This article first appeared in The Edge Malaysia Weekly on March 4, 2019 - March 10, 2019
THE latest in a long string of inflated acquisitions to be investigated is Lembaga Tabung Angkatan Tentera’s (LTAT, or Armed Forces Fund) takeover of the Automated Enforcement System (AES) project. Although the original cost of the project was RM40 million, it was taken over for RM555 million, or almost 14 times the cost.
Last Friday, the Ministry of Defence filed a report with the Malaysian Anti-Corruption Commission (MACC) for the latter to investigate and identify the persons responsible for directing LTAT to take over AES.
Mindef also forwarded the details and findings of an investigation committee on administration, procurement and government finance, headed by former auditor-general Tan Sri Ambrin Buang.
“The implementation of the AES project has mostly profited the concessionaires. The investigation committee also found (that) the former prime minister and some former Cabinet ministers (had been) more inclined towards their political interests … There are suspicions as to why LTAT had to pay a total of RM555 million to acquire AES whereas the original cost was RM40 million,” special duties officer to the defence minister, Rafizal Ali, said in a statement last Friday.
The Edge had highlighted the many problems with the AES in several articles, but the RM555 million takeover price tag begs explanation.
Briefly, the AES is an automated traffic enforcement system concession awarded by the government to two well-connected private companies, ATES Sdn Bhd and Beta Tegap Sdn Bhd, pursuant to two separate concession agreements executed in December 2011. The two companies were to establish and operate a network of AES cameras to monitor all federal roads, highways and expressways in Malaysia under a build-operate-transfer basis for a concession period of five years.
ATES secured the concession for Perlis, Kedah, Penang, Perak, Kelantan, Sarawak, Sabah and Labuan, while Beta Tegap was given the mandate for operations in Kuala Lumpur, Putrajaya, Selangor, Negeri Sembilan, Melaka, Johor, Pahang and Terengganu.
To recap, four years ago, on March 7, 2015, Boustead Holdings Bhd announced to the local bourse that the conglomerate, together with its 58.69% parent LTAT, was looking to take over the AES via the acquisition of a 50% stake in Irat Properties Sdn Bhd.
The acquisition was a related-party transaction as Irat Properties is a unit of LTAT.
Boustead had said at the time that the deal entailed it subscribing for 60 million new shares at RM2.13 apiece in Irat Properties, or a total of RM127.8 million, and subscribing for 550,000 redeemable convertible preference shares or RCPS of one sen par value in Irat Properties at an issue price of RM100 per RCPS, or RM55.5 million. This works out to Boustead paying RM182.8 million.
In a nutshell, after the subscription, Boustead had a 50% stake in Irat Properties, LTAT had 49.17%, while the remaining 0.83% was held by Irat Holdings Sdn Bhd.
Boustead deputy chairman and managing director Tan Sri Lodin Wok Kamaruddin is reported to have said, “This is part of our strategic thrust to strengthen our property division and improve the group’s earnings potential.”
Lodin was known to be a close associate of former premier Datuk Seri Najib Razak. He was also chairman of scandal-ridden 1Malaysia Development Bhd (1MDB) from December 2009 until May 31, 2016, when the Ministry of Finance took over the fund.
Lodin was also reported to have said that the Malaysian Institute of Road Safety Research had indicated a decrease in fatal accidents and a lower rate of summons issued in areas where AES was installed.
On Feb 27, 2015, just a few days before Boustead and LTAT took over Irat Properties, the company acquired 100% equity interest in ATES and Beta Tegap.
According to Boustead’s announcement in 2015, ATES’ directors were Foong Yook Seng @ Lawrence Foong Yook Seng, Norsiah Abu Asid, Abdul Hamid Sh. Mohamed, Michael Foong Ka-Meng and Chee Chwee Cheong.
Its shareholders were Traffen Force Sdn Bhd which had 60% equity interest and Commercial Circle Sdn Bhd, with 40%. According to news reports at the time, Tan Sri Abdul Aziz Mohd Yusof — who was Election Commission chairman from 2009 to 2016 — controlled 60% of Commercial Circle.
Meanwhile, ATES director Chee was one of the founders of Ethos Consulting, a reputable boutique advisory house when Barisan Nasional was in power. Others linked to Ethos included Datuk Omar Ong, who was on the board of Petronas, and Datuk Rohana Mahmood, the founder and chairman of RM Capital and director of AMMB Holdings Bhd.
Beta Tegap’s directors then were General (R) Tan Sri Nik Ismail Nik Mohamed, Toh Puan Rozana Redzuan and Dr Andreas Teoh. Its shareholders were Rozana with 42%, Teoh (30%), Nik Ismail (23%) and Yap Kim See @ Yap Ai Lin (5%).
Beta Tegap’s shareholders were said to have strong ties with Umno and the MCA in Johor.
As early as 2013, the AES project was known to be having problems. In August the same year, former acting transport minister Datuk Seri Hishamuddin Hussein had said that a government-owned company, AES Solutions Sdn Bhd, would be taking over the operation and enforcement of AES from ATES and Beta Tegap.
But it was only in 2015 that a government-linked body, in the form of LTAT and Boustead, stepped in.
Even when Boustead bought into Irat Properties, it was announced that ATES in FY2014 had incurred an after-tax loss of RM20.61 million and had consolidated net liabilities of RM47.12 million, while Beta Tegap incurred an after-tax loss of RM22.58 million, and chalked up consolidated net liabilities of RM32.8 million as at end-June that year.
According to news reports, only seven of a planned 404 cameras were operational as at March 2015.
There had been very little news on the AES until the Pakatan Harapan’s victory in the 14th general election last May.
In August last year, Transport Minister Anthony Loke said the government would cap the repayment to LTAT in its takeover of the AES project at RM555 million, and would not consider paying LTAT for other AES-related matters.
Loke also wrote off more than 3.1 million unpaid summonses, worth about RM435 million, issued under AES.
Just a day before Loke’s announcement on the cap, former LTAT chairman Tan Sri Mohd Anwar Mohd Nor said the previous BN administration had proposed to take over the AES project from LTAT in November 2017 and the agreed takeover cost exceeded RM555 million, which was LTAT’s original cost of investment to take over the project from the two private companies.
Anwar pointed out that the full agreed takeover price for the project by the BN government then, via the Ministry of Finance, was LTAT’s full investment costs, plus a “12% return per annum” for the two and a half years that LTAT owned it. He said any amount less than what had been agreed upon would be unfair to LTAT.
Loke had said the takeover agreement between BN and LTAT was lopsided.
It was also reported last year that the AES system was suspended three months after its implementation in September 2012. A directive from the Attorney-General’s Chambers suggested the suspension was due to “technical” reasons.
As compensation for the suspension, the government paid Beta Tegap and ATES a total of RM500 million.
With the MACC investigation, perhaps there will be more clarity on the AES saga and LTAT’s RM555 million investment in it.
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