Network