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Ensuring Sabah’s interest in SFI deal
Published on: Sunday, June 09, 2019
By: Datuk John Lo


A STAR newspaper headline on 1 June 2019 screamed “Tycoon in legal tussle over timber licences”. This, as stated in the STAR is related to “a civil suit against the parties and a judicial review application against the Sabah chief minister and the state government initiated by Pelangi Prestasi.”

Those wishing for details of this article may read:

https://www.thestar.com.my/business/business-news/2019/06/01/tycoon-in-legal-tussle-over-timber-licences/

The main players in this legal case mentioned in the article are [a] “Pelangi Prestasi Sdn Bhd, a company related to one of the richest bumiputras in Malaysia, Tan Sri Syed Mokhtar Albukhary.” [b] Sabah CM/Sabah Government. [c] SFI’s receiver and manager Grant Thornton Consulting Sdn Bhd. [d] China pulp and paper company Lee & Man Paper Manufacturing Ltd.[e] SFI [Sabah Forest Industry] which is 98pc owned by Ballarpur Industries Limited, which is the largest printing and writing paper group in India.

Before proceeding further, I understand that Grand Thornton’s call for tender has been mentioned in this legal case and is for the 2nd time, the 1st having failed. If this is true, it goes to show that disposal of SFI can be quite complicated and/or reluctance of potential bidders because of the less than rosy global market for papers and/or unattractive minimum tender price 

Not being a lawyer and not privy to the details [including behind the scene developments] of the case, it is not my intention to comment on its merits or otherwise in the legal sense. My intention is to highlight on where Sabah economic interests lie.

To put SFI and Sabah’s interest in perspective, it is pertinent for Sabahans to realize the land concession size of SFI. The total area is 288,233 ha with 276,623ha of forest reserve licenced by the Sabah government and 11,845ha of titled land owned by SFI. It is the single largest piece of land, more than 2 times larger than FELDA Sahabat which is about 125,000ha. 

Central to this case as far as Sabah’s interest is concerned are two major points by Pelangi Prestasi i.e. Changes that have been made by CM Shafie after the GE14. The first is that the new Sabah Government has set new conditions. “The state government is also said to have insisted on paper and pulp (P&P) expertise to be possessed immediately. Pelangi Prestasi is not an existing P&P operator”. The 2nd point being that Sabah state government’s decision to reject the issuance of fresh timber licences to the company.

Let us look at these two points from Sabah’s perspective.

Sabah’s biggest and most valuable asset is not oil/gas in the long term, for they can be exhausted. It is land. Sabah’s land is exceptionally fertile, far more than W Malaysia. However, Sabah has got very little out of land as a factor of production, very much less than its potential. There is no equity for Sabah. Majority and choicest land do not belong to Sabahans.

More than 90pc of oil palm don’t belong to Sabahans. It is not beyond imagination how wealthy Sabah can be if the hundreds of million profits from oil palm plantations stay in Sabah instead of being siphoned out. So many Sabahans remain poor. 

Then let’s focus on SFI. I have mentioned earlier SFI is the single biggest piece of land in Sabah [probably in Malaysia].

What have Sabah got from SFI? The PBS government failed to manage it profitably, sold it Lion Corporation, then it sold it to Ballarpur of India. The Sabah government would have revenue details of SFI for all these years. I am quite certain it is not all that impressive. It has generated employment of more than 1000, how many are Sabahans and how many Sabahans in senior management? It has generated little down stream business opportunities and much less creating a global brand to put Sabah on the world map. Little transfer of technology.

The other point to note is Ballarpur which is India’s largest print and writing paper in India with a huge domestic market and marketing/technical expertise, could not make SFI profitable. Within a few years, Ballarpur lost more than RM300 million and has been forced to close down SFI operation in 2016. What chance does “a new kid on the block” starting as a total stranger in this complicated industry?

For a company to succeed in SFI, it needs to have a very deep financial pocket, up to date expertise in marketing, operation and in-depth knowledge of forest and tree planting management for SFI to have sustainable supply of raw materials for its operation. There aren’t many companies which has the A to Z expertise and financial resources to do this.

Talking about investor confidence. Sabah will be better off if the government can be seen as being professional and business friendly. Seeking the right investor for SFI with the appropriate credentials is the correct way to go. Approval without due diligence and capacity assessment on the investor will give the wrong message that Sabah is lax and desperate.

One last point on the subject of timber license. It has been the practice in Sabah that the Chief Minister of the day can cancel and/or change conditions of timber licences subject to the provisions of pertinent laws. This has been the practice when there is a change of CM and more so, a change of government. This happened when Berjaya took over from Usno, PBS from Berjaya and during the period of CM rotation of BN government. 

Is it the right thing to require paper and pulp expertise? In my humble opinion, this is the very least I would look for this and many other things if am the Chief Minister [and I am not!]. What benefits should Sabah look for from the new investor of SFI? Proven track records, strong financial, technical and market expertise, established market access, creation of down-stream activities, planting tree experience and above all, meaningful employment in senior management, business opportunities for Sabahans.

Notwithstanding the ongoing tender being undertaken by Grand Thornton as the receiver and manager, it should take responsibility to ensure that the successful tenderer [if any] has the capacities that Sabah will benefit. After all, the successful tenderer still needs Sabah government approval for the timber licences.





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