Wednesday, November 30, 2011

Malaysia's UMNO Scandals

“Malaysia is going to buy six patrol boats at a total cost of RM6 billion or RM1 billion per patrol boat. Of course, Malaysia’s patrol boats are going to be far advanced and more sophisticated than those of the Philippines who paid only RM31.5 million for theirs,” he wrote. “The Philippines’s patrol boats can only patrol the waters. Malaysia’s patrol boats can…well…patrol the waters.”
Written by John Berthelsen, Asia Sentinel
A new set threatens
For weeks, just in time for Malaysia’s United Malays National Organization’s annual general assembly which opened this week, the party has been embroiled in an embarrassing scandal involving a 2007 government decision to spend RM300 million (US$94.3 million)to establish a national feedlot corporation to slaughter as many as 60,000 cattle annually under Islamic halal dietary requirements. 

The scandal seems emblematic of a long series of such situations that imperil Prime Minister Najib Tun Razak’s vow in April 2010 that the government "can no longer tolerate practices that support the behavior of rent-seeking and patronage, which have long tarnished the altruistic aims of the New Economic Policy.” 

The National Feedlot Corporation, as it is known, has never slaughtered 10 percent of the projected total and has since scaled back its target to 8,000 head but hasn’t been able to meet that target either. Worse, the company has been losing millions of dollars every year – while pouring funds into an RM10 million condominium in Kuala Lumpur, among other things, and spending RM800,000 for overseas travel and entertainment. 

The scandal is doubly embarrassing because the agreement to establish the National Feedlot Corporation, made when Abdullah Ahmad Badawi was prime minister, went to the family of Shahrizat Abdul Jalil, the Minister of Women, Welfare and Community Development and head of the women’s wing of Umno. Her husband, Mohamad Salleh Ismail, is the chairman. Her three children are respectively the chief executive officer and executive directors of the company. None had any experience in cattle production or beef supply prior to the establishment of the company. 

The report of the NFC’s operations was contained in the 2010 report of Malaysia’s Auditor General, which was delayed for weeks before it was finally released. The scandal has generated tensions inside UMNO, with some reformers demanding that Shahrizat be forced out of her job as minister. However, the leadership has circled the wagons to protect her. In particular, Muhyiddin Yassin, the deputy prime minister, has said there was no case to be brought against her. Muhyiddin was the agriculture minister in 2006 when the project was approved. Others who have come to her defense are Abdullah Badawi and his son-in-law, Khairy Jamaluddin, the head of the UMNO Youth Wing. 

The National Feedlot scandal is said to have the potential reformers worried because party operatives thought they had the Selangor electorate turned around and that they could take the state back from the opposition Pakatan Rakyat in national elections expected to be called early next year. However, Asia Sentinel has been told, the refusal to hold anybody to account in the feedlot scandal could well turn the tide back against them, especially as other patronage scandals continue to bubble up. 

The depth and breadth of the scandals also calls into question moves earlier this year with Najib launching a series of programs to develop bumiputera, or ethnic Malay companies, including allocating an RM2 billion fund for development. In the 2012 budget, Najib also announced the government would allocate RM200 million to guide 1,100 high-performing bumi companies with the potential for listing on the Kuala Lumpur Stock Exchange. Critics are concerned that the patronage system will continue unabated. The current UMNO general assembly was hoped to provide a dramatic backdrop for Najib to win back disaffected Malay voters. 

For decades, this patronage has involved highway construction and defense contracts and a variety of other government arrangements with UMNO cronies in a plan formulated by former Prime Minister Mahathir Mohamad. His ambition was to create a cadre of 100 super-rich bumis who in turn would help rural Malays into prosperity under a konsep payung, or umbrella concept routed through UMNO, much the way he envisioned driving the country into industrialization through massive projects. However, many of the companies eventually collapsed and are being supported by government institutions such as Kazanah Nasional, the country's sovereign investment fund, or the Employee Provident Fund. 

Contained in the same 2010 auditor general’s report, for instance,  is a passage on the decision to privatize a 77-km stretch of highway from Senai to Desaru on Peninsular Malaysia’s southeastern coast. The land acquisition turned out to have doubled, from RM385 million to RM740.6 million, with the road surface described as “undulating.” The project completion “was not in accordance with specifications, causing damage to the road surface and endangering road users.” The company failed to complete construction within the stipulated period of the contract. However, the construction agreement didn’t specify damages in the event it wasn’t completed. Required maintenance is described as “unsatisfactory.” 

The company that won the RM1.7 billion contract is Ranhill Corp. Sdn Bhd., which has long been described as UMNO-linked. It is partly owned by Lambang Optimia Sdn. Bhd. Both are headed by Hamdan Mohamad, described as Malaysia’s “water baron,” who operates several utilities and power companies. He was one of several ethnic Malay businessmen who followed former Prime Minister Mahathir Mohamad’s vow to take Malaysian companies overseas. Another shareholder is YPJ Corp. Sdn Bhd., an arm of the Johor State Government, and yet another appears to be UMNO itself, which owns a minority share through an account at Public Bank Bhd., according to records. Ranhill has had a lackluster two to three years, capped by disaster earlier in 2011 when its Libyan operations were caught between the Muammar Qaddafi forces and those of the Libyan rebels aided by NATO air strikes.