Maxis is guilty of fraud

I was going to give you more on the PKFZ scandal, but had to waste countless hours since Saturday dealing with Max-sick and its clueless “technical support” personnel.

Yup, my Max-sick broadband is on the blink again. The problems started Friday, but I was still able to get a steady, albeit slow connection via EDGE technology. On Saturday, the line kept dropping. By Monday evening, Max-sick was dead. Cue countless calls to Max-sick's “customer service” and a home visit by an unskilled vendor who insisted it was a modem problem when I was 1000% sure it wasn't. True enough, he changed the modem and still there's no service.

Finally, yesterday (Tuesday) evening, someone called and said Max-sick had “escalated my problem up to the engineering team”. What? I had complained on Saturday!!! It takes them THREE days to “escalate” the problem? Whatever happened to service integrity? Internet connection is a necessity nowadays. I rely on it to work and earn income. No internet = pissed off customers and lost opportunities. Yet when I asked Max-sick if they are at least going to waive my monthly fee, they said “they have to close the file first”, whatever that means.

Maxis is guilty of fraud. It is charging for a service (broadband) which it is not delivering. It's like a travel agent selling you a 5-star holiday package including accommodation at the Shangri-la, but dumping you into Rumah Tumpangan Ah Fatt instead. Actually it's worse than that. Maxis is not delivering ANY service at all. So, Maxis charges us for 5-star hotels but leaves us sleeping in the streets. In the meantime, it has the gall to continue aggressively selling Broadband packages. I know because I was accosted yesterday evening by yet another Maxis vendor! Needless to say, I gave him a piece of my mind, telling him he was selling a non-existent service.

But we consumers are powerless. There is no choice. Streamyx is equally bad, and I doubt that Celcom Broadband can outperform its sister company. In a situation like this, it is the regulator that has to protect the consumer against rapacious large companies.

So, where is our regulator? Incompetent like much of the Barisan Nasional government. Sigh. Next elections are so far away. In the meantime, we are stuck with a government that the majority of peninsular Malaysians did not vote for. Please, fellow citizens in Sabah and Sarawak – next elections help us kick out this useless administration.

And in case you're wondering, I had to drive out, incurring petrol and parking expense and spending unnecessary time, to find a place with wi-fi so I could upload this.

When competition is bad ...

Watch out! Your weekly dose of English Premier League (EPL) could get a lot more expensive next year.

The rights to broadcast EPL are auctioned off every few years. Right now Astro holds the Malaysian broadcast rights until 2010. Bidding for the 2010-2013 EPL rights will commence later this year.

The Edge last week reported that Telekom Malaysia may decide to bid for these rights. Telekom is looking to launch broadband tv. Securing the hugely popular EPL franchise will almost certainly mean a few hundred thousand new subscribers, giving its service a substantial boost.

Conversely, Telekom's gain would be Astro's loss. Astro without EPL would not be very attractive to many.

Which means we could see a very intense bidding war between Astro and Telekom.

Competition is usually good. It is normally the best way to better products and services and lower prices for consumers. But in this case, the winner of any Astro-Telekom competition is not the Malaysian consumer. It is the multi-millionaire EPL footballers, managers and hangers-on. They will enjoy the benefits of whatever expensive price that Astro or Telekom pays. Malaysian consumers will foot the ultimate bill.

Regular readers will know I am all for free markets, competition and transparency. However, sometimes, markets do fail. This is a clear case of market failure, when a few hundred EPL magnates make more millions, paid for by millions of Malaysians who earn just a few hundred ringgit a week.

We have already experienced one round. Astro subscribers may remember sports became a lot more costly in 2007. Prior to that, Astro had a comfortable lock on the rights to televise EPL in Malaysia. That changed in 2007, when Astro suddenly found competition while it was bidding for the EPL rights for 2007-2010. It bid very high to secure the rights, and then raised subscription fees to cover its costs.

When markets fail, higher authorities must step in. Khazanah could play a role, as it is a shareholder in both Telekom and Astro. Could it prevail on the two companies to cooperate instead of compete? In the first place, I don't see how Telekom is going to deliver broadband tv on its decrepit Streamyx platform. Rather than pay so much and giving WAGS even more to splurge on frivolous luxuries, it should use the money to improve its services.

Or if it is too much to ask for Khazanah to arbitrate between two competing companies, the government should set up one umbrella organisation to bid for EPL rights for Malaysia. Since there will be only one bidder from Malaysia, the price should be much lower. This organisation can then sell the rights to Telekom, Astro and any other interested party. Any profits can be deployed to good use – whether charity, public transport, sports development ...

Electricity tariffs down – another RM3.5bn pa wasted

One week after BN's deeply unpopular move to wrest control of Perak comes a crowd-pleasing reduction in power and gas tariffs. You might be happy to hear your monthly electricity bill will be cheaper, but don't let the BN fool you. You got a mere few crumbs. Politically-connected and influential entrepreneurs got far more, all at the expense of our long-term future.

Let's take a look at the power tariff cuts first, The average tariff reduction was 3.7%, but the biggest winners were industrial users who will see their bills come down by 5%. Commercial users benefit from a 2.7% average cut while domestic consumers, ie you and I, bring up the rear with a 2.4% reduction.

It is thanks to Petronas that we will enjoy the lower power bills. It is now charging the power sector RM10.70/mmBTU for the gas used to produce electricity, down 25% from RM14.31. Petronas also instituted a deeper 32% cut in the gas price to industrial users – it is now down to RM15.00 from RM22.06/mmBTU.

I'll reiterate here that I am against blanket cheap power and fuel. Across-the-board tariff cuts benefit even those who don't need or deserve the support.

Consider one beneficiary: Top Glove, the world's largest glove maker. Its chairman Tan Sri Lim Wee Chai reportedly said the company will pass on most of the savings to its customers ie foreigners! On top of that, he maintained the company's 15-20% profit growth target for the year. So, even without the cut in gas prices, Top Glove was already expecting 20% profit growth. Does it need or deserve a fuel subsidy? Bear in mind half its workers are foreigners too! All we have done here is reduce Petronas's income, and made some foreigners richer.
(The Edge 13 Feb 09, pg 8)

Elsewhere, investment analysts have been busy upgrading their profit forecasts for steel and cement producers, by as much as 30%. There had been no hint in the past that these steel and cement producers were in danger of going under. Investment analysts were still maintaining profit forecasts for these groups. And now I've been proven right – the cheaper power does not flow through to Malaysian workers, it goes to increased profits.

I estimate the gas price cuts cost Petronas RM3.5bn pa. Rather than enriching entrepreneurs in low-value added low-margin industries, this sum could be better deployed enhancing Malaysia's competitiveness. Here are two alternatives:
1)Set up a fund to pay allowances to and retrain c. 80,000 retrenched workers (assuming RM9,000 retraining cost per worker and RM3,000 allowance per month for the worker for one year). The multiplier effects of this across the economy will be so much higher. People will be willing to maintain consumption if they know there is still some sort of safety net should they be retrenched.
2)Set up a body to help manufacturers and industrialists improve their energy efficiency. Funds can be provided for one-time purchases of energy efficient equipment.

As it stands now, this power cut reduction is another example of poorly thought policy, spending our scarce resources inefficiently. An average 3.7% tariff cut does not make a big difference to any one user. The Associated Chinese Chambers of Commerce and Industry Malaysia has itself pointed this out, saying “.. it is a dismal reduction ...”

Plugging leakages at the BN government itself and reducing the cost of doing business should lead to similar savings. But BN is busy politicking and entertaining double-crossers and politicians with outstanding corruption charges.

Media Statement: Petronas and the IPPS must help reduce power tariffs

Here's my first "official" statement for the DAP ....

Media Statement by Teh Chi-Chang, Economic Advisor to DAP Secretary-General, in Petaling Jaya on Thursday, 22nd January 2009: Petronas and the Independent Power Producers (IPPs) Must Help Reduce Power Tariffs

Our national utility company, Tenaga Nasional Berhad (TNB), has just reported a RM944m net loss in its latest quarterly result for the three months ended November 2008, after accounting for a RM1.4bn translation loss on its foreign liabilities.

TNB reported the loss despite the 24% tariff hike in June 2008. The additional revenue from the tariff hike was utilised to cover higher fuel costs including gas payments to Petronas and higher payments to independent power producers (IPPs).

Therefore, Petronas and the IPPs, not TNB, were the biggest beneficiaries of the June 2008 tariff hike. The 24% tariff hike adds about RM5.5bn per year to TNB's revenue:
1.The bulk of the additional revenue, 76% or RM4.2bn per year, goes to Petronas which more than doubled the price it charges TNB for gas to RM14.31/mmBTU from RM6.40/mmBTU;
2.The other major beneficiary is the IPPs. Capacity payments to new IPP Jimah alone will take another RM700m per year (13%). TNB has to pay these capacity payments even though it has no need for the new capacity at present.

Various parties are now clamouring for power tariffs to be cut to help mitigate the poor economic environment. It is clear TNB cannot afford to lower power tariffs. Not only is it making accounting losses, it is also suffering cash outflow. For the same three months ended November 2008, it suffered a RM164m cashflow deficit.

We are concerned that TNB will have to cut corners on maintenance and upgrading work if it is forced to lower tariffs. Unreliable power supply and frequent breakdowns will adversely affect the economy and business confidence.

Therefore, we call on Petronas and the IPPs to contribute to national interest. We agree that power prices should reflect the cost of production. In Malaysia, the cost of production is inflated by high gas prices and by power purchase agreements (PPAs) which have been termed “grossly unfair” by Tan Sri Ani Arope, executive chairman of TNB between 1990-1996.

Some IPPs have earned returns on capital as high as 40% per year. This is equivalent to recovering their total capital in less than 3 years. The PPAs are for 21-year periods. The IPPs earn pure profit for the next 18 years. We recognise that private enterprises deserve fair returns for the risks they take. However, returns of 40% per year are excessive for IPPs which can usually expect to make only 10-15% in competitive environments.

The DAP calls on the Barisan Nasional federal government to renegotiate these PPAs in the interests of the Malaysian public. Certain PPAs already have clauses allowing government takeover in the event of power industry restructuring. In the event that new, fairer contracts cannot be amicably renegotiated, the DAP calls on the government to invoke this clause to protect Malaysian consumers from further monopolistic pricing. The management of these IPPs can then be outsourced via transparent and competitive open tenders.

I'm taking a Chinese New Year break. Next post will be in February. Happy holidays!

Efficient govt will lower business costs far more than cheap power

Over the weekend, the Real Estate and Housing Developers' Association of Malaysia (REHDA) joined the chorus for reduced electric tariffs. President Ng Seing Liong reportedly said the move was “essential for them to ease their burden in terms of doing business.”

Really, how much of the cost of a house is due to power tariffs? 5% at most? So, even if power tariffs are cut by 20% as REHDA requests, developers' costs will go down 1%. Do you think the savings will come to you and me, the housebuyers? Or will the developers happily pocket the savings as extra profit?

Power in Malaysia is already very cheap – far cheaper than in Singapore, for example. And yet, in Singapore, which its government admits will be in recession this year, no-one is clamouring for cheap power. It is accepted that power is a product for which a fair price has to be paid. Instead, the Singapore government is working on various stimulus packages to help the local economy along.

Back home here in Malaysia, far greater savings could be made if productivity were improved. Take a look at any property development site. Look at the wastage in materials and the inefficient working practices. If REHDA and its members focused on this instead, I'm sure they could find 1% of cost savings. And on the government side, cutting red-tape and smoothening implementation will help developers cut costs too, if they no longer have to employ runners and “consultants” to keep things moving.

Cheap power does not benefit the average Malaysian, and will kill our economic competitiveness. All this focus on cheap power detracts from the real issue – the biggest savings and gains are to be made if the BN government practices Competency, Accountability and Transparency.

This new year: Let's resolve to help ourselves

I hope you've had a nice end to 2008. Relaxing, unwinding, taking it easy with family and friends … remembering there's more to life than just material wealth …

The treadmill starts again tomorrow. A new year with new budgets and new targets to meet amidst an intimidating backdrop of global and local economic headwinds. The newspaper headlines are still depressing, and it does look like it will be a tough year ahead.

With tough times, there will be increasing calls for the government to do more. And yes, I agree the government must help the most disadvantaged and poorest of society. But I am sure there'll also be appeals for help from able-bodied, capable, intelligent Malaysians, such is the subsidy mentality that permeates our society today.

Let's break out of this subsidy trap. Subsidies don't make us richer. They just make us weak and dependent. Our manufacturers claim they need cheap power and labour to be competitive. The reverse is true – it is cheap power and labour that have made us uncompetitive.

Power is so cheap in Malaysia that companies and individuals barely make any effort to consume it wisely. The best evidence – how many of us wear jackets/sweaters in the office because the air-cond is too cold? And take a look at the lights – both in your home and at the office. I'll bet there are more old-fashioned energy-hungry menthol bulbs and even worse, halogen lamps instead of energy-saving bulbs.

And consider petrol. While our businesses lobbied for lower prices, corporations such as courier company UPS in the US actively used their creativity and skills to reduce consumption. UPS looked closely at the delivery routes taken by its vans. It discovered lots of time was lost, and fuel burnt, as the vans waited to make left turns. It replanned routes to minimise left turns and maximise right turns, where wait times are far shorter. The result: Less fuel burnt AND greater productivity – one driver can now make more deliveries, which can then justify higher wages!

Cheap fuel and power only perpetuates inefficiencies, further weakening Malaysia's competitiveness against leading nations. Businesses in those countries actively sought ways to minimise energy consumption when fuel prices were high. These energy-saving methods are now part of their competitive arsenal; and they have an extra source of profit margin now that energy prices have fallen.

So, for 2009, let's resolve to use our brains and work smarter. Not use our brains to scheme for subsidies.

Happy New Year and cheers to a wealthier, more prosperous, more productive Malaysia!

Cheap power may benefit foreign workers and rich more than ordinary Malaysians

The Penang state government has been actively meeting businesses to see how it can help mitigate the economic downturn and minimise retrenchments. A very common refrain is to please cut electricity tariffs. Pakatan MPs in other states are also getting similar feedback from industrialists and entrepreneurs, “The cost of business is going up, we're facing challenging times, please cut power tariffs.”

The subsidy mentality permeates all levels of our society. Cheap power is a subsidy too. And like all subsidies, we should look closely to see if it truly benefits those most in need. Before we cut power tariffs, we should find out: 1) How many Malaysians the companies actually employ and 2) What will the companies do with the savings?

“How many Malaysians the companies actually employ” is particularly pertinent. When Indonesia liberalised fuel prices, including gas prices a few years ago, many manufacturers who depended on gas left Indonesia. It used to be a major player in the latex glove market – one where Malaysians such as Top Glove and Supermax complete. They quit, Malaysia ramped up market share.

But how many Malaysians did that really benefit? Top Glove, the world's biggest maker of latex gloves, was hit with a RM11.4m fine for having 1,769 illegal foreign workers on Aug 16, 2006. It has not reduced its dependence on foreign labour. The IHT reports that it employs 3,500 migrants - about half its work force - at 12 factories across the country. 

Why are we subsidising this company and all these foreign labourers? Subsidies should go towards developing core Malaysian skills and improving productivity, not employing low-skilled low-valued add foreign labour.

Which brings me to the next question, What will the companies do with the savings? Any bets it'll tell workers you're lucky to stay employed; and the owners will happily pocket the additional profit? That doesn't help Malaysia – it just means another long-term subsidy which we cannot afford. No pure handouts please. Companies must earn the cheaper power by coming up with better ways of doing business.

Malaysians subsidising foreigners (2) – Astro spends RM1.2bn on Indons …

Investment analysts note that Astro has incurred RM1.2bn (that's right RM1,200,000,000) of write-offs so far on its foray into providing satellite tv to Indonesians. Ever thought about how Astro can afford such a large loss? It's paid for by you and me, ordinary Malaysians who have to suffer high subscription fees and poor service thanks to Astro's monopoly on satellite-tv in Malaysia.

Because there's no competition in Malaysia, we have to pay whatever Astro demands and accept its over-priced packages offering us channels we don't want nor need, and we have to accept frequent service breakdowns in the rainy season. Astro then takes that money to offer cheap services to Indonesians. If Astro had not burnt that amount away in Indonesia, it could afford to give you a 50% discount on your subscription fee for one year!

But it doesn't look like it's going to happen since it has a cosy, secure monopoly granted by the BN government. If our companies are big enough to go overseas, they are big enough to face competition here in the local market. Local consumers will then benefit from lower prices and better services.

Malaysians subsidising foreigners …

Picking up on the likes of Maybank, Telekom, Astro, Genting, Maxis and YTL investing chunks of money overseas ….

It can be argued they have grown too big for Malaysian markets and this is part of normal corporate development. Some would say we should be proud that Malaysia has been able to grow such large companies.

I see no reason to be proud - all these companies are either monopolies or operate in cosy oligopolies with limited competition in Malaysia. All the extra funds they have are from the supernormal profits they reaped from you and me, the average Malaysian, thanks to the government protecting them from competition.

Take Astro, which has a government-granted monopoly on satellite tv. While it was operating in highly competitive Indonesia, it was charging Indonesians less than Malaysians. And consider Telekom, spending huge sums overseas while giving us atrocious Streamyx service, charging us RM25/month minimum fixed line charges and crying to the government that it cannot afford to spend on broadband in Malaysia (and successfully getting a subsidy!).

Investments overseas don’t generate that many jobs for Malaysians. But the investments are paid for by Malaysians through inflated prices and poor service in Malaysia due to the lack of competition. Government policies need rethinking. If our companies are big enough to go overseas, they are big enough to face competition here in the local market. Local consumers will then benefit from lower prices and better services.

Tenaga runs on gas and coal, not oil

Electricity tariffs were raised 24% in June. Oil prices have since fallen dramatically and people are now demanding Tenaga reduce power tariffs. But our electricity is generated using gas and coal, for which prices are still high.

In fact, the main beneficiary of the 24% electricity tariff hike is Petronas, which more than doubled its gas price to Tenaga – to RM14.31/mmBTU, from RM6.50/mmBTU! Besides higher gas prices, Tenaga is also incurring higher coal prices, which at about US$95 today are still 25% higher than the average US$76/MT Tenaga incurred in its last financial year ended Aug 08. The pain will be made even worse by the depreciating ringgit.

Some numbers will illustrate this. That 24% tariff hike will add about RM5.5bn pa to Tenaga’s revenue. Of that, RM5.3bn goes to third parties, leaving Tenaga with just a measly RM200m of the RM5.5bn additional revenue:

1. RM4.2bn (76%) goes to Petronas to cover the increased price of gas;
2. RM1.0bn to cover higher coal prices:
   a. RM0.3bn because of the the US$ increase in price to US$95; and b. An additional RM0.7bn due to the weaker ringgit, assuming an average RM3.70:US$1 instead of RM3.30
3. RM135m for capacity payments to new IPP Jimah.

In fact, by next year, Tenaga will be in a negative situation again because capacity payments to Jimah will rise to RM 700m! If you want lower power tariffs, the appropriate targets are the IPPs which have earned exorbitant returns and Petronas, not Tenaga.

Tenaga is under-appreciated. Its services have improved tremendously in recent years. So tremendously that we don’t appreciate how much effort goes into delivering that stable and reliable power supply. If Telekom were running the power sector, we would still be suffering frequent brownouts (noisy fixed lines is the telecoms equivalent), blackouts (unstable Streamyx connections) and some areas without power at all (sorry, tak cukup kapasiti di sana untuk talian baru).

And yet Telekom gets a RM2.4bn handout of taxpayers’ money to do high-speed broadband while Tenaga is pilloried for high power tariffs which are not its fault in the first place.

If there’s one GLC to target for inefficiency, it’s Telekom. Why do we still have to pay Telekom RM25/month for fixed line ‘rental’? My housing estate was built in the 1970s. Surely after over 30 years Telekom has already more than covered its capital cost of laying down the telephone lines. And then there are the huge issues with Streamyx ….

RM5bn for Valuecap – 2 questions

Deputy Prime Minister and newly-minted Finance Minister Datuk Seri Najib Tun Razak announced the government will provide an additional RM5bn to Valuecap Sdn Bhd. This will double its size to R10bn. Valuecap is to use the money to invest in undervalued stocks and protect investments in government-owned companies.

Two questions: 1) Where is the money coming from? See my previous post – government revenues will be down with lower oil prices and a slower economy. So how is the government going to raise this RM5bn for Valuecap? and 2) Is this the best use for that RM5bn?

The Sun yesterday also reported “Malaysia not in financial crisis: Najib.” I agree we are not in a financial crisis – our banks are unscathed by the happenings elsewhere, and confidence in the financial system is so strong that the local AIG operations didn’t suffer any significant aftermath from its parent’s collapse, unlike in Singapore.

So, if we’re not in a financial crisis, there is no need to support the stock market. Where would the RM5bn funds go anyway? If Valuecap buys, someone is selling. And some of those selling will be foreigners who will happily take the money out of Malaysia. Malaysians will not enjoy the full benefit of that RM5bn.

I think that RM5bn is better spent locally on small-scale projects that employ local businesses and Malaysians. How about redoing the drains in my neighbourhood for a start? They’ve not been changed since 1976 when we moved in here. Some are crumbling. Putting money to work here benefits local contractors, workers and raw material suppliers. Similarly school facilities. Don’t spend millions on laptops which may or may not be effectively used. But how about upgraded buildings, lab facilities, furniture ….

PS I know I had said the next post would be next Wed. But I just had to flag this. Next post (barring any other major news breaks) will be Sunday, when I contribute to 51 ideas for a better Malaysia.