THE Asia Petroleum Hub (APH) fiasco is proving to be a huge problem for the government where foreign ownership of local assets is concerned.
Ports, telecommunications spectrum, airlines and, in some cases, banks are considered critical assets in Malaysia as in other countries and should therefore be in the control of local companies.
A switch in ownership to foreigners, if not handled well, can have serious repercussions for the government. For a case in point, look at the infamous sale of telecommunications company Shin Corp to Singapore's Temasek Holdings, which cost the then Thai prime minister Thaksin Shinawatra his job.
Be that as it may, Asia Petroleum Hub Sdn Bhd (APH) does not fall into the critical asset category. In 2005, the Ministry of Transport gave the company the rights to develop a petroleum hub and bunkering facilities on an island off the Port of Tanjung Pelepas (PTP). In return, APH was to get a 30-year lease to operate the facilities.
The project was supposed to have been completed in 2009, but it has been hit by delays and cost overruns due to stabilisation works on the reclaimed island.
In January 2009, CIMB Bank Bhd, which is owed RM1.01 billion by APH, suspended its funding for the project. Managing contractor ZAQ Construction Sdn Bhd, which needs to be paid RM473.6 million, worked on the project for a year before calling it quits.
The project is now 60% completed and needs another RM1 billion for completion. At the moment, without a lease on the land and a half-completed project, the only value in APH is its rights to develop the island into a petroleum hub.
So, it's easy to understand why CIMB, in a bid to recover its money, plans to sell the development rights held by APH to the highest bidder. The idea is for the new owner to inject fresh funds into the project and complete it, and for CIMB to get back what it loaned.
Towards this end, PricewaterhouseCoopers, the receivers and managers (R&M) appointed by CIMB, has thrown open the doors and no less than eight groups, including some big foreign names, have picked up the documents and expressed interest in taking over the beleaguered project.
But to see the sale through, the Economic Planning Unit (EPU) has to allow a change in the shareholding of APH.
But this is becoming a sticky point, probably due to the heavyweights staking their claim on APH.
But since the original shareholders failed to deliver, a shareholding change should be allowed. CIMB, a secured creditor, and ZAQ Construction, an unsecured creditor, should be allowed to recover their money.
But in the case of APH, it does not seem that simple.
While CIMB and PwC are grappling with problems with regard to the approval of a change in shareholding, PTP is seeking to stop the banker from stripping APH of its rights to develop the petroleum hub and bunkering facilities.
PTP, which is controlled by Tan Sri Syed Mokhtar Al-Bukhary, holds the view that the project and the property — the reclaimed island — cannot be divorced.
In essence, the rights to develop the island as a petroleum hub should come with ownership of the island.
PTP has long staked a claim on the island on the grounds that it is located in its concession area and that the island forms an integral part of the second phase of its expansion.
But the Cabinet under the regime of former prime minister Tun Abdullah Ahmad Badawi had given APH the development rights on the grounds that the government had paid RM100 million for the reclaimed island and that the Federal Commissioner of Land held the title.
CIMB extended the loan after the MoT gave the project its approval, and the contractor went about its job.
The primary shareholder of APH is KIC Oil and Gas Sdn Bhd, which holds 90% equity interest in the company. The remaining 10% is held by Trek Perintis Sdn Bhd, a company linked to Umno. However, after KIC defaulted, CIMB — via the R&M — effectively took over the project.
But it is a bank, not the operator of a petroleum hub. So disposing of the rights is probably the best way for it to recover its money.
From the response so far, APH does not lack suitors. But pricing is an issue, especially for the local companies.
Based on documents filed in court, the amount spent on the project is close to RM1.5 billion. Is any local entity prepared to fork out that much for a project that is half-completed?
Once it is taken over, the project may cost even more than anticipated. Is any local company prepared for such a risk? Highly unlikely.
However, foreign investors may be willing to cough up the cash to get a toehold in the local oil and gas industry.
The thing is, will the EPU allow foreigners to hold a significant stake in APH? And, can local companies match what the foreigners are willing to pay for APH?
In 2000, Tan Sri Tajudin Ramli reportedly found suitors for his 29.9% stake in Malaysian Airline System Bhd. The government, under the then prime minister Tun Dr Mahathir Mohamad, however, considered MAS a strategic asset and, eventually, the stake was taken up by Khazanah Nasional Bhd. The taxpayers are still paying for that folly.
Hopefully, the same will not happen in the case of APH.
Although it is a privatised project with the EPU holding the right to determine its shareholding, APH has been funded on commercial terms. So the creditors, secured and unsecured, should be allowed to have a commercial settlement to recover their money.
M Shanmugam is deputy editor-in-chief at The Edge. This story appeared in The Edge on Sept 10, 2012.