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Author: Tan KW   |   Latest post: Mon, 22 Jul 2019, 11:05 AM

 

MAHB’s monopoly should not avoid scrutiny - Mat Rodi

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MAKE changes now or you will be replaced.

This was the urgent call made by Council of Eminent Persons chairman Daim Zainuddin to captains of government-linked companies (GLCs) when he was interviewed by a local media.

What is the best way to measure the performance of a GLC? Can it be measured solely based on its financial statement? This method may give an unfair advantage for GLCs that are making profit because they are a monopoly.

For instance, Malaysia Airports Holdings Bhd (MAHB) holds a monopoly in the airport management business, playing the role of airport operator in 39 airports all over the country. It is no wonder that this company has always recorded impressive financial reports with profit reaching RM237.1 million (2017) and RM727.3 million (2018).

 

However, this does not mean that MAHB can get away from being scrutinised by the government. In fact, there are so many other aspects which are not limited to only profit that should be expected from MAHB considering the strategic role it holds.

Airports’ strategic role

This is in line with what was stated by Khazanah’s managing director Shahril Ridza in his speech at the Perdana Leadership Foundation CEO Forum last week.

“Khazanah’s strategic role in the GLC industry, which is in regulated industries such as Tenaga Nasional Bhd, Telekom Malaysia Bhd and MAHB, is to develop technologies and industries which are important to the country,” he said.

For the record, Khazanah is the largest shareholder in MAHB with 33.2% shares. What is Khazanah’s real objective as the largest shareholder?

 

The real value is the multiplier effect on the economy through the number of tourists and their dollars, Shahril said when asked about Malaysia Airlines’ losses.

“The multiplier effect on the economy is between 8 to 10 times based on their (tourists) spending in the country.”

MAHB and the tourism industry

Because to this, among the strategic roles that MAHB can take is to turn Kuala Lumpur into an Asean air travel hub because it is closely related to the country’s tourism industry.

This agenda becomes even more important when the data on foreign visitors coming to Malaysia for 2018 showed a 0.4% drop, whereas there was an increase for other Asean countries, such as Vietnam (+29%), Indonesia (+22%), Thailand (+9%) and Singapore (+6%).

This matter is also supported by economists.

“One of the best development narratives for Malaysia is tourism,” said Maybank Kim Eng senior economist Chua Hak Bin.

Thus, the tourism minister, Khazanah and MAHB should take this matter seriously since the tourism industry contributes RM20 billion or 14.9% to the country’s gross domestic product, provides 23% to Malaysia’s employment, and creates an investment amounting to RM21 billion.

Is MAHB in the best position to deal with this situation? Can the New Malaysia depend on this entity which is in Khazanah’s portfolio to fulfil the strategic role for them, apart from only delivering a positive financial statement?

A more important question is: how will MAHB compete without the government’s protection while also taking into account the Pakatan Harapan government’s agenda to minimise corporate monopoly in the market?

MAHB needs to be revamped

Looking at the governance structure as well as the rules and procedures in MAHB, there are a few things that need to be focused on.

Firstly, MAHB’s board of director structure needs to be reshuffled. The era where most of the directors in the MAHB board are also the chairman or a member of the board of directors in subsidiary companies has to end.

What happened to the Federal Land Development Authority (Felda) board of directors should not happen in MAHB.

Before 2017, Felda had a number of directors who were also part of the Felda Investment Corporation (FIC) and Felda Global Ventures (FGV) board of directors. In fact, the Felda, FIC and FGV chairman are all the same person.

Because of this, some of the investment decisions were criticised heavily and a few cases of abuse of power were reported to the authorities.

Of course, there is no financial scandal or even abuse of power in MAHB. Nevertheless, it is better to prevent than to cure.

At the moment, there are some MAHB directors who are also chairman of a few subsidiary companies.

They are Zalekha Hassan (chairman of Malaysia Airports Consultancy Services Sdn Bhd), Rosli Abdullah (chairman of KLIA Aeropolis Sdn Bhd), Mohamad Husin (chief technology officer of Teknologi Wawasan Sdn Bhd) and Jamilah Hashim (chairman of MAB Agriculture-Horticulture Sdn Bhd).

Furthermore, the demarcation of position and roles within the members of MAHB’s board of directors and its subsidiary companies will ensure the integrity in decision making. Based on this, the decisions can’t be questioned because they were made with MAHB’s best interest in mind.

Board of directors or management?

Secondly, archaic rules and procedures in MAHB which are regressive should be changed.

It is a known secret in MAHB that its CEO is only given power to sign off any letter of award that is worth RM5 million or less. It is a very uncommon practice for a billion-dollar company. Or is this because the board of directors do not trust their CEO?

Furthermore, archaic procurement process that is guided rigidly by the government’s standards has resulted in tender processes going more than nine months to be floated. This explains why until today there is still no work done to replace the “aerotrain” and luggage management system in KLIA even though many complaints have been received.

Also, how are these procedures helping KLIA and klia2 to stay ahead in terms of technological aspects compared to Singapore’s Changi Airport?

Taking into account that MAHB is one of the biggest counters in Bursa Malaysia, this issue shouldn’t take place because it is apparent that it will disturb the company’s operations. This also gives a clearer picture that the board of directors are actually the ones “managing” the company and not the management.

Why are these issues brought up? And what are their connections with tourism and monopoly?

KLIA is being left behind

The answer is simple – MAHB is not ready to face competition in the open market. Without MAHB being competitive, it is hard for us to see the main airport like KLIA become the Asean champion and air travel hub in this region.

But should MAHB change and try to dethrone Changi, Jakarta and Suvarnabhumi if the current business model still promises profit? Maybe.

The fact of the matter is that airports with less connectivity, poor facilities and outdated technology will not be able to attract more tourists into the country.

Skytrax World Airport Awards 2019 report placed KLIA at the 54th spot, compared to the second place in 2001. (Changi was at the number one place for the sixth time.)

However, KLIA had an answer for this.

MAHB in a statement said: “The cross-subsidy model used is needed to cover for the operating losses in 32 other airports because only seven airports have made profit.”

Burden on taxpayers

Maybank Kim Eng Securities associate director Mohshin Aziz pointed out that assorting and breaking up MAHB airports into clusters will enable operators to be more focused on the asset. This includes airports that are not profitable.

“An airport must be undertaken by an operator who is pro-growth, is dexterous and has a strategy in driving shareholder value,” he said.

The last thing Malaysia Baru needs is MAHB expecting various “protections” from the government in order to continue recording excessive profit through an operating agreement.

This includes the marginal cost support sum which allows MAHB to claim the difference in the passenger service charges (PSC) in comparison to any revision to the PSC rates. This excludes the PSC rates that had been increased due to klia2’s high construction cost.

These are all examples of how a monopoly can burden the people, thus requiring immediate changes. Therefore, it should be the additional benchmark to judge the performance of MAHB’s board of directors and its new head of management. – April 10, 2019.

* Mat Rodi reads The Malaysian Insight.

* This is the opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insight.

 

https://www.themalaysianinsight.com/s/146751

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