Did 1MDB save Malaysians RM200 billion?

Opinion  |  P Gunasegaram
Published:  |  Modified:

QUESTION TIME | On Tuesday, ahead of the Budget tomorrow, Prime Minister Najib Razak blogged his economic vision for Malaysia setting out 81 points, which among other things, claimed 1MDB will save Malaysia RM200 billion over the next 20 years.

That’s a rather outlandish claim – there were no calculations given. Is that really true? First, we need to reproduce point 63 in full which states:

“1MDB in fact played a key role in solving the lopsided power agreements signed by a former leader. When 1MDB entered the industry, it was the lowest bidder in all its agreements, thus saving Malaysia RM200 billion over the next 20 years. One research house’s report about the revised power agreements was simply titled ‘No more sweetheart deals’.”

Ah yes, those lopsided power agreements - that’s true indeed. That former leader was indeed former prime minister Dr Mahathir Mohamad, now an opposition leader very keen to topple Najib, although Najib did not name him. And it was true that Mahathir gave out to the early independent power producers, or IPPs, rather lucrative contracts.

But did 1MDB start the process of more market-oriented pricing of power and reduce power costs by RM200 billion over 20 years? No, that’s not true. It started from before Najib’s time – even as far back as Mahathir’s time when it later realised the power deals were, yes, terribly lopsided in favour of the IPPs.

By the time 1MDB – which acquired power assets from Ananda Krishnan, Genting and the Negri Sembilan royal family in a deal which overpriced them by as much as RM3 billion – came into the picture, power players were pretty much competing with one another to get IPP contracts, unlike the old days. Power was no longer that lucrative a business.

In fact, power players subsequently alleged that 1MDB was getting preferential treatment in new power plant-ups, with some projects awarded without any open tenders and some being awarded to 1MDB although other bids were more competitive!

So, to say or imply that 1MDB singlehandedly brought down power rates by RM200 billion over 20 years is by any stretch of the imagination stretching the truth to breaking point. To reinforce this, consider how much net profit Tenaga Nasional, the sole seller (with some exceptions) of power in Malaysia makes - RM7.37 billion in 2016.

If that is the case, since Tenaga Nasional has not adjusted tariffs downwards, can we expect that its profits will more than double, increasing by around RM10 billion a year shortly, making the company a “screaming buy” in the eyes and minds of investors? Of course not, because it’s not true.

Put it another way, Tenaga Nasional’s market value now is about RM80 billion, give or take some. If its profits increase by a cumulative RM200 billion over 20 years, shouldn’t its current market value double to about RM160 billion? Why is that not happening...

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