Minimise the leakage

Defence budgets are usually generous, so there is good reason to watch the money closely in order to minimise leakages. Malaysia’s purchase of two Scorpene submarines for RM5.53 billion in 2002 generated keen interest in Parliament last week, after the first submarine, KD Tunku Abdul Rahman, arrived in the country on Sept 3.

Currently, defence procurement is handled by the Ministry of Defence’s Tenders Board and Procurement Division, while contracts above RM7 million have to be approved by the Ministry of Finance. Also, the legal conditions of the contract have to be sanctioned by the Attorney-General’s Chamber.

Parliament’s role is currently rather limited, and is mostly dependent on the Defence Minister’s willingness to answer queries. On the subject of the Scorpene submarines, Deputy Defence Minister Datuk Dr Abdul Latiff Ahmad cited national security concerns to explain why the submarines were not purchased via the open tender process.

The fact is that in several Asean countries, including Thailand, the Philippines and Indonesia, parliamentary committees scrutinise defence procurement. Singapore publicly calls for open tenders on defence contracts to get the best value for its money.

So, there is every reason for Malaysia to adopt a similar practice. The benefits, in terms of broader inputs, potential cost savings and more diligent attention to factors like compatibility, suitability for local conditions and the spin-offs in terms of capacity building in defence expertise are quite evident.

With enough practice, we could learn to avoid the costly mistakes of inappropriate purchases that were seen in the modernisation of the military in the last decade.

Lim’s monorail woes

It’s not easy to run an opposition-led state government. Penang Chief Minister Lim Guan Eng, who has earned accolades for his administation’s emphasis on competency, accountability and transparency, would probably have discovered that in his first three months at the helm of the state.

But Lim may not have envisaged the reaction he has got so far for a monorail test track project that the state has supposedly approved of in principle.

As soon as the news was out that a private company was planning a groundbreaking ceremony in December for such a test track in Batu Kawan, Penang, critics wasted no time sniping away at Lim.

Numerous questions were raised. Does the company have a track record? Did the state ask for proposals from other monorail players? Is the private company paying for the Batu Kawan land, and is there a time frame to get the project up and running?

So far, Lim has been silent on the subject and has not denied it.

His silence suggests a few things, one of which is that the consent given was merely for an agreement in principle. Another is that the proposal is still at its infancy and cannot be disclosed as yet.

Nevertheless, the test track has hogged the limelight for the wrong reasons. But it should not stop Lim or the state from embarking on such projects if the benefits are clear.

However, the exercise has to be done in a transparent and comprehensive manner. If other monorail developers are keen on setting up such a facility, they should also be given the green light. Stringent deadlines and milestones should be set, including a financial commitment from those interested.

It should be made clear that setting up a test track is not tantamount to getting the contract to build a monorail system in Penang, something that the state desires but the federal government has delayed for now. The perception that setting up a test track means getting a leg-up in the monorail project should be changed.

More value from open AP

According to Budget 2010, the government is going to charge RM10,000 for each open approved permit (open AP) from next year.

This is the first time that the government will collect some money from open APs. But is that all?

For one, RM10,000 per open AP doesn’t sound like a lot, especially when murmurs in the industry put the value at RM30,000, or even more.

And assuming that 15,079 open APs will be issued next year, the same as in 2004, the government stands to collect only RM150.8 million.

What’s more, according to the budget speech, a portion will be channelled back to the automotive sector’s bumiputera development fund.

Sure, it is difficult to ascertain the value of open APs, which fluctuates according to demand and supply.

But the best way to ensure that the government gets the most value from the open APs is through the open tender process. This will not only safeguard the government’s financial interest but will also create fair competition among the recipients.

Under the current system, those who are getting a big number of open APs stand to benefit as they would continue to be favoured, while those who have been getting a smaller number would lose out.

Hopefully, the government will announce more amendments or rulings to plug the loopholes in the open-AP system pending the National Automotive Policy review.

This article appeared in Corporate page of The Edge Malaysia, Issue 778, Oct 26-Nov 1, 2009