Selamat Hari Raya Haji

 

What is MRT Corp’s Business Model

Mass Rapid Transit Corporation Sdn Bhd (MRT Corp) Annual Report 2021 shows that its RM56.66 bil accumulated losses supersedes that of the 1Malaysia Development Bhd (1MDB) and Malaysia Airlines.

MRT Corp which prides itself as a developer of Malaysia’s urban rail transport infrastructure incurred loss after tax of RM3.67 bil for its FY2021 ended Dec 31, 2021 (FY2020: RM8.94 bil; FY2019: RM7.3 bil).

Interestingly, the Finance Ministry (MOF)-owned entity behaves like many other government-linked companies (GLCs) in that despite being in the red since FY2016, its financial state does not seem to affect the remuneration of its top brass.

Its key management personnel compensation rose 31% (or RM610,000) to RM2.57 mil from RM1.96 mil previously. The fees and other remuneration for its directors climbed to RM469,000 (FY2020: RM354,000) while that of other key management personnel – namely, group CEO, group chief commercial officer and group chief financial officer – jumped to RM2.57 mil (FY2020: RM1.96 mil).

The first line to be implemented by MRT Corp was the 46km Kajang Line (previously known as Sungai Buloh-Kajang Line) which runs through the city centre of Kuala Lumpur to Kajang. The line was fully operational in July 2017. (Currently, the line may not meet operational costs)

Prime Minister Datuk Seri Ismail Sabri Yaakob launched Phase One of the 57.7km Putrajaya Line (previously known as the Sungai Buloh-Serdang-Putrajaya Line or MRT2) which runs from Kwasa Damansara to Kampung Batu while Phase Two which will cover the remaining line is expected to be operational in January 2023. (Our former PM Najib Razak was guest of honour before the PM launched the line).

On March 7, MRT Corp chairman and director Datuk Wira Azhar Abdul Hamid was reported to have resigned as chairman and director after having “a difference of opinion” on the implementation of the MRT3 Circle Line project. This line will cost approximately RM1 billion per kilometre or RM50 billion under current estimates.

MRT Corp is not a profitable entity and will never be (if it follows its current mode). Its business model is to be a government “parasite” – not self-sustaining and surviving because of Government grants, loans or subsidies. Urban rail is not a profitable venture unless you have cross-subsidy from other sources like property development. This is the Hong Kong (MTR) model. We could copy them and make the burdensome, government guaranteed loan partially reduced. But MRT Corp has not indicated its plans for property development or how it will sustain itself. Operationally it is difficult to meet both operational costs and debt repayment. To have a fare-box ratio of over 1.0 will be ideal. But nothing of that sort is mentioned by the CEO except to explain Najib’s tweet was the reason for his exclusive trip on the MRT 2!

We need transparency on its operations, a plan towards being self-sustaining and an accounting of all grants, loans and subsidies. Is this not the Rakyat’s money or is Najib paying for it?

Reference:

Is MRT Corp’s ballooning accumulated losses part of its investment strategy? Cheah Chor Sooi, Focus Malaysia, 21 June 2022

Turkey’s Hyper Inflation: A Case for Us?

Turkey’s official inflation rate spiralled to nearly 70 percent in April (hyperinflation is 50% increase in prices per month) - unconventional economic policies are reasons for the economic turmoil. The consumer price index rose by 69.97 percent year-on-year in April compared with 61.14 percent in March, the national statistics agency said on Thursday.

Erdogan insists that sharp cuts in interest rates are needed to bring down soaring consumer prices, flying in the face of economic orthodoxy. The collapse of the lira has pushed up the cost of energy imports and foreign investors are now turning away from the once-promising emerging market.

Source: https://www.dailysabah.com

Russia’s invasion of Ukraine and the coronavirus pandemic have exacerbated the energy price spikes and production bottlenecks. Analysts say Turkey’s annual inflation rate, the highest since Erdogan’s ruling AK Party stormed to power in 2002, is largely linked to his unconventional economic thinking. Erdogan has put pressure on the nominally independent central bank to start slashing interest rates. In April, the bank kept its benchmark interest rate steady for the fourth consecutive month, bowing to pressure despite high inflation.

The biggest price increases in April were in the transport sector, standing at 105.9 percent, while the prices of food and non-alcoholic drinks jumped 89.1 percent.

The Turkish currency has lost 44 percent of its value against the dollar last year and more than 11 percent since the start of January.

Erdogan’s government has responded by using state banks to buy up liras in a bid to cut the currency’s losses. There is also speculation that the central bank sells dollars (USD2.5-3 bil) through back channels to stem the lira’s slide.

Erdogan, who faces a crucial presidential vote next year, has also shifted policy to mend broken alliances with cash-rich Gulf states to draw financial support.

What can we learn?

To stem inflation, orthodox, boring economics is the only way – and by the way, raising interest rates is not un-Islamic! How can one say interest rate is riba and yet have a modern economy operating in a hyper-inflationary environment? If you are so inclined to be on a Islamic footing, please remove all vestiges of “western” economic thinking and use terminology that befits Islamic thought. This dual economy running parallel of each other – with hyperinflation in its midst is actually un-Islamic from my point of view. Have one or the other! Erdogan wants both and makes a mess of both.

The other is not to have politicians or religious mullahs pronouncing economic diktats – no sane central banker or economist can survive.

A once thriving, modern economy is now becoming the “sick” man of Europe – a label it had before WW1. May we learn to distance ourselves from narrow, blinkered views!

Reference:

Turkey’s inflation rate soars to almost 70 percent, Aljazeera News, 5 May 2022

Jihad on Inflation?

Can the public recalibrate their spending and consumption as Malaysia reported its highest food inflation in over a decade in May, with economists projecting further increase in food bills?

In May, Malaysia recorded a 2.8% year-on-year (y-o-y) increase in the consumer price index (CPI), which measures inflation. The rise was on the back of food inflation which rose to a new high of 5.2%, the highest since November 2011.

Within the sub-group of food, price increases exceeding 5% were for vegetables (8.1%), milk, cheese and eggs (8.0%), chicken (13.4%) and meat (9.5%).

Meanwhile, Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz had said the consumption subsidy expenditure of RM77.3bil so far for 2022 is the highest subsidy in Malaysia’s history. The projected consumption subsidies cover petrol, diesel, liquefied petroleum gas (RM37.3bil), cooking oil (RM4bil), flour and electricity to reduce the people’s cost of living, and subsidy bills (RM9.7bil), excluding welfare aid from 2018 to 2022.

Although many have suggested the subsidies remain in the short-term but consumers need to re-balance their personal expenditure. Cooking at home and making diet changes may help. But what if you are already on rice and sardines, what more adjustment could you do unless you skip a meal? Others have suggested that a poor person takes on an additional job, and what if you are already on two jobs – cashier and night security?

Some say grow your own food like ulam, carrots, lady’s finger, cabbage or long beans. Still, others suggest rear freshwater fish like catfish. And if you only have a room in an apartment, how do you do all this?

Lifestyle changes can be for likes of former PMs but they don’t need to with all the wealth they have! It is the poor who will suffer.

On the supply side, the Government has to find solutions to our net food import of RM55-60 billion a year. More land has to be made available, and not confiscate or revoke temporary land titles of vegetable farmers, as in Perak.

Meanwhile, the Government has set-up a special committee to wage “Jihad” on inflation. Jihad normally ends up killing the jihadists and/or the persons intended to be killed. It is better to set-up a hara-kiri committee on inflation, that may actually reduce the number of mouths to feed?

References:

It’s inflation crunch time, Be ready to fork out more to eat out, Ragananthini Vethasalam, Iylia Marsya Iskandar, Wani Muthiah and N. Trisha, The Star, 29 June 2022

Govt sets up committee to wage “jihad” on inflation, FMT Reporter, 29 June 2022

Malaysia: Wider Fiscal Deficit in 2022

 Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz recently said the projected consumption subsidies for this year will cover petrol, diesel, liquefied petroleum gas (RM37.3bil), cooking oil (RM4bil), flour and electricity to reduce the people’s cost of living, and subsidy bills (RM9.7bil), excluding welfare assistance from 2018 to 2022.

Added to other assistance such as social welfare assistance, including Bantuan Keluarga Malaysia (RM11.7bil) and other subsidies (RM14.6bil), he said the total subsidy so far is RM77.3bil for 2022.

On a separate note, FITCH Solutions Country Risk & Industry Research has revised upward Malaysia’s fiscal deficit forecast for 2022 to 6.5% of gross domestic product (GDP), from 6.3% previously.

While government debt had fallen slightly to 63% of GDP in 1Q 2022 from 63.4% of GDP in 4Q 2021, Fitch Solutions continues to expect the overall debt load to rise over the course of 2022, especially in light of the wider fiscal deficit that it now expects in 2022.

Public Debt Near Limit

Malaysia- Government Debt and Debt Limit, % of GDP

Fitch Solutions said it has revised upward its Malaysia’s revenue forecast to RM256 bil (15.2% of GDP) from RM234 bil (14% of GDP) previously mainly to account for the boost to revenue collection from higher average oil prices. Real GDP growth forecast is revised downward to 5.2% for 2022 from 5.6% previously.

On the same note, Fitch Solutions has also revised up its expenditure forecast for 2022 to RM364 bil (21.7% of GDP) from RM334 bil (21% of GDP) previously in order to reflect the Government’s additional spending on fuel and food subsidies amid rising prices in order to maintain the purchasing power of its citizens.

Subsidies are important to stem inflation. But this is a short-term measure. So, Government needs to plan a “weaning-off” period for stated subsidies in a recovery phase. Also, the Government has to be transparent on subsidies or grants to GLCs like MRT Corp, Prasarana, MAS and others. These are other leakages that need to be addressed, in order for deficits to be turned into surplus!

References:

Malaysia to see wider fiscal deficit in 2022 amid heavy subsidies, Cheah Chor Sooi, Focus Malaysia, 24 June 2022

Rising cost for stable prices, Eugene Mahalingam, The Star, 28 Jun 2022

A Few Good Men (and Women)?

Every day we hear tragic and distressing news of our moral decline. Corruption at the highest levels – a former PM, a party President, heads of GLCs or PLCs, bank CEOs or even a former Chief Secretary to the Government.

In the 60s and 70s, the hallmark of this nation (Malaysia) was its integrity. People were less conscious of religious practices and more tolerant of each other. With each passing decade, there is more religiosity but less moral fibre. Otherwise, we will not have 1MDB, FGV, National Feedlot, Caely, Sapura, Serba Dinamik and many others.

Source:https://www.integritysolutions.com

Then there are others who receive remuneration in the millions even though their companies (government or private) are going through distressing times. Workers are laid-off, branches closed, planes sold and write-offs made but they are well-off. Is that integrity? Is that right?

Next we have students who plagiarise assignments and essays. And this is in both public and private universities. Lecturers have to “tutup mata” and pass them. Exam questions are leaked for special groups. Exam markings have to be compromised because there is a KPI to meet or the Dean of school cannot have too many failures – bad for “marketing” to future, prospective students!

We have universities with courses on integrity, we have a National Integrity Institute, we have National Integrity Plan and we have integrity units in all major organisations including the Police! We even had a Minister for Integrity – who was formerly heading Transparency International – Malaysia. (He was vocal while in the private sector but became a “church mouse’ in the Government)

Is our system a facade of righteousness? With Jakim and others looking out for dress code, gaming activities, cinemas, bars and pubs as if corruption is permissible. In fact, one religious group views corruption as “rezeki”. Many of the religious “right’ make great speeches, provide talks or have townhouse meetings on integrity.

When there is no fear of God, we are white-washed tombs. No matter how many times you make your way to a holy site, you remain a sinner. Sins are not cleansed by pilgrimages but contriteness of heart and genuine turning away from wrongful acts or associations. God sees our hearts not our outward piousness. God is not a fool, He can see us through. It is us who fake outward appearances to “fool” ourselves, our friends or general public.

It takes a few good men (and women) to change this landscape of moral decay. We have to hope and pray that more will join an “Integrity Movement” to change society like Bersih in May 2018. May God have mercy on us!

“Are you not ashamed of your eagerness to possess as much wealth, reputation and honours as possible, while you do not care for nor give thought to wisdom and truth, or the best possible state of our soul?” 

-Socrates

Are Russian Foreign Reserves Frozen?

Despite Western sanctions, 35.5% of Russia's reserves has remained accessible in the country or in China, according to data compiled by Anadolu Agency. Western nations have frozen access to approximately half of the Russian central bank's reserves. The Russian central bank reserves stood at $643 billion as of Feb. 18. While 21.7% of the reserves are in Russia as gold, 13.8% are being held in China. Around 12.2% of Russia’s foreign exchange reserves are in France and 10% in Japan, while 9.5% are held in Germany and 6.6% in the US. 

Another 5% of the reserves are in various intergovernmental organizations and 4.5% in the UK. Austria holds 3% of the reserves, with 2.8% in Canada and the remaining 10.7% in undisclosed countries.

After Russia’s annexation of Crimea in 2014, Moscow stepped up measures to make less use of US dollars in order to protect itself from risks in economic and global trade. The share of US dollars in Russia's foreign exchange reserves fell to 16.4% in the first half of 2021, from 22.2% in the same period in the previous year, according to Russian central bank figures. Last July the Russian Finance Ministry announced that the share of US dollars in the country's national wealth fund had been reduced to zero.

The US and its allies agreed to remove certain Russian banks from the Society for Worldwide Interbank Financial Telecommunication, known as SWIFT, a global financial transactions and payments system used between banks worldwide. Russia’s central bank introduced the System for Transfer of Financial Messages, SPFS, an alternative financial transfer system against the possibility of getting excluded from the international SWIFT system. This is only popular within Russia.

What lessons can we learn?

Just as Russia, it is prudent to have Malaysia’s reserves in other currencies beyond the USD. It is also prudent to maintain such reserves in different financial markets. And, hopefully, we may not have problems like Russia. The era of the USD as the world’s reserve currency may end with emergence of other countries and currencies.

Reference:

Around 35% of Russia’s accessible reserves in country, China, Emre Gurkan Abay, 1 March 2022 (https://www.aa.com.tr )