As the 14th general election draws near, all eyes are on the Malay heartland. Ruling coalition Barisan Nasional (BN) will seek to retain its influence in those parts of the peninsula while opposition Pakatan Harapan will attempt to crack a very crucial voting bloc in its move to govern the country.
Many of these seats – both federal and state – consist of Malaysians working in oil palm estates or paddy fields. Some ply their trade along the coast as fishermen. During the last general election, the Malays from these parts of the country helped Umno increase its presence in parliament while providing a lifeline for component parties MIC, MCA and Gerakan.
Demographic shifts and scandals from once-trusted government agencies threaten to shift the balance of power, which used to be in favour of BN.
But this time – as it has always been – the battle for GE14 will be determined by a specific group of rural people: Felda settlers, the oil palm farmers who make up the majority of 52 federal constituencies.
When world’s second largest IPO crashed
To understand what’s at stake for BN, the first place to start is the year 2012 when Felda (the acronym for Federal Land Development Authority) wanted to be listed on the stock market through its wholly owned subsidiary Felda Global Ventures (FGV) Holdings.
It was known as the world’s second largest public offering after Facebook, and as it was able to raise RM10 billion, the listing was tipped to give the government a political dividend ahead of the 13th general election.
Initially, farmers resisted Felda’s listing ambitions. They feared the loss of control of an asset they had invested in for generations.
This sentiment has deep roots in the way the land authority is structured. Formed in 1956, the programme is a unique land resettlement initiative bringing poor families, particularly Malay families, to modern smallholder farming of agro-industrial crops for export. Initially, the focus was on rubber but that changed to oil palm to match global consumption.
So to convince the settlers in subscribing to FGV, the government sweetened the deal with windfall payments totalling nearly RM15,000 each, generated from a fifth of the IPO proceeds.
Out of the RM10 billion raised, Felda earned RM6 billion, and distributed a total of RM1.7 billion to the settlers. But things immediately went south: FGV lost roughly two-thirds of its value. Net income shrunk to double-digit millions – RM33 million as of 2016 – from the RM1.01 billion in 2013, a year after its market debut.
Felda lifer Zakaria Arshad was roped in as president and chief to help turnaround the company but a leadership crisis ensued when he was suspended following suspicious transactions. The letter was signed by Isa Samad, then Felda chairman. Zakaria’s forced leave of absence led to selldowns and downgrades of which FGV never fully recovered.
Zakaria was reinstated; Isa resigned after a series of investigations by the Malaysian Anti-Corruption Commission and was appointed as chairman of the Land Public Transport Commission, or SPAD, which also oversees billions of ringgit in various projects; and Umno strongman Shahrir Samad replaced Isa as Felda chairman.
This entire process cost Felda billions. By owning 33.67% of FGV shares – through direct ownership as well as Felda Asset Holdings Company – Felda has experienced RM2.3 billion in unrealised losses.
Also, there is a confusing series of statements from Shahrir regarding the revenue earned from the listing. Initially he said RM4.3 billion from the RM10 billion raised in 2012 is missing.
Then, he refuted the report, saying he had a list of how the RM4.3 billion was used, citing long-term investment, both locally and abroad.
Sturgeon farming gone wrong
After the FGV listing, Felda embarked on several questionable ventures between 2013 and 2016. In the Auditor-General’s Report 2015, among others, three failed projects stood out, all of which amounted to RM73.63 million in losses due to bad planning and execution.
In 2013, Felda mooted the idea to farm sturgeon for home-grown caviar and created Felda Carviative Sdn Bhd as the vehicle for the project. Wangsa Maju MP Tan Kee Kwong questioned the rationale of such a project in parliament, to which the government replied that such a project was undertaken for the best interests of Felda folk.
But the project failed to get an environmental impact assessment and never took off. But left in its wake was the destruction of 50 acres of reserved forest which were 1,500 years old. Today, the site is abandoned. But, in the process, two former Felda senior officers – Muhammad Sufi Mahbub and Faizoull Ahmad – have been charged with criminal breach of trust (CBT).
There was also an initiative to set up a “fresh and casual” restaurant called Savaro and a pastry factory that produced the “schneeballen” snowball dough. The A-G found both projects were unfavourable to Felda, costing it RM8.4 million and RM6.39 million in losses, respectively.
More underperforming subsidiaries and companies
And this theme of subpar ventures continues for a few more years. For instance, in 2015, it was revealed that four subsidiaries sustained losses of more than RM10 million.
These are: Felda Investment Corporation (FIC) Sdn Bhd (RM35.70 million); Felda Wellness Corporation Sdn Bhd (RM80.84 million); FIC UK Properties Sdn Bhd (RM16.69 million); and Felda Carviative Sdn Bhd.
(FIC is the investment arm of Felda and it receives funds from either Felda or borrowings from financial institutions.)
Then there are companies which Felda, through FIC, is the majority shareholder, such as Iris Corp, at 21% – making it the largest shareholder to date.
In January 2017, its deputy managing director Hamdan Mohd Hassan was arrested by the MACC for alleged graft and abuse of power involving an e-passport project for the Republic of Guinea. He has since retired.
To recap, Iris was the company which created the MyKad in 2001; it lost its contract in 2010. According to the Auditor-General’s Report 2012 Series 2, there were about 230,602 old versions of the MyKad that were returned to the company for replacement but only 188,634 (81.8%) were replaced. The remainder 41,968 cards had yet to be replaced even after the contract was terminated.
Eagle High and Peter Sondakh
Perhaps one of the more high profile controversies last year was the purchase of Eagle High Plantations by Felda from Indonesia tycoon Peter Sondakh’s Rajawali Group.
In April 2017, FIC Properties acquired 11.66 billion shares or a 37% stake for US$505.4 million or RM2.26 billion. The price per share paid to Rajawali was a staggering 95% premium to the closing price at that time.
Note that Felda made the purchase despite a due diligence report by auditor KPMG which found that Eagle High was entrenched in debt, had negative cash flow and also produced inaccurate financial statements.
Felda still went through with the deal and as of March this year, Felda experienced a paper loss of RM1.13 billion.
The suite life in London and Kuching
There’s more. Last year, SPAD chairman Isa was arrested by the MACC over discrepancies in FIC’s purchase of Park City Hotel in Kensington, London. The purchase was made in December 2014 and Isa was then chairman of FIC.
It is believed that FIC bought the London hotel for an inflated price of RM330 million or RM220 million more as the actual value estimated was RM110 million. Then, there’s the purchase of a luxury hotel in Kuching, Merdeka Palace Hotel & Suites, for RM160 million – believed to be RM50 million more than its actual value. According to a parliamentary reply last November, the case is still ongoing.
This was also the same year that FIC – under Isa’s leadership – was involved in an ownership transfer for prime land Jalan Semarak. This happened when FIC appointed Synergy Promenade as its main developer and was granted full power of attorney to develop the land.
Three men on the board of directors – Noor Ehsanuddin Mohd Harun Narrashid, Nik Azman Mohamed Zain and Omar Salim – were questioned by the MACC over the deal. These are the same men who were also questioned by the commission over the London hotel purchase.
Only Nik Azman remains on the board after Shahrir launched an intensive restructuring programme across all Felda subsidiaries.
But would all these matter to settlers?
According to the latest figures from the Prime Minister’s Department, the overall total debt of Felda settlers stood at RM4.99 billion. These consist of loans taken out for various purposes, from education loans to replanting schemes to FGV shares. The average settler has RM42,500 in liabilities.
If the losses (figures in bold) were tallied – including the paper losses as it is obvious that recovering that money is near impossible – then Felda blew away some RM3.9 billion over the span of six years by way of holding on to failing subsidiary companies, purchasing above-market-price properties and launching ill-fated ventures.
It’s a classic tale of a dysfunctional approach to corporate governance and strategy direction, as well as wasted public funds. It's also the usual narrative for politically exposed people. Isa Samad, for example, is an member of parliament and also an Umno politician. Despite his questionable history, especially while he was Felda chair, he was simply transferred to another government agency.
Question is, will these failures be effective in loosening BN’s grip over Felda settlers?
Mohamad Hisomuddin Bakar, founder of research outfit Ilham Centre, believes that while the settlers understand something is amiss, the effect is minimal, especially among the older generations.
“The settlers, even the older ones, know about what’s going on. Some of them may not grasp the nuances of, say, the Eagle High acquisition or even larger issues such as 1MDB, but they do know that there is some sort of scandal or mismanagement.
“But from my observation and studies, many of them are not interested. They’ll say, ‘Isa Samad? Well he just embezzled money. That’s all. What can be done about that?’
“It doesn’t turn into a pain point, or something that will trigger settlers to change their minds, because you have to understand, these people are loyal to Umno because they see that Umno has given them land. So there’s a lot of feelings of gratitude towards the party, and from their point of view, this sentiment is much stronger than what Isa Samad has done.”
He added that such subjects were discussed lively among the younger generation. On problems that needed to be dealt with, he believes that wiping off FGV debt is no longer a concern.
Both coalitions, Pakatan and Barisan, in their manifestos spoke about wiping out outstanding debt, particularly those incurred by subscribing to FGV shares. Felda has taken measures to mitigate the damage; it’s a non-issue.
“It’s only RM50 a month, right? Many of them have already repaid it. Also the average Felda settler is not disturbed by that. From my observation, what needs to be improved is the replanting scheme. Settlers should know they don’t need Felda to help them organise it.
“Also some of us, the children, are worried that we will inherit their debts. I mean, being tied to paying off RM100,000 when you are a fresh graduate is no joke.”
Pagoh MP Muhyiddin Yassin last year raised concerns over debts incurred through replanting schemes and highlighted that the allocated aid, subsidies, and stipends for farmers who opt for the programme is not sufficient.
Hisomuddin’s father is among the few settlers who opted to replant the oil palm trees himself. “It’s doable,” he said. “But Felda has to stop fearmongering and politicising the process, and instead help farmers towards autonomy in managing their crops and land.”
For the record, BN and Pakatan have also stated in their manifestos that they would wipe out replanting scheme debts as well as provide various grants.
And as for political messaging, Hisomuddin added that many of the younger Malays, settlers children and those who came from the rural parts of the country, are beginning to eschew racist politics for more inclusive measures.
“It’s heading in that direction. For me, ethic politics is slowly losing its appeal. This is evident from our observation and studies among Malay millennials. In fact this generation is not the same with that of their parents or grandparents.
“So even if he is the son of an Umno supporter, he will not share the same Umno spirit as his father. This also applies to PAS supporters. For example, the father might view the Chinese as communist or link them to the May 13 riots. But the son will say, ‘How can that be? Many of my friends in school are Chinese and I have no problems mingling with them.’
“And this I believe points to a trend where there will be a natural erosion for Umno or political parties that are race based. And this will happen naturally, as the older generation who are known for their passionate support for these parties die.”
But will this translate to a stronger show of support for the opposition during GE14? Hisomuddin expressed doubt, owing to the fact that there are areas that either show no sign of a swing or are impregnable.
Regardless of how this pans out, for BN a win this time round is more than just a win. For caretaker prime minister Najib Razak, it’s the validation of his and Umno’s political legacy, because since 2004, Felda has been under the purview of the prime minister.