KOTA KINABALU: A former banker has come out in support of a Sabah state government decision that has stymied a proposed takeover of Sabah Forest Industries (SFI), which is Malaysia’s largest integrated pulp and paper manufacturer.
The company is also the state’s largest timber concessionaire with over 288,233ha of land in the districts of Sipitang, Beaufort and Tenom, the largest concession owned by a single entity.
In a letter to FMT, former banker John Lo said he believes the state government is taking the right decision in insisting that Sabah Forest Industries be owned by a paper and pulp operator instead of a greenhorn to the industry.
The company has been the subject of a proposed takeover by Pelangi Prestasi Sdn Bhd, a private company linked to tycoon Syed Mokhtar Albukhary.
SFI was 98% owned by Ballarpur Industries Limited of India, the largest writing and printing paper maker in that country. However, it is now in receivership.
Lo said that if Ballarpur Industries could not make SFI profitable, there is little chance that a newcomer to the industry could do better.
He said SFI had little to show despite its huge timber concession, because of mismanagement by the government and previous owners.
“The Sabah government would have revenue details of SFI for all these years. I am quite certain it is not all that impressive. It has generated employment for more than 1,000 people. But how many are Sabahans and how many of them are in senior management posts?
“It has generated little downstream business opportunities and has done much less in creating a global brand to put Sabah on the world map. There has been little transfer of technology.”
Lo said any company wishing to succeed in running SFI would need ample financial resources, up-to-date expertise in marketing, operations and in-depth knowledge of forest and tree planting management.
This would allow SFI to have a sustainable supply of raw materials for its operations.
“There aren’t many companies which have this sort of A to Z expertise and financial resources to do that,” he said.
In terms of investor confidence, Lo believed that Sabah would be better off if the government can be seen as being professional and business friendly.
Approval without due diligence and capacity assessment of the investors will give the wrong message that Sabah is lax and desperate, he said.
Another issue that concerned him is the practice in Sabah that the chief minister of the day can cancel or change conditions for timber licences, subject to the provisions of pertinent laws.
Lo said this had been the practice when there was a change in chief minister and, more so, a change of government.
“This happened when Berjaya took over from Usno, PBS from Berjaya, and during the period of the rotation of chief ministers of the BN government,” he said.
Lo hoped the recent cancellation of the sale and purchase agreement, for the purchase of SFI by Pelangi Prestasi Sdn Bhd, was because the government is looking for a paper and pulp expert and not simply because of the practice of cancelling timber licences pre-approved by the previous government.
Last week, Pelangi Prestasi was reported to have filed a suit against the Sabah government, SFI’s receiver and manager Grant Thornton Consulting Sdn Bhd, China pulp and paper company Lee & Man Paper Manufacturing Ltd, and SFI.
Lo pointed out two major points relating to changes made by Chief Minister Shafie Apdal after the 14th general election.
The first was the new condition for the takeover, in which the state government insisted on paper and pulp expertise. Pelangi Prestasi is not an existing paper and pulp operator, Lo said. The second point was the state government’s decision to reject the issuance of fresh timber licences to the company.
“Is it the right thing to require paper and pulp expertise? In my humble opinion, this is the very least I would look for if I am the chief minister.
“What benefits should Sabah look for from the new investor of SFI? Proven track records, strong financial, technical and market expertise, established market access, creation of downstream activities, experience in planting trees and, above all, meaningful employment in senior management and business opportunities for Sabahans.
He said any new owner of SFI should have proper capacity so that Sabah would benefit. “After all, the successful tenderer still needs the Sabah government’s approval for the timber licences,” he said.