Tag Archives: Better Nation

1MDB AND IPP

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1MDB AND IPP

In order to justify 1MDB’s huge debt,the IPPs have become the convenient whipping boy for the 1MDB supporters to stir up public sentiment for the past few weeks.

IPPs have been portrayed as the leeches to the government’s coffer. And to deal with it, we need 1MDB and multi-billion debt.

Is that true?

Basically, it is due to the lack of transparency in the first generation of IPPs back in the 1990s when the ‘take or pay’ deal enjoyed by the IPPs seems unfair to the Government.

We must understand that when Malaysia experienced a national power crisis, it requires a quick and expensive solution which can only be made possible by private sector venture.

Because it involved multi-billion capital and the risks it undertook were thought to be incredibly high, the deal ‘take or pay’ was included.

It is strange to see at some of the  these IPPs which are now seen as “locusts”, were the “white knights” which had come to aid the Government to plant-up quickly, using private sector funding.

If not for the IPPs, the peninsula might have experienced more severe and persistent power outages in the 1990s and the 2000s as TNB did not deliver value and quality electricity to consumers.

Actually the ‘take or pay’ deal was only given to YTL Power. And YTL’s license will expire in this year hence there will be no more ‘take or pay’ deal to any IPP’s in Malaysia.

Why were the IPPs given subsidies when the people were not?

Actually the cheaper gas from Petronas for the IPPs and TNB is meant to benefit the people in the form of low tariff rates.

It is not like the IPPs or TNB can sell and trade the subsidised gas for their own profit.

In fact if there is no subsidy given to them, the people will have to pay the market price for electricity.

It means that all the ‘billions lost causef by IPPs’ that the 1MDB supporters keep harping about is actually went to the public.

Some may say all the IPP licenses were given to the cronies of one former Prime Minister. Hence, the IPPs are bad.

But cronies or not, the frequency and minutes of interruptions would have driven away many investors if the IPP solution was not initiated in 1990.

The involvement of IPPs in the power generation business had introduced efficiency besides contributing significantly towards stabilising the nation’s reserve margin.

Not only that, thousands of job have been created and today we proudly see some of the IPPs have ventured into the international market to do business in energy sector.

But the most important thing is, IPPs have brought competition to TNB in an industry that TNB had long monopolised.

Today, while TNB is the sole electricity distributor in this country, it is not the only electricity producer.

Given of all these contributions (and that is real), 1MDB supporters have to stop maligning the IPP as if they are the raison d’etre of 1MDB’s debt.

Please consider this:

The average returns for the first-generation IPPs were 17.8 per cent, while the second- and third-generation boasted average returns of 14.4 per cent and 11.7 per cent, respectively.

The fourth-generation IPPs is expected to reduce the average returns to 9.1 per cent.

Question number one:The first, second and third generation of IPPs enjoyed a much smaller return even before the inception of 1MDB.

If that’s possible to reduce IPPs’ earning without having to incur billions of debt through a strategic development company, why do you need 1MDB?

Question number two: Just for the record, Petronas already has to forgo revenues amounting up to RM12 Billion annually because of the discounted gas price given to TNB and IPPs.

The imported gas has to be subsidised at about RM40 per mmbtu instead of the market rate of RM145 per mmbtu.

It means Petronas can only sell the gas at one-third of the cost.

Can we say now, Petronas is the real saviour in reducing our electricity tariff, not 1MDB?

MatRodi

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What 20 cents can tell you about our economy?

A lot of people queuing up at money changer outlet for the past few weeks. To be exact, the day after the General Election is over. Well, what does this thing say about our economy?

It seems that Malaysia Ringgit (MYR) is getting stronger against foreign currencies. Now you can get one US dollar for two ringgit ninety five cent. Previously it was twenty cents more. Of course 20 cents is a pittance if you just exchange for 1 dollar.

Imagine you have RM10,000 cash in your hand. So you go to the money changer and ask the merchants to exchange your ringgit to US dollar. (For some people, they may ask the merchants to sing the Negaraku first due to their striking resemblance to Bangladeshis. However that’s another story.)

Now you have USD3,400 in your hands. What happen next? Since most of the economic activities are transacted in US Dollar, the value of the currency will go back to its normal level- as it always does. Therefore given the 20 cents difference between current value and normal value, you will get extra RM800 should you decide to exchange again to Malaysia Ringgit.

RM800 profit from RM10,000 is a 8% dividend. That is more than 3-4% fixed-deposit interest and comparable to any medium-risk unit trust products. After all, you don’t have to wait for one year to reap your dividend and you get the money immediately (read: liquidity). The only hassle is for you to line up at the counter over and over again.

Well, where does the 20 cents difference in currency exchange come from? Why suddenly Malaysia Ringgit is so strong and US dollar is cheaper? How is that possible?

We know that financial market in European countries is sluggish and weak. Greece, Iceland and Cyprus have gone bankrupt. Austerity measures have been put in place so there is little money coming from the government. As a result, the private sectors are also tightening its belt. It means less investment, less project and less economy activities. Consequently, the market is deemed less attractive for investors.

The same goes to the mighty United States. The clarion call for reducing national debt and deficit has dampened the effort to revive the economy. United States’ economy too has lost its charm..

We know for a fact in turbulence times, spending is more important than saving. The mantra of ‘your spending is my income and my spending is your income’ should be remembered.

Here is the situation; there are hundreds of billion from investors, multi-national companies and countries floating in the market that need to be invested. Already realised the United States and European countries are no longer the most preferred destination, investors are looking for a new destination to park their money.

Knowing this opportunity, our trained-economist Finance Minister (who happen to be the Prime Minister as well) together with first-class economy graduate International Trade Minister and PEMANDU have introduced Economic Transformation Programme (ETP) outlining 12 strategic sectors that needed the money the most. ETP has become the impetus behind the country’s growth.

To inject the much needed capital to stock market as well as uplifting the profile of Bursa Malaysia to restless investors around the world, Malaysia has successfully launched the second and third biggest Initial Public Offering (IPO) in the world namely Felda Global Venture and IIH. Actually the size of IPO doesn’t matter. The most important thing is the timing was right.

Slowly but steadily, the Bursa Malaysia has seen capital inflows worth billions of ringgit were coming in. This is where the overwhelming demand of Malaysia Ringgit comes from. Applying the rule of supply and demand here, anyone can tell with stronger demand for Malaysia Ringgit, the value of the currency will increase.

For the past 1-2 years, investors were playing wait-and-see game. They hold their money until the new government is elected. In this case, it should be noted that many foreign investors and international financial mouthpiece are in favour of retaining Barisan Nasional as the new government.

Why wouldn’t they? BN’s economic policies are far more comprehensive, pro-growth and business-friendly. BN’s ability to deliver also speaks louder than rhetoric.. As far as profit is concerned, Barisan Nasional is the better bet.

Therefore when it was announced Barisan Nasional won the election, money starts to coming in- in a large amount. The next day after the election, we saw Malaysia Ringgit was valued at RM2.95 for USD1- 8% stronger. Bursa Malaysia has reached its all-time high with over than 1,800 points.

Malaysians or detractors may say BN has lost popular votes and gained fewer seats than the last election. But for foreign investors especially those from matured democracy countries, the 44 seats majority was not a ‘razor-thin majority’ as widely claimed. In fact it was a solid majority and good enough to instil confidence among them.

I know people on the street couldn’t care less about this number. They are not the broker, shareholder, and currency trader anyway. But for majority of Malaysians (people on the street included) who put high regards to Mat Salleh’s wisdom, they should not be selective in their assertion. Just accept the fact our economy is well-managed and Malaysia is enjoying gravity defiance boom that is confounding sceptics.

I know it sounds so cliché and mainstream. But as long as people continue to prosper, it doesn’t matter.

 

ps: perplexed why government can handle the economy very very well but not in politics and perceptions.

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