by synergistic unbundling, donplaypuks® intrepid correspondent for public services affairs
With 1Grossmajib Development Bunkum (1GDB), we already have a huge problem for which a solution must soon be found, like yesterday!
$46 billion of debts with about $2.5 billion annual interest cost to service is no joke, especially when there is a huge shortfall in income cash flow to service debt interest and debt capital redemption, on time. CBT, fraud and looting there has not helped either. Default is not an option and asking overseas lenders and creditors to take a sizeable haircut, is a path fraught with danger of the permanent kind.
What about 1GDB filing for bankruptcy and going into receivership or liquidation? Well, the government has guaranteed $10 billion of these debts. It also has a moral obligation to honour 100% of debts incurred by a 100% subsidiary of the MoF. Default or filing for bankruptcy will result in a run and possible collapse of the stock and money markets, eventually leading to downgrading of our financial standing by international rating agencies, making it more difficult and costly to borrow in future. A local bank or two and government pension funds may collapse, triggering a recession.
So, the solution to 1GDB's penury inevitably means government intervention and/or bailout.
It is not merely the 1GDB debt that is worrying the financial markets. There are also contingencies and off-balance sheet items found nowhere in thr government's budget. The government is repeatedly being vague about the MoF's $30 billion debt to two pension funds funds for so-called "private initiative projects". It is yet again hiding behind the OSA and has not only not satisfactorily explained who and for what exactly this stupendous cash outflow went to, but also, how it is going to repay the $30 billion borrowing. This reeks of yet another government and MoF induced fraud and looting scheme. Need I remind you that PM Grossmajib has also been the Finance Minister since 2008?
It would be criminal of the lying and thieving PM Grossmajib, his government, his Ministers, 1GDB and his handpicked lieutenants, to flog prime land to cover-up for the portion of that unbelievable $46 billion debt that is believed to permanently lost. Profits would not be anywhere near being maximised, and given 1GDB's pathetic track record thus far, would you ask Dracula to guard the just broken-in blood bank?
Some are saying that some $27 billion of that $46 billion is gone forever. 1GDB is an information black hole as the true picture is being deliberately shielded from public eyes and guarded closely by those who have everything to lose from transparency. Being honest, truthful, open, transparent and accountable are no longer options for PM Grossmajib, his Ministers, advisers, 1GDB and his handpicked cronies and lieutenants at 1GDB who face permanent career losses, long jail sentences and public disgrace, shame and loss of face, when the arrests begin.
Regardless, a bailout and restructuring are the only ways to clear up the 1GDB catastrophe and shambles.
This will of course be tarted up by all these handsomely and over-the-top remunerated PR failures PM Grossmajib surrounds himself with. They will call it industry rationalisation, unbundling of fissionable assets to unlock, liberate and fizz "hidden value", combination of synergistic business units by fusion. The spindoctors will make it all sound as though they have suddenly discovered here and perfected the financial equivalent of that elusive Unified Theory of Everything that Einstein had been working on when he died.
And that is exactly why we should resist at all cost any attempt by that lying and thieving PM Grossmajib to flog and short-change once again the IPP's whipping boy, Tenaga, to save 1GDB and his skin.
We are not the USA or UK. Light years from it. We are a tiny country both in land area and population. We do not need three separate power structures, each working on the profit maximisation business principle, to light the bulbs, power industries and the refrigerators, ovens, washing machines and air-conditioners in our homes. We do not need an energy set-up with separate power generators, transmitters and distributors where electricity is pooled and sold to a Central Power Exchange which will the determine electricity tariffs and pricing for industries, businesses and homes. This approach to retrieving the 1GDB fiasco will only result in more losses, massive increase in sinecure and over-staffed bureaucracy, and another serious whack on the consumer's disposable income while the cronies and their con-sultants laugh all the way to the bank.
It does not mean the current Tenaga monopoly system is perfect or desirable. Little is done to plug leakages. Every time Tenaga's profits decline, tariffs are raised with the usual Ministerial huff and puff about our electricity being the "cheapest in the region" i.e. if you include Neptune, Jupiter and Mars as being our immediate neighbours. The Minister will then pull out his bull-whip, threaten and berate Tenaga:
"You national heroes must, no, will, link tariff hikes with productivity, or heads will roll. No stone must be left unturned in aligning staffing levels with international norms and statistics, you naughty boys."
Last anyone looked, there has been no appreciable staff lay-offs and redundancies in any GLC unless it went totally bust and a government bailout was forced upon it e.g. Mana Ada Systems Airlines. If any, GLCs, being our equivalent of the cradle-to-grave welfare state, have probably seen an increase in staffing levels, with steeply declining productivity.
Over the last 10 years, on average, Tenaga has paid Malaysia's crony-ridden IPP mafia, some $15 billion a year for electricity it never needed. With rates as high as 38 cents per kw, gas and cheap loan subsidies, tax breaks and 100% cost-pass-through Power Purchasing Agreements (PPA), the IPPs have fleeced Tenaga of $150-250 billion. This is despite Tenaga crying all the way to another mafia arm of the Prime Minister's Office, the EPU (Economic Plundering Unit), and pleading and submitting that it could build safer, more cost-effective and economical power plants faster than the private sector, and produce electricity on average, at less than 1/3 (8 cents per kw) of the cost the IPPs charge Tenaga under their thieving PPAs.
In 2012, 1GDB bought that dirty Anak Keling's (AK) IPP business for $8.5 billion, giving him a profit of $1.7 billion. Then, it was forced by its auditors to immediately write off about $2 billion in its P&L to bring the assets more in line with its actual fair book value!
So, the reality is that 1GDB paid AK $8.5 billion for a business that many contend was worth far less than even $6.8 billion. AK's local IPP was nearing the end of its concession period, and it was only worth anything if the government, which held a golden share in Tenaga, extended the 21-year concession period AND Tenaga signed a new PPA with it. In a genuine business environment, Tenaga could have had that IPP for next to nothing by just waiting patiently! With electricity reserves somewhere in the internationally unheard of region between 45%-55%, the government DID NOT have to rush with indecent haste and buy AK's IPPs through the 100% MoF owned 1GDB, at all. Also, there was no need to acquire IPPs overseas at inflated prices.
So we have to ask PM Grossmajib and his band of bandits and con-sultants how 1GDB could hive off its depreciating and redundant IPP business acquired for a total of $12.4 billion in cash in 2012-2014, and list it for $13 billion, or 1GDB's "top management" force-feed it into Tenaga at pie-in-the-sky valuation of $17 billion? 1GDB recently, due to lack of money, surrendered its 70% stake in a $11billion power project to who else, but Tenaga.
Among
the most favoured of buzzwords savoured and worshipped by salivating
and drooling scorch-earth corporate raiders, otherwise known as
corporate rapists and sodomisers across the world world, are, 'synergy'
and 'asset unbundling'.
Unbundling
would, to these perverts, mean that if Tenaga were to be broken up into
three companies, 1 each for power generation, transmission and
distribution, then by abracadabra magic, a $1 Tenaga share would morph
into $4 in value, and sometimes, even $5.
Synergy,
to the same group of perverts would mean that were Tenaga, valued at
$1, to acquire 1MDB valued also at $1, and merge, then the combined
entity, 1TenagaGDB, would not be worth a mere $2. Again, by abracadabra magic, the shares would have morphed to $3 in value, and sometimes, even $4.
How is this possible in the share markets of the real world, that 1 + 1 can often = 3, and 2-1, also = 3?
The
answer is that all known share valuation models - net present value of
dividend flow, mark to market and revalued balance sheet, pre and post-tax earnings,
replacement, break-up, fire-sale etc. - are imperfect. Share values can be easily
manipulated by witholding or leaking price-sensitive information, and by
insider trading. Collusion among the few at the top, i.e. major
controlling shareholders who also hold executive positions, their fellow
directors, chief accountant, lawyers, merchant bankers and auditors,
can result in over-stated revenues and understated costs, or vice
versa.
A
company's share prices can also be easily driven up or down by
investors with huge capital or syndicates pooling their money and acting
in concert to play up share prices, with no real change in the entity's
underlying asset value. All you need are a sleeping and compliant
securities commissions and stock exchanges, and all sorts of fancy
projections and promises of El Dorado can be sold to the unsuspecting
public as the gospel truth. The public never learns. Too-good-to-be-true
investment opportunities are usually too-good-to-be-true.
Lastly,
in a global and over-connected world, the slightest whiff of bad news
can spook not only the contra-player, but also the seasoned stock broker
and even savvy investment gurus like Warren Buffet. There is no known
defence against, or cure for, the herd mentality stampede. Investors are
often, totally irrational.
So, what is the real market acceptable value of 1GDB's IPP asset, if the government gives Tenaga a free hand to negotiate? The government is presumably hoping to cook the books just as it has done recently with awarding a 48-year concession to Kidex for a Highway Toll concessions headed by an ex-DPP and the wife of a former Chief Justice. For sure, if PM Najib is still around, he will force more tariff increases across the board, and lock in regular tariff escalation clauses, regardless of performance, efficiency or productivity. This is his idea of equality - every citizen has the right to be equally screwed by his crooked government.
If the Tenaga deal is not viable due to public outrage and pressure, PM Najib will strong-arm EPF, Socso, KWAP, Tabung Haji, Khazanahn PNG and LTAT to become cornerstone investors of 1MDB's IPP flotation, grossly over-valued at $17 billion on paper. These "national service" heroes will then lock these worthless share certificates in their safes and throw away the keys. Those shares will soon be trading at below 50% of their IPO values, a story similar to a recent Grossmajib engineered palm oil conglomerate IPO flotation.
But, to me, the Tenaga option is the better one. It is my personal belief that small nations should have total control over, and operate business concerning key public services such as electricity, water, gas, education, health, welfare, defence, and infrastructure elements like highways, roads, ports, airports, lotteries, etc. Or else, what's a government for?
Yes, Tenaga is a monopoly and by definition and in practice, monopolies are inefficient and tend to screw their captive customers. It would be the case with any business which is given a free licence to operate with the safety net of government bailout guaranteed if it fails. Management and staff would have no incentive to be innovative, productive and maximise profits if every inefficiency and cost increase can be passed on 100% to powerless consumers. Anyone's grandmother and Uncle Bob could run such a monopoly where every cent lost can recovered by raising prices. The consumer is also forced to pay a premium for sub-standard services, where competition is stifled and kept out by well-connected cronies, and pricing factor in huge annual "donations" to the ruling political party as quid pro quo.
But that need not be the case. The key to solving the universal government monopoly conundrum is management and the right people in government to pro-actively monitor management. Do we have such people? I do not doubt for a second that we do. But, in a nation where cronyism, political patronage, corruption and kick-backs have become the dominant culture of the ruling party, and know-who outweighs know-how and merit, no honest person can thrive or survive in these monopolies and GLCs. So, brain drain is inevitable. If government has difficulties in identifying and engaging such truly honest managers who also have the right dose of patriotic fervour in their bones, I am prepared to volunteer my services for a limited period, at 1/2 what they pay the Minister whose portfolio covers Power, to put together a truly performing phenomenon of a team.
In conclusion:
1. First, arrest PM Grossmajib and his thieving and incompetent Ministers and Deputy Ministers and those in MoF, EPU and 1GDB and their professional advisers responsible for the 1GDB fraud, and put them all behind bars.
2. Issue a warrant of arrest for Jho Paris Hilton if he refuses to return and tell the truth. Relentlessly pursue him in the USA, Europe or Hong Kong and put him behind bars as well or reduce him to a fugitive who will always have to look over his shoulders.
3. File a multi-billion law suit against GS for their over-priced US$400 million fee charged for raising loans for 1GDB. Do not be afraid. Many in the USA also want the GS CEO behind bars.
4. Transfer back to the government at original cost + subsequent genuine improvements, all the under-priced land sold to 1GDB. Declare the purchase of Penang land as null and void and return the purchase consideration to the sellers, since it was fraudulently acquired from BUMNO/SCUMNO cronies at an inflated price and paid before vacant possession and transfer of title. Next, put up all land for sale by open tender to genuine real estate developers. These buyers must adhere to a proper Master Development Plan sensibly drawn up by the new City Hall.
5. Under no circumstances break up Tenaga into generation, transmission and distribution units, especially by that crooked PM Grossmajib and his government of thieves. Do not create a new Quango to regulate power. The result will be 4 crony-infested entities which will create an even bigger financial meltdown that 1GDB, and where the mass of consumers will be forced into armed riot and insurrection against the government when they can no longer afford to light and power up their homes, offices and factories.
6. Let Tenaga engage an independent expert to value 1GDB's IPP assets and buy them over. The sale proceeds from the land and IPPs should be wholly used by the MoF to whittle away 1GDB's $46 billion debt.
7. Tenaga should be allowed to re-negotiate with all remaining IPPs to take over them on whatever value Tenaga thinks fair, with extended terms of payment at no interest cost, since the EPU arm-twisted Tenaga into awarding extortionate kilowatt rates to the IPPs, and the IPPs have been enjoying super profits at the expense of Tenaga and the Rakyat. If any IPP used bank borrowings for non-IPP projects/expenses, that portion should be transferred to the controlling shareholders to settle with the respective bank lenders. In a couple of years, Tenaga should be turning in super profits by reducing its electricity reserves to a sensible 20%, closing down expensive and inefficient IPPs which will eventually minimise the $15-20 billion subsidy per year it has been criminally taken for a ride by the IPP mafia since 2000.
8. Tenaga should negotiate with all 1GDB's banks and lenders, and ask them all to take a haircut on the $46 billion bonds and loans. This won't be easy, but it is necessary and vital. Some of the bonds, I believe, have penalty clauses for early redemption. Who advised/conned 1GDB into agreeing to such stupid terms? With sovereign guarantees, 1GDB should have been able to negotiate below market interest rates, instead of being conned into paying stupefying 8% and 11% interest rates and jaw dropping yields.
If managed carefully and properly, the 1GDB nightmare can be resolved without the stock and money markets going into a tailspin. All the lenders, banks and creditors must be met individually and told the truth and their co-operation won over. That's what and where we need good PR men for, not that coterie engaged by PM Grossmajib to lie, cover up and mislead the Rakyat for pilfering, freeloading, cheating, defrauding and looting from public coffers.
A similar exercise should be undertaken to restructure the water business where the cronies have their claws hooked into, and where water shortages are manufactured with Federal Government connivance to panic and inconvenience the Rakyat, to commission more unnecessary $billion ringgit inflated water treatment and distribution plants, and enrich the war chests of BUMNO/SCUMNO/ Barang Naik.
We have the people who have the intelligence, talent, drive, know-how and initiative to force desirable changes in government and public services. It only requires the right people and a tenacious exercise of will power to pull it off. Nothing is beyond the pale if we put our minds to it!
Donplaypuks® with our government and public services, man!
