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Sakmongkol ak 47

Wednesday 30 December 2009

An afternoon with The Oracle of Syed Putera-Part 3

Part 3.

The Oracle continued:-

So, we focus on the economy. Don't create Achilles Heels. You want people to fight on the beaches, in the landing areas, in the streets, fields and hills? Get the professional soldiers. Give them the tools and stand aside. Let them finish their job.

The leader of this country should look at two things; very essential and fundamental, I think.

First he needs to look at the toll tariffs.

Two, look at electricity.

I just heard, electricity tariffs are going to be increased. People will get frustrated. The cost of coal is unbelievably high. We are buying at what? USD90 per ton? Furthermore, you are buying at Spot Prices. It's more sensible if you do a term contract- forward buying.

A group of Malay boys came to see me. They have a solution they say. I find it encouraging and very interesting to see our Malay boys doing this. Years ago, no one can imagine Malay boys coming out with such a practical idea. I think the idea has got merits.

What's the idea, O Oracle?

Build stockpiles. We buy coal and have them stockpiled. You have one stockpile in Pahang, one in Selangor and one in the south. Maybe another one in the north. The boys tell me, they can buy the coal and sell it to the government at around USD60 per ton. Do a little bit of Hedging.

We can imagine not only cost savings for TNB but also profit estimates. Research by the firm Macquarie for example, estimates that for every US$1 per tonne reduction in coal prices would add 1% to TNB's profit estimates.

Imagine that. You get to save USD20-30 per ton. Multiply that with the total tonnage consumed.

But I am told the idea is not received favourably. The TNB CEO should look into this idea. You operate on the spot market, and you confine the tendering to 2 or 3 suppliers- people are bound to ask questions. Because the price of the lowest tenderer is still above the average market price. I think the idea of having stockpiles is a good one deserving of a try. Save money. People get to buy electricity tariffs at acceptable level.

Managing the economy becomes more difficult if you have your own people working at cross purposes. Example: the proposal by a company to take over PLUS toll concessions. It would have meant reduction of toll rates by 20% which the people will see as popular. It will mean we have RM50billion into the system. For God sake- we don't have the money. We should be thinking of raising money this way instead of groping in the dark.

How much do you get from GST? RM 1 billion? In principle, I am not against GST.

Yet you have someone from the government saying that it will cost over 200 billion to take over. Each year, the government is paying billions in subsidies. We should get out from this quicksand. Get the private sector to do this.   Generally, Government must not do business.

I was itching to ask this question. O Oracle- how do you see the government selling down stakes in the GLCs. The ones Khazanah is handling?

The leader of this country must set his priorities right.  We should be paying attention to what Khazanah is doing.  Khazanah was formed to invest in strategic industries.  Why the selling down in the first place? I heard it was all just a strategy to sell government businesses by some people uncertain about their future. There were these rumours you see- at one time, the CEO of Khazanah wasn't sure of his tenure. Probably he wanted some golden handshakes. Maybe his guys thought about the idea of selling down. Not sure whether this idea will be implemented now that his tenure has been extended.

It's time to look at Khazanah. For example why is the minister in charge of the EPU still a board member? It should be the Finance Minister 2. You must let go. Then again, look at the position of the Finance Minister himself. Maybe no longer suitable to be the chairman because it can give rise to the possibility of conflict of interests. What if as Finance Minister, he needs to implement policies not palatable to Khazanah? He is there. Yet he must implement policies of the government. Worrisome isn't it?

Khazanah selling down has become a sort of priority. We are reacting to foreign pressures. Some people from abroad, tell you- you need to trim down because of this and this- what do you do? 

You react as though what they say as gospel truth. This is certainly not the way. You do something because it is right.  Khazanah can't think for themselves?   These executives are highly paid.  Foreigners direct Khazanah?  What did they do with Proton's Augusta  and Pantai?

Some industries and holdings must be in government's hands for strategic interest. Most countries practise this.The same with strategic assets.   Just because some people from abroad come here and tell you this is wrong (an assumption not tested) we responded in a knee jerk manner. Slow down, think before we do anything.

Take the case of Land for example. What's the extent of land in Kuala Lumpur that is still owned by Government? The government is doing something very fundamentally wrong.

Just look outside. You see Mid Valley which used to be what? Kampong Abdullah Hukum. I bet many in KL don't even know who he was.  Many people now  don't even know that a Malay Kampong known as Abdullah Hukum ever existed. Yet you are tendering out these strategic lands. If you tender! What do you get? Maybe one miserable building owned by Bandaraya. Do a case study on Mid Valley, Sentral and 16 acres of land at Brickfields given to UDA.  Government seems not bothered. 
What about land banks of Tenaga and TM?  You check.  These companies are part of Khazanah.  What is their contribution to NEP strategy?   The classic case is railways.  Year in and year out, slow losses.  What did they do with their premium lands at Kenny Hill and Sentul?  Compare that to Indian Railways.

I am not saying don't sell the land because the land is owned by Government. But we could have kept the land as a contingency measure should we face economic crises. When we do, we have land- valuable land and maybe we can get better return. These land parcels are mostly located in prime areas.

The government is doing the same to the land around Jalan Imbi. You know the area where there were government quarters. This is not a good way of dealing with valuable assets.

What the government should do is to draw up a master plan over the land. Then sell the land together with the master plan. It becomes a package. It shows the government has put much thought into the strategy. In that way, you not only get to sell at better value, you also get to manage what's going to be developed there. Maybe you can even tailor the development there in accordance to a wider vision.

About this Khazanah selling down. Who do they sell the interests to? Most likely to the same players. Will they be managed properly?

Anyway, like I said just now, let's prioritize. Why is the PM more in interested in chairing meetings of Khazanah. The value of its portfolio is nothing compared to PETRONAS. Yet the PM seems uncomfortable to deal with PETRONAS. We are surviving about half on PETRONAS's contributions. We should be directing our energy and ideas at PETRONAS. More so now as its Profits are almost reduced to half from usual. That's worrying too.

You want to restructure PETRONAS? What do you want to do with the present CEO/President? Make him the chairman. He has been in the industry for donkey years. He knows the ins and outs. He can still frustrate you through his network of workers. So, if you want to restructure PETRONAS, make a clean break. Find a new person altogether. Or don't change anything at all.

There was the idea being floated- put Syed Hamid as chairman? Why? He can't possibly overwhelm Hassan Merican. Oh—because he was promised that job by the previous PM? If he is good, he won't have problems finding rewarding careers elsewhere.

Oracle sir, I have been meaning to ask you this. What do you make of the new economic model?

I myself am not totally clear what the government means about the new economy. What economic model do they mean?

But luckily I am very fortunate to know Tun Daim Zainudin.if there is anyone who should be able to tell a thing or two about what the new economy is all about, it is Tun Daim.

Ah ha, I was thinking. The Oracle knows Tun Daim personally. Things will get more interesting. Can't wait to know of juicy tales in the Temple.

Do you know Tun Daim, O Oracle?

I do. We came from the same state. Same town in fact. Went to school with the man. Played football together. I know practically all the members of his family.

I am sure you remember he was our Finance Minister. A man with a few words. Always with a serious demeanour. I have known Tun Daim for a very long time. You can practically say, all my life.

Tun Daim narrated an interesting story to me. His Majesty our King asked Tun Daim one day, what's this new economic model all about? What do we mean by going up the value added ladder?

What did Tun Daim tell you, O Oracle?

The Oracle continued.

Well, this was what Tun Daim told me. The new economic model means we are going to build our prosperity on new industries. For example industries which are knowledge- based, service based, emerging technologies such as biotechnology for example and all that.

How perceptive of Tun Daim, I said.

Most certainly. My firend Tun Daim has his ears close to the ground. Of course I, being his lifelong friend was able to share in the insights of this remarkable man. I won't be surprised if he has investments in such industries.

On the other hand, the shift into the next economy requires serious planning. Our leaders must be knowledgeable. Read up on the subjects. I am appalled at the shallowness of some senior ministers. One needs to speak with authority. And convincingly so. Dr Mahathir had those qualities. He knows what he is talking about.

Hence when the government says about the new economy isn't going to be a straight forward matter after all. We can proclaim agendas, programs etc. but we need to determine what directions economically do we take?  What do we do to reduce our dependence on natural resources?

Just look, PETRONAS has suffered reduction of its profits recently. The cost of explorations is not going to be  any cheaper. That alone should heighten our sense of urgency. I find this sorely lacking in the minds of our leaders.

We pride ourselves on palm oil. Have we looked at our productivity lately? FELDA has large acreage under Palm Oil in Sabah and Sarawak. But the productivity, people tell me is very low. Yet no one in FELDA seems to care.

Why is FELDA straying away from its core business? It has long departed from the agenda and vision set about by Tun Razak.  We read, now it has hotels and resorts all over the place, restaurants in far flung places. You stretch your resources on unrelated portfolios. You are going to get your fingers burnt.

Eager to contribute to the discussion, I offered my thoughts. If we are going to move up the value added ladder, we should concentrate on our areas where we have comparative advantage. Maybe services. We Malays are good in service industry. The knowledge based and IT businesses. These are the new frontiers, I think, O Oracle.

They are. But let me say something in which Malays can excel. The arts are an obvious example. You want to an actor? An actress? Be the best in the field. Cultivate yourself with the required skill sets. Be professional. Look at those Bollywood actors and actresses. They are making money. We have had one superstar- P. Ramlee; he could have become a super millionaire in today's terms.

You want to paint? Be the best artist. Be the best in your field. Invest in yourself. Point is, you have to be the best in the field where you have comparative and competitive advantage. Let's face it- we can't be the best in all fields. The Chinese- they excel in certain fields because they work hard at being the best there. We shouldn't t envy them for that.

Of course, IT and knowledge based industries are the future. But how do we handle that? We certainly can't do it by following misguided policies. Let me give you an example. We have produced many thousands of Malay graduates. Yet the number of unemployed graduates is biggest among Malay. Why?

Ok maybe, they face natural barriers of entry into certain areas. We know that. But probably the more important cause is our misguided policies on education. We wanted to produce Malay graduates of any kind. We ignored the requirements of industry. We produce square pegs for round holes. There is widespread misfit between industry requirements and skills we have.

We must have critical mass to make that leap into the next level. Right now, we are not doing well in that area. Industries are moving out. From here to the Philippines. Even to Vietnam where they are multilingual you know. They can pick up English and they can speak French too.

We don't build capacity, investments will fly. FDI is decreasing. We need to arrest this downward trending. We must go out. Bring investments in. DR Mahathir travelled extensively. Selling the virtues of Malaysia. We don't seem to repeat the enthusiasm.

Let's look at the contents of education. What subjects do we stress? We want to go to the next step? Into IT industry? We need to have trained technicians and engineers. How many engineers does India/China produce yearly? We don't do that.

Realistically, our desire to move into this kind of industry is a long term program. Restructure the education industry with emphasis and priority in new emerging fields. Train the Malays in that industry. Then, they can make the leap from traditional to ultra modern economy.

The better bet is move to biotechnology. Because this is where we have some comparative and competitive advantage. We have biodiversity that cannot be replicated by other countries. The government should be looking here. The Pharmaceutical industry can be leveraged on our biodiversity. On our flora and fauna.

Right now, we are in a catch 22 situation. We haven't built the critical mass of human resource that will allow us to leap easily into the new economy. Second, we don't have the absorptive capacity. Even Malay graduates are migrating elsewhere where there are markets for their skills.

O Wise Oracle. I was thinking… We have a few good GLCs. In media and communications for example. But I am puzzled as to why they don't go the full 9 yards. For example, TV3 the last time. Why didn't they think to have a second ASTRO for example? You get to beam in serious content into the homes of millions. Look at the current ASTRO. They have so many Tamil content which we can't begrudge because that business is owned by a Sri Lankan of Tamil roots.

Certainly they should. Maybe it has something to do with the quality of management. I am not sure. Generally speaking, if you have civil service mentality running businesses, you probably can't match the private sector mentality. Definitely, they need to push themselves to the limit. The whole 9 yards as you say.

Take a look at the broadband services. Our companies such as TM can do better for example. Now I hear the Chief Sri Lankan mega Tycoon wants to do the Last Mile broadband hook-up. He most certainly is capable of doing it. If he does it, TM should create another Astro.

I am thinking, The Oracle has been talking for a long time on economic issues. I fear the session may end soon. I was eager to move on to other issues. Normally the Oracle would grant 45 minute sessions. Our conversation has by now extended beyond one hour. I don't want to overstay the Oracle's hospitality either.

Can we talk about political issues please O Oracle?  How do you think should UMNO treat its former Presidents? In particular how do you think should we treat the larger that life figure of Dr Mahathir? I have even characterized Tun Mahathir as the Man who can walk on water.

That will be in Part 4, I am afraid.


Anonymous,  30 December 2009 at 09:58  

Amazing memory power!
To think you did not tape the conversations yet you can remember exactly of what was being said!!
Man O Mann!

kuldeep 30 December 2009 at 10:34  

buy coal?stockpile? many million tons of stockpile?Its going to be a black mountain..not a wise move.Myb cheaper n better strategy to buy coal mining assets.

Tenaga bought into a coal mine years ago..but the current CEO deemed it as a troublesome investment and barged Tenaga out of the deal at a great loss...a little patience and PR would have reaped rewards cos Coal touched USD 170 per ton.Lesser mortals would hv got the sack but Khazanah just gloss it out.

Petronas have done well for the country...and bringing a new crew will not guarantee success.Have professional succession planning with the talents within the organisation...and reinforce the Board to hv more decent heads working over the policies n direction BUT pls leave the execution to professionals who knows the biz..Don't make it into a Hassan Merican versus the rest of the world.

PLUS/Hiway Concessionaires/IPPs..just scrutinise their respective QOS in the agreements..there are many ways to skin a cat.

walla 30 December 2009 at 14:28  

Coal prices tend to rise with oil prices but at present this trend is being bucked. That means non-market forces are at play. Are our people any good in this game to be ahead of the pack?

Secondly, saying we could save so and so much has to be carefully pre-qualified. Those who know the trade especially from Indon mine sources can tell you it's not what it seems.

Coal pricings are based on a number of factors. One is calorific value. Other factors are things like ash and sulphur content; high of both makes air bad and acidifies rain water which kills plants while corroding pipes.

Then there's location of the mine which affects costs which in turn depends on whether excavators, barges and trucks are still available in an inelastic supply market.

Also, one would expect that much of the better grades of coal would have already been locked into long-term contracts by their big companies.

And one may also hear of very strange happenings, for instance, surveyor's reports to certify the grade of the coal being fudged to reflect higher quality than what was delivered, even a certificate of origin saying the coal came from Australia when actually it came from somewhere else where the coal and route costs would have been expected to be lower. And the coal may actually have come from another mine not of the company named in the contract.

So saying one can get coal at sixty per tonne in a market which spots at over one hundred will at best mean subpar coal with high residue content which can tar the internal linings of the power plant reactors, rendering them inoperable or hard to maintain.

And it's very hard not to feel bad when you travel to a foreign country and are told that your people who were sent to do due diligence on a coal mine that was to be purchased didn't do the process but were instead being feted in a hotel with other more nubile attractions. Whether true or not, we can't say but later you find the mine was purchased above market rate and with possibly lower grade coal or even invisible deposits.

Saying something is 'cheap' reminds one of the old financial DNAs which basically spent money meant for the future of the country in things of the past which deliver only diminishing returns. This proclivity to buy big, shiny and spinnable is what is keeling our economy. Even now, it seems.

One must constantly be alert and diligent in the head when receiving proposals. One mistake and millions can be blown. Make friends but when it comes to proposals, go through proper channels and the friend and even his sidekicks stay away from all decisioning. Instil integrity and due diligence at all stages and in all phases. Days of helicopter contracts are over. That also includes contracts to buy helicopters. The penalty for not wanting to do due diligence should henceforth be exile to a coal mine somewhere in the heart of Borneo, home to the anacondas.

The message is this: if the mind is in siesta, don't make pinata.

walla 30 December 2009 at 14:29  

Then, there's this matter of road tolls. So someone comes out with a proposal to take the load off the gomen. Baik but have the rakyat seen the full proposal? Are the tolling periods to be extended in exchange for reduced rates? Would the proposers not have added an inflationary factor to account for cost of financing over and above what the concessionaires are footing at the moment, which by most accounts have already been settled from collections to-date?

In other words, give the rakyat the projection spreadsheets and step back fifteen yards to be out of range. Whatever is to be done, don't let gomen agencies decide. The last ones caused this mess. And lived to collect pensionable benefits.

Then we have this focus on who is to lead what. Fine, again. But wait a sec. How did such simple problems happen in the first place? Are the rakyat to believe that appointments were all along made on political grounds as against picking best-fits or is the situation reflecting there is severe lack of the right people for the critical positions where decisions and recommendations are to be made that will lock the well-being of the rakyat and the future of the economy into some contractual commitments that can only translate into suffering in every household as well as extremely high opportunity costs at business levels?

So that the problem seems in introspect not about moving en x or mr y into a post - but the whole shebang of developing and enthusing the best-trained minds and wills into the best-placed posts in the economy.

Is there such a program anywhere in sight in the present gomen-private interface? Is there a really down-to-facts grip on our national brain drain and its effect on the future of Malaysia?

Now we look at land. It has always been land. If you sell or lease prime land in KL, you can't use 'em to do value-adding work. It doesn't make sense to park a software development house in a city block when the software people need to cluster with academic and industrial bodies to achieve real-time collaborative output. So what will the land be used for? Another exhibition and convention centre?

Like the one that's for Matrade where a big parcel of land has been leased to an AP-company in exchange for just seventy thousand square meters of additional exhibition built-up, a matter which is funny because the original land the gomen apparently took from a private sector company by compulsory acquisition.

And if we want to talk about compulsory acquisitions, perhaps we can go all the way back and ask about TTDI and the whole swarth of land next to it towards the toll. Who had owned them then, and why?

walla 30 December 2009 at 14:29  

This focus on prime land that can only be used for office and shopping is telling of the poverty of options before us all. It says people put in ties to walk around aircond rooms or to sell foreign brands will add value to the economy and turn us into a high-income state.

Isn't it in reality just slushing banknotes of diminishing value from right hand to left hand? Or of the gomen getting some pocket money while the rakyat are left to oogle at glassed showcases on tired weekends?

Biotechnology is also fine. So the dot is discovering it's not so easy to keep brains to do biotech. But we are saying we have a trump card. We have eco-diversity. So we can have incubation beds to develop new drugs and gene pools. Moreover, we have fish-farming. Aquaculture and its related engineering have been recorded to have achieved almost four times the growth rate of land-based farming in the past twenty years, and the rate of demand will continue into the next ten. But that's also the time needed to assemble top brains and committed researchers to do the needful. The whole research chain. They need to read up on this important subject which has piled a mountain of literature. All in english and other languages.

It's back to education as the nub, rub and hub of things about Malaysia's capacitation. Right now we are almost incapacitated. And that's because it's easier to win a lottery than to expect the gomen to really get cracking on transforming our education dilemma.

For instance, what has happened to the MOE statement that a study will be done on the system and more english language teachers will be made available and et cetera? Dah lupa? They can't even handle how to backtrack the 10-subject ruling so as not to appear penalizing on those who do extra subjects on other languages.

Next. Next year, price of petrol and power will probably go up. People will also be spending money they don't have to prepare for the GST implementation. Not that the localized foreign worker peddling goods down the road will be of any help. Meanwhile the new NAP continues the old protectionism but adds some new costs whose effects will soon take place. Insurance, leasing, repair and replacement costs have gone up but incomes remain static for too many so how with next year's escalations will their families survive? Remember when power goes up, it multiplies everything. That may curiously soon include the price of things like sugar and thus our cuppa. Or the moneychangers' commission.

Everything is connected - for those who want to see things clearly and can feel for the rakyat while keeping a sharp eye on the going-on's at the jomhebohs of the elites.

Maybe with such revelations which have been ongoing from the rakyat for umpteen years, the gomen should recognize their contributions toward paving national directions, and do the needful by reducing all duties on tobacco.

It'll be good to have something that can help one to go faster. After all, coach buses may miss.

Peter,  30 December 2009 at 19:20  

Very interesting article indeed.

Well one thing for sure we know.

There is little we can do actually but just sit and watch because the forces of self interests of those in power are just to great to change.

The brain drain will continue as 1. without industry talents will move.
2. With continued affirmative actions talents will move.
3. With no accountabilities to all those corruptions and abuse of power talents will move
4. Without security in the streets talents and capital will move
5. With idiotic statements coming out of certain officials in power, talents will move.
....and so on.

We all only know how to NATO here and NATO there. (No action talk only) talents will continue to move.

Is 1 Malaysia another NATO?
Just look around who are the ones got arrested and got scotchfree for statements made in public. You puke really and these guys are responsible for our security.

We see stupidity after stupidity beyond anyone's comprehension.

dua sen,  30 December 2009 at 22:17  

1) Stockpile is no-no. Invest in renewable energy ie solar energy(we're blessed with sunlight throughout the year), wind energy, saline energy, osmotic power, etc just learn it from Norway. Why stockpile when it's cheaper to renegotiate LOPSIDED PPA! I would rather invest on our human capitals and for that you need to sack the incompetent MOE who is more interested in politics. I think it is time that only intellectuals can be made ministers!

2) Privatisation of highway will make the rakyats sink deeper into 'quicksand' as per Oracle. If it's not profitable, do you think the private company will be interested in.

My solution is very simple. Nationalise it. Raise sovereign bond which has low interest rate. Tender out the maintenance of highway to private sectors (must have 100% local workforce). Get rid fat pay employees. Why do you need to higher an MD at RM1.2m pa ? Collection of toll is a no brainer. Automate collect instead wasting our human resources collecting toll. The toll collected will pay off the interest and maintenance the road. That will bring down the toll and stop the compensation.

3) Biotechnology is going to be another MSC. I agree with 'walla' 110% that with our current education conveyor belt, how do we generate the brain pool to appreciate the biodiversity in our midst. At most we can only breathe more O2 via God given photosynthesis. Putting revamping our education system aside, the decision to scrap maths and science in English will only make biotechnology a talking point. MSC failed because our education conveyor belt is churning unemployable graduates. We had to rely on Bangaloreans whose English may not be good but very sound technical skills!

Sir Tong Kol,  31 December 2009 at 12:21  

Treatment of new thoughts and ideas shall determine our future as a nation. Rubbish every nugget yielded by some mental struggle? That shall reduce not add some numbers to our GDP. Mr Oracle demonstrates courage; that is a quality we need to embrace.

A desire to demolish personalities, ideas and whole administrations shall make blog reading most annoying.

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