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Saturday, 17 July 2010

Will we ever learn from rough seas and sunk costs?

Give a man a fish and he will eat for a day. Teach a man to fish and he will eat for a lifetime – Chinese proverb

TUNA doesn’t often get caught in the crossfire of criticism against the government and its agencies, but that’s exactly what’s happening. This week, politicians and bloggers brought the glare of scrutiny on two government-linked companies (GLCs), both set up several years ago to grab a slice of the lucrative global tuna market.

In their blogs, Tun Dr Mahathir Mohamad and businessman Syed Akbar Ali targeted Langkawi Tuna Corp Bhd, a wholly-owned subsidiary of Khazanah Nasional Bhd.

Langkawi Tuna was meant to undertake tuna farming in Bukit Malut, Langkawi. The business model was to catch yellowfin tuna in the Indian Ocean, transfer the fish to cages and tow the live haul back to Langkawi, where they would be fattened up over a few months before they were sold. It is understood that about RM50mil was injected into the company as paid-up capital and advances.

In a deal reportedly worth A$4.3mil (RM12mil), it bought four vessels from Australia, including a 30-year-old tuna purse seine boat. However, insiders say the project was a non-starter mainly because Langkawi was too far from the fishing grounds and its waters were not optimal for tuna farming.

There’s no mention of Langkawi Tuna on the Khazanah website, and it’s not among the three key holdings and initiatives in the agriculture sector that were listed in Khazanah’s annual review 2010. It’s understood that the company has ceased operations. Dr Mahathir called it a “failed venture” and a “failed experiment”.

The other GLC is Malaysian International Tuna Port Sdn Bhd (MITP), which was awarded a 32-year concession to manage, operate and develop a tuna port at Batu Maung in Penang. It’s a 60:40 joint venture between Bindforce Sdn Bhd (controlled by Sabah businessman Datuk Annuar Zaini Binyamin) and the Fisheries Development Authority of Malaysia (LKIM), a statutory body under the Agriculture and Agro-based Industry Ministry (MOA).

MITP’s woes have largely stemmed from delays in the port’s final phase of construction, leading to huge cost overruns and a strain on the company’s cash flow. Last November, it failed to pay a profit payment on its RM240mil Islamic bonds.

The bond issuance was backed by a letter of support from the MOA, and this has raised the question whether the Government will now have to bear MITP’s obligations to the bondholders.

Since misery loves company and in keeping with the fisheries theme, let’s bring in a third initiative that has run aground – Konsortium Perikanan Nasional Bhd (KPNB). As the name suggests, the company was formed to spearhead the development of the local fisheries industry.

Says the MOA website: “The mandate of KPNB is to implement effective measures towards the modernisation of fishing fleet, improvements in fish processing, and efficient marketing and distribution activities. In turn, KPNB is expected to act as a catalyst to the growth in investment opportunities of fisheries industry activities.”

It appears that KPNB has debt problems as well. On March 4, it defaulted on a credit facility of RM7.56mil taken from Bank Pertanian Malaysia Bhd.

In addition, one of its indirect shareholders, Oilcorp Bhd, are in financial trouble too and was classified a PN17 company last September.

According to an April 29 announcement to Bursa Malaysia, Oilcorp’s 70% subsidiary, Layar Visi Sdn Bhd, has a 51% stake in KPNB. Oilcorp’s latest audited accounts indicate that the auditors’ report on Layar Visi’s financial statements contained “a disclaimer of opinion on material uncertainties on its ability to continue as a going concern”. Layar Visi has invested RM17.85mil in KPNB.

A common thread with these three fisheries-related projects is that they were part of a wave of enthusiasm for the so-called new agriculture, which involves large-scale farming, the broader use of modern technology (particularly biotechnology and information and communications technology), and the participation of entrepreneurial farmers and skilled workforce.

The Ninth Malaysia Plan embraces new agriculture as a way to boost the sector’s contribution to the Malaysian economy via improved productivity, more emphasis on food production, greater innovation, a deeper capacity to generate wealth and higher exports. The idea was to make agriculture the country’s third engine of economic growth, after manufacturing and services.

These days, it’s hard to hear anybody promoting agriculture with the same gusto and optimism. That in itself is not necessarily a bad thing. Different times and circumstances often call for different strategies and emphases. But the tragedy with Langkawi Tuna, MITP and KPNB is that so much has been spent and yet, there’s so little to show for it. What started out as noble policies have ended up as expensive flops.

There are certainly lessons of a lifetime to be learnt here. Hopefully, we’re not too busy fishing for short-term opportunities to pay attention.


 Deputy executive editor Errol Oh has no patience for fishing... and ill-conceived and poorly executed businesses.

1 comment:

  1. Give them fish, they will ask for more fish from you.
    Teach them how to fish, they will give you fish!
    Get the messages?

    The Rightways: