MGG Pillai Commentary View

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An arrogant self-inflicted trade war with India and China

MALAYSIA IS AMIDST AN arrogant self-inflicted trade war with India and China. In a public tit-for-tat, New Delhi has cancelled road building contracts to two Malaysian companies -- a dozen more could follow -- banned Malaysian companies from tendering for Indian projects, and put on hold Malaysian Airline System's request for additional flights and destinations in India. The Indian High Commissioner in Malaysia, Mrs Veena Sikri, recalled to New Delhi for consultations, has returned, with no settlement in sight. India has made it clear, in public statements, that it does not need Malaysian contracts to survive. As a result, Malaysia stands to lose billions of Ringgit. China reacted differently but which puts Kuala Lumpur in a vulnerable tight corner: it quietly refused to accept five shiploads of palm oil that landed in Chinese ports amidst this row on the grounds that it was contaminated.

Malaysian palm oil is of a standard other nations emulate. To be now told it is not by a major purchaser puts the whole trade at risk. Since it is contaminated, it cannot be brought back. The companies that supplied it have lost hundreds of millions of ringgit. If market talk is correct, the Malaysian cabinet discussed this at its first meeting in November. If Malaysian palm oil cannot be sold because of a deliberate unilateral rewriting of the rules of international business, just as a general election beckons, and palm oil is the life blood of many a rural worker, the panic in the governing National Front (BN) is not surprising.

But it reveals yet again the diplomatic, commercial, political, and international disasters of the Mahathir epoch. His successor, Datuk Seri Abdullah Ahmad Badawi, has to speedily repair the damage and bring back Malaysia's respect for international conventions. Almost every action Pak Lah took on assuming office on 1 November 2003 was to neutralise Tun Mahathir and his charmed circle, and repair the damage his administration caused. Until the last possible minute, Mahathir insisted on making decisions he wanted his successor to announce. His acolytes, cronies and hangers-on, fearing the loss of the gravy train that enabled them to live happily in debt, begged him, at the last possible moment, to forget about retirement, and carry on regardless. The hostility between the two men and their backers is so complete that Pak Lah now takes petty decisions to target individual members of the Mahathir coterie.

The biggest disaster, and one that would redound on Malaysia years after it is resolved, is this fiasco of the railway double-tracking and electrification contract, part of a multi-nation project with the aim of a Trans Euro-Asia railway which would run from Singapore to Europe via Kunming in China and Siberia in Russia. Malaysia signed a memorandum of understanding (MoU) with India and China in 2001 for the electrified double-tracking of railway lines in return for payment in the purchase of an equivalent value in palm oil. The Indian MoU was witnessed by the two prime ministers, that with China by the then deputy prime minister and now prime minister. In mid-2002, the Malaysian government gave letters of intent to the Indian Railway Construction Company (IRCON) and the China Railway Engineering Corporation (CREC), both government agencies. IRCON had the northern section - from Ipoh to Padang Besar - and CREC the southern - from Seremban  to Johore Bahru. They submitted a total bid for RM42 billion for 636 kms of double-tracking and electrification after a detailed study.

A few months ago, before the award, a new bidder arrives on the scene: a hastily cobbled MMC-Gamuda consortium led by Tan Sri Syed Mokhtar al-Bukhairy. It submitted a bid of RM14.5 billion, without undertaking detailed studies or what the project entails. On Monday, 20 October 2003, the second minister of finance, Datuk Jamaluddin Jarjis, called in the IRCON and CREC representatives, told them of the new bid, and wanted them to reduce their bids. No, he would not give it in writing. But if they wanted to be in the running, they had better consider it. He gave no reasons, nor respond to why the KTM general manager and the former transport minister, Dato' Seri Ling Liong Sik, had said the two companies would sign their contracts "soon". Mysteriously and without notice, control of the project shifted from the transport ministry to the finance ministry. IRCON and CREC reduced their bids to RM24 billion, then RM20, and on Wednesday, matched the MMC-Gamuda offer. It was too late. On Tuesday, the finance ministry awarded the contract to MMC-Gamuda, the award papers delivered in the night, so MMC and Gamuda informed the Kuala Lumpur Stock Exchange the next morning.

The finance ministry has yet to announce the award. It allowed the successful bidder to do so. Why? The transport ministry, which had overall charge of the project was not informed and knew of it after the fact. Was Pak Lah aware of the mess? He was informed by one of the two ambassadors involved who wrote to him before he took over. He could do nothing at this late stage. He had other problems on his mind, including if he would take over. But Datuk Jamaluddin has much to answer for. He was brought into the finance ministry for his stalwart service when, as chairman of Tenaga Nasional  Berhad [TNB], he rescued the Mahathir children from bankruptcy. TNB has ordered a wide-ranging internal inquiry on its board's misuse of fiscal authority under his chairmanship. When push comes to shove, he would be forced to account for his role in this needless trade war with India and China, especially if he believes he has a future in politics.

Besides the rules being bent at will, the emergence of the MMC-Gamuda consortium raises an interesting political conundrum. Was this, as those in the know insist, the last deal of the Mahathir epoch that has taken this country for an expensive ride these past two decades? The consortium has no record in electrified or double-tracking of railways, yet it produced a bid of RM14.5 billion without any serious look at what it entails. Why were the transport ministry and KTM Bhd, for whom this project is undertaken, sidetracked? Why were they kept in the dark? The MMC-Gamuda consortium has, on the surface, a Mahathir-Daim link: The MMC is controlled by a Mahathir crony, Tan Sri Syed Mokhtar; Gamuda is known in the business world as a Tun Daim Zainudin entity: its chairman is his nominee, his wife is a high official in the company. MMC-Gamuda should not be denied the project solely because it appears to be a crony consortium. Even IRCON and CREC would understand if MMC-Gamuda had submitted a detailed list after two or more years of investigation and study. It has done none of that. Since when Datuk Jamaluddin told IRCON and CREC to lower their bids he would not put it in writing, it is fair to assume the decision to award the project to MMC-Gamuda had by then been made. How else could the finance ministry award the project to the company two days later? It does appear IRCON and CREC have been taken for a ride.

Malaysia's international reputation is the major casualty. That it is done so cynically is inexcusable. With each passing day, the excesses of the Mahathir epoch are laid bare. And for all the Mahathir grandstanding, that came with a terrible price -- the loss of its financial, commercial, political, and international reputation. Much of it was kept away from Malaysians. His words replaced policy. His arrogance excusable -- so, it was explained to me, by one crony -- for the benefits it brought to the Malaysian economy. Malaysians would soon ask: What benefits? Dr Mahathir ran the government as haphazardly as his exit. Pak Lah will somehow sort this mess out with India and Pakistan. Would the Bakun hydroelectric dam now be built? Since China is a partner, with Tan Sri Syed Mokhtar, and this tit-for-tat continues, can one be sure? What is then the solution? Although Pak Lah says nothing can be done at this late stage, he would, in the typical Malay way. He would let it drag in for a few months, and then quietly remove MMC-Gamuda from contention, and look at the bids professionally. He needs time for that. India and China understand that only too well.

[This is my column in the latest issue of Seruan Keadilan, the official organ of the National Justice Party, which is out today, 18 November 2003]

M.G.G. Pillai
pillai@streamyx.com