Monday, April 14, 2008

Selangor to review joint-venture investments

(The Sun) PETALING JAYA (April 13, 2008): The Selangor State Government will review its joint-venture investments with private companies to improve its share of returns.

Mentri Besar Tan Sri Khalid Ibrahim said many of the joint-venture investments made by the state government and state-owned companies with the private sector were lopsided with the state owning only 30% of the business.

In an interview published in tomorrow's issue of the The Edge, Khalid cited property development as an example of one such area where such lopsided partnerships occurred.

"An entrepreneur who knows a bit about construction is given a JV. If the project fails, PKNS (Selangor State Economic Development Corp) will have to salvage it. They run away. If the project is successful, they earn 70%.

"When it comes to claims or disasters, it is the state that bears the brunt because many of our partners do not have the resources. They look at us as the backer of the last resort. But when the returns come in, they get 70% and we get only 30%.

"Somehow or other, in many of the JVs, we usually work for our partners as opposed to them working for us," he said when asked to elaborate on his recent proposal to "unwind" some of the state JVs with the private sector.

The former Permodalan Nasional Bhd CEO and later Kumpulan Guthrie Bhd CEO added that JV partners should share the risks and the rewards.

He believes the state can improve its revenue by re-looking the JVs and fine-tuning its assets and investments. By fine-tuning, Khalid meant improving the state administration and system.

"For example, in property development, the state can consider the option of selling or renting the land. As for liquid assets/cash, the state government can invest them on a longer term basis, if we don’t need to use the money in the short term. By doing so, the state’s return of 5% can become 7% ," he said.

Fortunately, Khalid added, state corporations have invested in areas they were familiar with such as property but they have not diversified nor fully developed their expertise.

"In a way it is good that they are conservative as this means that their assets are intact," he said.

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