Friday, April 24, 2015

1MDB

As posted by Dr. Mahathir Mohamad at Che Det on April 23, 2015

1. The management of Government finances is governed by laws, rules, regulations and practices. Companies also have similar systems but Government manages huge sums of money, basically the people’s money and it is imperative that the managers follow the laws, rules and regulations.

2. Corruption prevails in almost all Governments. But usually they involve relatively small sums. The work of auditors are supplemented by special anti-corruption authorities to ensure that as little as possible of Government money is misused, abused or basically stolen by the people authorised to manage it.

3. Governments can lose money through bad investments. We would know where the money is lost. But when huge sums of money disappear, then those entrusted with its management must answer for the disappearance. Disappearance is different from just losing. Disappearance is about money lost which cannot be traced. This can be because of corruption or theft.

4. In Malaysia the PM and DPM usually hold one extra portfolio. Usually the Ministry of Home Affairs and Ministry of Defence alternate between the two. Occasionally while waiting for suitable candidate, the Ministry of Finance is held by the PM. Dato Sri Najib however prefers to keep the Ministry of Finance under him all the time. He has appointed a second Minister of Finance. This is his prerogative of course, but he must ultimately be responsible for what happens to the country’s finances.

5. The first requisite for the management of Government money is the yearly budget. Prepared by the Ministry of Finance from feedbacks by all ministries and departments, the budget is first presented to the Cabinet. If passed it is then presented to Parliament.

6. Government is expected to spend money according to the budget. If the yearly budget cannot meet an urgent need of the Government, a supplementary budget can be presented by Cabinet to Parliament. Drafts of the budgets are prepared by officers of the Ministry. Government raises money through taxes and fees of all kinds. Government may own special businesses such as Petronas, which may contribute to the budget.

7. In Malaysia there is also off-budget-funds which may not be presented to Parliament but are still subject to scrutiny and approval of the Cabinet.

8. Cabinet papers are secret of course. But in the case of 1MDB the presentation to the Cabinet and approval by it seems to be unclear. There seems to be attempts to hide behind official secrecy.

9. What we do know is that 1MDB has as its advisor the Prime Minister and Minister of Finance. It is inexcusable that the management which is appointed by the PM would reject his advice. So like the British Advisor of old, the advice of the Advisor is a directive.

10. Since then three CEOs of 1MDB have resigned without explanation. Could it be because they could not accept the advice!

11. The Government invested one million Ringgit in the 1MDB. According to known records 1MDB then borrowed from various sources 42 billion Ringgit.

12. A company with 1 million Ringgit capital with no assets cannot borrow 42,000 times its capital with no collaterals. That 1MDB is able to do so is because of Government guarantees.

13. In other words it is Government which is borrowing the money. If 1MDB loses money, the Government will bear the loss. Yet the operation of 1MDB is not overseen by Government officers responsible for the management of Government funds.

14. Why has the 1MDB become controversial? What is wrong with 1MDB?

15. From the beginning it was wrong. It started off as an off-budget and it was not put before the Parliament.

16. The money was borrowed. So it is not sovereign wealth but sovereign debt.

17. The bond raised by Goldman Sachs costs more than is usual for Government borrowings. The interest rate at 5.9% was too high. Government loans usually attract about 3% or below.

18. In addition 10% commission went to Goldman Sachs which means that 1MDB gets only 90% of the money borrowed yet has to pay interest on 100%, raising the interest rate to 6.6%. Averaging at 6%, yearly interest on 42 billion Ringgit is about RM 2.5 billion. Since 2009 there has been no income from all the assets. And 1MDB had to borrow RM2 billion to pay the interest. The loan is now RM42 billion.

19. Total initial borrowings amounted to 42,000,000,000 (42 billion Ringgit). As far as can be ascertained the investments are as follows:

a. Purchase of Tanjong Energy (now known as Powertek Energy Sdn Bhd) from Ananda Krishnan for RM 8.5 billion. This is higher than market price. The licence was about to expire.

b. Purchase of Genting Sanyen Power (now known as Kuala Langat Power Plant) for RM 2.3 billion. Again high above market price. The licence was abut to expire.

c. Purchase of Jimah Energy for RM 1.2 billion.

d. Purchase of 70 acres of land in Jalan Tun Razak for RM320 million i.e: RM64.00 psf. Land last sold in the area was at RM7,000 psf.

e. Purchase of 495 acres of land in the former Sungai Besi TUDM airport (now known as Bandar Malaysia) about RM 363.5 million i.e: at RM 91.00 psf. Estimated value RM1,000 psf.

f. Purchase of 234 acres land in Air Itam in Penang RM 1.38 billion i.e: at RM135.00 psf.

20. It should be noted that TRX land is close to land recently sold at RM7000.00 psf. Assuming the market price is RM3000.00 psf the true value of this land is 6 billion Ringgit. The Government has therefore lost 5 billion plus because 1MDB paid only RM320 million.

21. With regard to the Sungai Besi Airport land, 1MDB paid 363.5 million Ringgit for 495 acres – i.e at RM91 psf. Assuming market price for this land is RM1000 psf. the Government lost approximately 20 billion Ringgit.

22. The land in Penang is of poor quality and has more than 1000 squatters. Yet 1MDB paid RM1.3 billion i.e at RM 135 psf.

23. These are all the purchases that are known. They all add up to RM14.7 billion. So there is approximately 27 billion Ringgit left.

24. More than 1billion US Dollars were said to be paid to Petro Saudi without verification as to the value of this company or its assets.

25. Where is the rest of the money?

26. A certain amount was registered in the Cayman Islands. What was the money used for? What was brought back to Malaysia. What was brought back and deposited in a Swiss bank in Singapore. Why? Where was the money brought back from? Why is this money not used to pay the RM 2 billion interest. Why did Bank Negara allow the first tranche to be repatriated to Malaysia and not the second tranche. Now the Swiss bank has told the Singapore authorities that the document did not originate from them and does not represent a true account of the assets of 1MDB. So where is the money said to be registered in the Cayman Islands and is now brought back.

27. Clearly 1MDB is not getting any return from its investments. Not only is it losing money but the Government has lost money when 1MDB paid only RM683 million for TRX and Sungai Besi. Total loss incurred by the Government is approximately 25 billion Ringgit.

28. 1MDB revalued all its assets at 52 billion Ringgit. That is because Government land was brought at far below the market price. It can only use this money to repay loans if it succeeds in selling them off as land or after development. Progress on TRX is very slow and there is no work on Sungai Besi land. No money will be generated during development; only outflows.

29. It is this disappearance of a huge amount of borrowed money by 1MDB and the inability to answer questions regarding what happened to the funds that disqualifies Najib from being Prime Minister of Malaysia.

Monday, April 20, 2015

THE CROOKED BRIDGE AND ME

As posted by Dr. Mahathir Mohamad at Che Det on April 20, 2015

1. Some people believe that I am so angry over not building the crooked bridge that I want Najib to resign.

2. I am not so frivolous. Yes, I am disappointed, especially as Najib appealed to the Singapore PM to build a bridge and the latter rejected it. It is shameful that we dare not build a bridge in our own land without approval by Singapore.

3. This shameful episode is not enough for me to ask Najib to step down. Najib is the son of Tun Razak, the man responsible for my elevation to Prime Ministership. Partly for that reason and partly because Najib showed good performance when I was PM, I wanted Najib to be PM. And people know I worked hard at it pressuring Abdullah to appoint him as DPM, so that he would become PM, when Abdullah leaves.

4. But Najib failed in many areas after becoming PM. Apart from the bridge he did not go ahead with the double tracking and electrification of the railway line from J.B. to Padang Besar which had been agreed upon but was dropped by Abdullah. For 14 billion Ringgit we would have this project completed by 2010. Instead, forced by the demand, he sanctioned the continuation of the track from Ipoh to Padang Besar for 12 billion Ringgit. We lost a lot of money.

5. Then he began to recruit his own 4th floor boys plus a number of British personnel to advise him on how to run the country. They, also used foreign consultants costing more than 7 billion ringgit. We had achieved independence in 1957 and we got rid of British advisers. We did better without them. Najib did not seem to believe in the Malaysian capacity to develop the country.

6. Ignoring the EPU and other Government departments he set up a new agency to plan the development of the country. This agency was headed by a non-civil servant and the salaries of these personnel far exceed that paid to civil servants.

7. The civil servants were very unhappy. In the past they on their own transformed this country from a developing country to a middle-income nation. Now their services, their expertise and experience are no longer needed.

8. They had always been loyal to the BN Government. Now many no longer support the Government. Some even join the opposition after retirement and stood as candidates in elections.

9. As a result of the role given to this new agency the policies of the Government were changed. Najib was told that the rejection of Abdullah in 2008 was due to Chinese dislike for the New Economic Policy. To win them back Najib must ignore affirmative action and should be seen to be more supportive of the Chinese and Indians.

10. He reduced places for bumis in the Government Universities even though in the numerous private universities and twinned colleges, bumis make up less than 10%. Bumiputra contactors and small business no longer had government favour. Most had to stop their businesses.

11. Without saying so in so many words he had adopted the Malaysian Malaysia slogan of the opposition, only calling it One Malaysia instead.

12. Responding to opposition demand he abolished the ISA and freed all those under restricted residence. Crime rates went up.

13. Then he started giving money to people, not just to individuals who earn less than RM3000/- per month but to the associations and the corporate sector as well. Billions were spent on this.

14. Then rallies were organised on every occasions. The organisers were instructed to gather 10,000 people. They were given food and allowances and were transported to the sites, where they were given placards to hold up with “I love PM” written on them. A song 1M4U was composed and sung even at the national day parade.

15. Despite all these the Chinese refused to support Najib. They flocked to the opposition and he performed worse than Abdullah in the 13th General Election.

16. The Malays too did not support Najib. Selangor after he headed UMNO did worse than 2008. Malays only voted for BN because they feared Anwar would appoint Kit Siang as DPM.

17. Through all these I continued to support Najib. On the few occasions I met him, I told him his strategy was wrong but my views were ignored. I said before the 2013 elections that if he did worse than Abdullah he should resign. I had fully expected him to do better than Abdullah.

18. When he failed I told people that they should continue to support him. I was prepared, despite everything to see him lead the BN in the 14th GE.

19. But now with the controversies dogging him I am sure BN would lose if he leads it in the 14th GE.

20. There are many things about his personal behavior that I thought were not right. But I was prepared to overlook them, including he and his wife’s lavish lifestyle.

21. But when he cannot explain where billions of Ringgits have gone to and his involvement with questionable people in the management of 1MDB, I felt that he is not fit to be the Prime Minister of this country.

22. I will explain about how he lost billions of Ringgit in my next blog.

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