Pua: Justify security-labelling monopoly

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KUALA LUMPUR: The government must justify why it awarded a multimillion ringgit security-labelling contract for beer and liquor to Lembah Sari Sdn Bhd, which already owns a concession to print security labels for all local and imported cigarettes, without an open tender, said Petaling Jaya Utara MP Tony Pua.

Lembah Sari is controlled by Datuk Haris Onn Hussein, the brother to Defence Minister Datuk Seri Hishammuddin Hussein as well as cousin to Prime Minister Datuk Seri Najib Razak.

“I want to know what is the rationale for the government to award the contract to print security labels to this company that is owned by a brother of a minister via direct negotiations,” he said.

The concession award came to light after The Edge Financial Daily reported on Sept 12 that Lembah Sari had been awarded the contract to design, print, store, supply and distribute banderols (tax stamps) for liquor (including beer) between 2014 and 2019. The report, quoting the Royal Malaysian Customs Department website, said Lembah Sari received the letter of acceptance from the department for the concession on July 21. It added that the company will also supply the department with the authentication devices and provide them the necessary training to utilise them.

With the award, the daily said Lembah Sari would effectively monopolise security labelling for all locally produced beer and liquor, as well as, local and imported cigarettes, as it had also taken over the concession to print security labels for cigarettes from Kod Efisien Sdn Bhd in 2006, three years after Kod Efisien got it from the Customs department.

Both Kod Efisien and Lembah Sari had reportedly come under intense scrutiny following a Budget 2004 announcement that proposed the use of special stickers or banderols and security ink as precautionary measures to circumvent the smuggling of items.

It is not certain how the contract changed hands but the daily noted that the award to Lembah Sari at the time had raised eyebrows over how concessions were being awarded by the government.

“Is it because the company [Lembah Sari] was offering the lowest bid for the contract or has the expertise to do the job, or was the decision made primarily because it is the cheapest?” asked Pua.

“[Since] the company took over the contract for cigarettes, [it] started charging a higher rate of 11 sen for the use of each sticker,” said Pua, adding that this shows the use of security labels has only increased the cost for cigarettes and speculated that the same may happen to liquor in the future. He also questioned the efficacy of security labelling, particularly for cigarettes, because various reports have shown that smuggling activities on the product are still “extremely widespread”.

He said a report by the Royal Commission of Inquiry on illegal immigrants published in July last year showed that the government had incurred losses of RM1 billion each year due to the smuggling of cigarettes.

“This alone shows that the use of labels only increases the cost [of the product] and gives revenue to the company. It is unable to prevent illegal entry of cigarettes into the country,” he noted.

Hence, Pua suggested that the government should instead use the millions it pays out for these labelling contracts to source for other ways to combat the disturbing smuggling activities in the country.

This article first appeared in The Edge Financial Daily, on October 16, 2014.