Another move in the right direction by Selangor Govt

11-04-2008

Selangor ends negotiated contracts
by Sharon Tan

PETALING JAYA: The Selangor state government said negotiated tenders are a thing of the past, and it will re-look at some of the joint-venture (JV) agreements, especially in relation to property development projects, deemed unfavourable to the state.

Menteri Besar Tan Sri Khalid Ibrahim said after having attended briefings on state-owned companies including those under Menteri Besar Incorporated and the State Economic Development Corporation (PKNS), he found that they have many landed assets where their values could be further enhanced.

“Of course, they do joint ventures, but some, I would not have done so. I may have to unwind some of these JVs that are not in favour of the state,” he told The Edge Financial Daily in an exclusive interview on Wednesday.

“For example, in many of the JVs, the private sector owns 70% of the business and we own 30%. But when it comes to risk, the Selangor state holds the brunt because some of our partners do not have the resources to absorb the risk. They ride on us as the banker of last resort. When the returns come in, they take 70% and we still have the 30%,” said Khalid. He added that most of the time the state ended up working for the partners, instead of them working for the state.

He said examples of such JVs were prevalent, particularly in property development projects, where entrepreneurs who know only a little about construction managed to land a JV with the state.

“If the project fails, PKNS will have to salvage it. They run away. If they are successful, they earn 70%,” he said.

For future JVs, Khalid said its partners would have to first buy land at market value.

“We will value it. They will have to tell us whether they can share the cost of operation. What I am trying to say is that they should share the risk and also the reward. If I mitigate the risk, you will have to pay me for that. I don’t suppose PKNS needs someone in property development to help it for what PKNS has been doing for more than 30 years. There is no justification for that,” he added.

On his assessment of the state-owned companies, Khalid said the companies have been plodding along.

“Fortunately, they go into areas that they know, such as property, but they are not as diversified and they don’t develop their expertise. It is also good since they are conservative. Their assets remain intact,” he said.

Khalid is also doing away with negotiated tender in state matters.

“I had a meeting with the director-general of JKR Selangor and told him, ‘No more negotiated tender. I want to get value for money,’” he said, adding that under the previous government more than 90% of infrastructure maintenance work, for example state roads, was granted via negotiated tender. Currently, the state spends RM100 million to RM200 million yearly on contracts for infrastructure work. In the 2008 budget a sum of RM160 million was set aside for road maintenance. One listed company was even identified for the job after direct negotiations.

Khalid said that the contractors earned margins of 25% from state jobs.

“I asked them what kind of margin they are looking at and they said 25%. The private sector’s (margin) is only 7%. There is some sharing on the margins of course,” he added.

Selangor has a budget of RM1.3 billion in 2008. Khalid said that he expected to add another RM200 million into the state coffers by merely tweaking the ‘liquid’ assets.

“Selangor has resources. The bulk of the income is basically in land. We don’t receive tax. We base it on rates and it has the Klang Valley rates.

“Once we adjust the JVs and liquidity position, we will have RM200 million to RM300 million more to spend. There are also some foreign investors coming,” he said.

He also explained that the state has much liquid fund available, but it did not enjoy high rates from the banks previously.

“It goes into hundreds of millions but because it is liquid, the banks gave low rates. Then I told them to send ‘my regards’ to the bank and immediately the banks came back with increased rates. Even by 2%, you are talking about RM2 million to RM4 million.”

On the controversial declassification of more than 4,325ha of forest reserve, Khalid said the matter was being sorted out.

“We are very transparent now. By next month, we will give the background of where the land is situated, status of land, who did the previous state government give it to. It is not just the name of company but also the personalities. We are making that available,” he said, adding that the government will continue the practice in future.

The days of land rewards for individuals are also over as far as Khalid is concerned.

“We will give to institutions that deal with people such as Yayasan Selangor, Selangor Islamic Religious Council (MAIS) or PKNS where it can give the best property development to the people of Selangor,” he added.

The new Menteri Besar would also be very choosy when it comes to finding partners for future projects.

“There is no need to have partners unless they are of certain capacity. I think the investment partners for Selangor should be people from the Fortune 500 companies. Only then there is much value to add. If you are an individual having (limited resources), there is no value-add. Maybe you have the political clout but it is not worth anything for our companies like PKNS,” he said.