[COLUMNIST] Sabah GLC/SB: A Ticking Timebomb?

MUCH has been discussed concerning the issues plaguing government linked/investment companies (GLC) and statutory bodies (SB) in Malaysia, along with the critical reforms needed, at least on national level.

Yet little is known on the affairs surrounding state’s GLC/SB. During last sitting of Sabah State Assembly, state’s finance minister, Masidi Manjun disclosed that the 900 million sukuk raised last year by SMJ Energy Sdn Bhd, a company owned by state government, was used to acquire debt ridden Sabah International Petroleum (SIP) a state owned company, who in turn owed a whopping RM1.2 billion to its biggest lender Sabah Bank Development Bank, another company formed by the state government responsible in funding state’s development projects.

But a more pertinent question that deserves greater attention, is what has led SIP into this massive debt in the first place? Another disturbing fact highlighted by state’s finance minister was the failure of Sabah Development Bank in collecting debts worth hundreds of millions where 60 per cent are owed by West Malaysia based companies-what happened to these loans?

Who are these companies, and were the loans subjected to rigorous due diligence? Second question which is equally important, is what about other GLC/SB? It is still unknown how many GLC/SB are mired in debt and scale of debt they might have racked up-which makes it even more unsettling.

The ‘known unknowns’

Searching for information on Sabah GLC/SBs admittedly can be frustrating. Which bring us to former U.S Secretary of Defence, Donald Rumsfeld infamous ‘known unknowns’ quote or better known as “Rumsfeld Matrix”, as it perfectly captured the state of Sabah’s GLC/SB.

Because the deeper we delve into it, the more we know we have very little information or in some cases we don’t even know their existence. While we know there are 43 holdings GLC/SB consist of 170 subsidiaries, there are no official details as to the makeup of these 43 holdings-how many subsidiaries owned by each of them; who are their subsidiaries and what sort of business they are in.

Relying on the internet on the other hand, often leave us empty handed since not all GLC/SB have websites and for those who do, the information are mostly either insignificant or unreliable as some (or most) looks like it haven’t been updated for a long time.

Perhaps the biggest ‘known unknowns’ is the performance of Sabah’s GLC/SB.

According to the state’s finance minister, last year alone 40% or 17 out of 43 holdings GLC/SB have paid dividend. But upon closer look, we literally know nothing about the performance of these GLC/SB apart from their dividend payment. So question remains as to why the remaining 60% or 26 holdings GLC/SB haven’t paid any dividend. Are they making losses? What about their revenues?

Oversight out of sight?

In June 2021, the then state’s finance minister announced the reshuffling of Corporate Policy & Governance Monitoring Committee tasked in overseeing state GLC/SB, a move lauded by one key member of Sabah Economic Advisory Council (SEAC) as groundbreaking and historical, an acknowledgement perhaps that the committee wasn’t as effective as it should be.

As a result, at the start of the year the current state’s finance minister proposed yet another entity-this time a consultative and monitoring panel of expert-probably a subtle admission of the reshuffled committee’s oversight repeated shortcomings.

And herein lies the main issue that perpetuated the whole mess where majority of state GLC/SB got themselves into-lack of systemic oversight-not just at board level, but alarmingly at ministry level. Which also raises the question on the adequacy of existing corporate governance.

So nomenclature aside, the creation of the panel as announced is a step in a right direction.

There is an urgent need to scrutinize every single aspects of Sabah’s GLC/SB because it looks as though the majority of GLC/SB were allowed to operate with greater freedom and less (or without) impunity for years.

Unearthing the unknowns

For a start, the panel should conduct an extensive audit on every financial, operational and performance of each GLC/SB, and they could start by examining major holdings GLC/SB such as Innoprise Corporation, Qhazanah Sabah and Sabah Economic Development Corporation (SEDCO) which hold significant numbers of subsidiaries.

Every top management and also board members should be put under the microscope by requiring them to appear before the panel to shed light into GLC/SB operation. Tough questions should not just be limited to the performance alone, but it should also include key business decisions made. For example what led Qhazanah Sabah into establishing a subsidiary venturing into an already crowded grocery market? And the RM1 billion ‘standby fund’ sukuk Qhazanah Sabah intend to raise as reported last year-for what purpose? Do they have a detailed & thorough plan for the sukuk? Therefore the panel should examine every key proposals and decisions, more so when it involves raising public fund.

Additionally, the panel need to probe the many questionable spending decisions such as the hiring of executives with exorbitant salary, surplus recruitment resulting in redundancy, dubious expensive overseas ‘study tours’ trips, or even the many ‘sungkai’ (buka puasa) programmes held at 5-star hotel disguised as CSR and networking activity.

Towards the end of 2021, most of the top management of state GLC/SB congregated in Dubai for World Expo 2020 but little is known on the outcomes or returns it bring to the state. Then there was even a case of a non revenue generating research arm of the government organized a retreat & ‘sungkai’ program in 5 stars hotel-a luxury other state agencies do not have. In short, the panel should keep tabs on needless and gratuitous spending.

GLC/SB vs GLC/SB

Ideally, the existence of GLC aside from bringing additional income is when it’s required due to strategic reasons.

First in an area when no other private entities could provide specific goods or services to the public; and second to spurs economic activities-in both cases government involvement is perhaps, justifiable. But then we have instance of not one but two subsidiaries belong to two different holdings who operate a tour & travel business-what is the rationale behind this venture? And then there was also a case of multiple subsidiaries own by several holdings GLC and even a ministry that engaged in telecommunication industry, with latest being Sabah’s state religious statutory body who became the first religious statutory body in Malaysia to receive licence for erecting telecommunication tower.

Issue of possible duplication and overlapping are not only associated with state GLC. A non revenue generating statutory body (SB) for example was established under state enactment in 2009, and fully funded by the federal government with Chief Minister holds the chairmanship. Among its function listed under the enactment is to promote & market investment activities.

Yet in 2020, another entity was established and placed under the state Ministry of Industrial Development (MID) to act as a one stop centre dealing with investment with budget comes directly from state fund. For that reason, it is worth re-examining if the decision to ‘invest’ million into a new company when there is an existing agency with similar role, fully funded by federal with the chairman himself is the Chief Minister, is a prudent strategy.

The main concern was not only it add extra spending to something that already exist, unintentionally it creates confusion for investors as to whom they should engaged when it comes to investment.

Roadmap ahead

Therefore, a thorough audit on every GLC/SB is only one part of the strategy. The second part requires the government to develop a comprehensive blueprint. By having a blueprint, it could among others, provide a clear guidelines on the whole purpose of GLC/SB-why do we need them?

This question needs to be resolved because if they’ve already ventured into retailing such as grocery store and travel & tour agency, what stopping others from opening up laundry, restaurant, cafe, handphone accessories or ‘bundle’?

But in order to do so, there must be a complete evaluation into the whole structure and ecosystem including the existing policies and models governing the GLC/SB. One such policy that remains contentious until now is the appointment of politician to chairmanship and directorship, which is a topic for another day.

Apart form that, the blueprint should also provide a reasonable & definite timeline for a sweeping consolidation exercise. The reality is majority of GLC/SB are operating at loss and the government didn’t hide their dismay when the dividend paid for 2023 were lower than the previous year.

Therefore, if they don’t contribute financially or serve any strategic purposes or perform similar roles, then restructuring by ways of merging and closure should be seriously considered-it’s a tough call to make but majority of them should have been closed down years ago.

Allowing them to continue without solid reasons will only prolong and worsen the damage.

And finally, credit should also go to the state’s finance minister for a series of initiatives outlined in addressing few aspects of GLC/SB such as improving the recruitment criteria for directorship; introduction of score card system; establishment of Investment & Loan Management Committee; plus approval from cabinet before announcing any projects and oversea trips.

Only time will tell whether these steps will pay off in improving the performance and governance.

However, one critical area that needs major improvement is transparency.

By now, it’s evidently clear the ‘unknowns’ is more than the ‘knowns’ when it comes to Sabah’s GLC/SB.

It seems the entire operations of state GLC/SB are shrouded in mystery with crucial information, not just financial information but many others are either deliberately or inadvertently concealed from the public.

For that reason, the government must require every GLC/SB to disclose all relevant information, particularly financial related information.

This will certainly make the management more vigilant knowing every money spent will be scrutinised by the public.

At the same time, the government can also improve transparency by creating a select committee on the affairs of GLC/SB at state assembly allowing greater discussion not just between members of legislative assembly with the ministers involved, but opportunity for direct engagement with the GLC/SB itself.

The management/chairman/board members can no longer hide behind state finance minister (or any ministers)-they themselves must be accountable for every decision taken.

Ultimately, it’s high time for the government to take whatever measures necessary to put the GLC/SB on the right track as the clock is ticking, and its not an ordinary clock, but a time bomb waiting to explode. It is now time to bring Sabah’s GLC/SB out of the wilderness.

This is first part of the article on Sabah’s Government Linked Companies/Statutory Bodies. The second part will explore the roles of politician in GLC/SB.

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Mohd Rahezzal Shah Abdul Karim

Senior Lecturer in Political Science & Public Policy

Faculy of Administrative Science & Policy Studies, UiTM Sabah