Note : Onn Mahmud is the brother of Taib Mahmud, the Chief Minister of Sarawak. The question being raised is the origin, accumulation and concentration of wealth into one family's hands. Further questions raised are the propriety and methodology of this wealth creation. How did it happen? As the Chief Minister and Land & Resource Minister, wealth can be transferred in various ways into one's own coffers.
As can be seen in this chart, Onn Mahmud holds large stakes in the Achi Jaya Group of Companies.
Just looking at Achi Jaya Holdings and Achi Jaya Plantations accounts as at 31.12.08 you can see the phenomeonal amount of wealth being generated.
Achi Jaya Plantations had assets of (Non-Current Assets (631m) + Current Assets (29m) ) 661m. It's Net Assets (Assets - Liabilities) was 289m.
The Revenue was 194m and the Profit was 55.6m. The Net Profit Margin was 28.68% (Out of the revenue of 194m, 28.68% was profit after cost, pretty good, these kind of margin in the business world is salivating).
Share Capital :- Onn Mahmud personally invested RM 9.5m. Achi Jaya Holdings invested another 15.4m
Achi Jaya Holdings had assets of (Non-Current Assets (745m) + Current Assets (83.8m) ) 829m. It's Net Assets (Assets - Liabilities) was 386.8m.
The Revenue was 277.6m and the Profit was 37.6m. The Net Profit Margin was 13.53% .
Share Capital :- Onn Mahmud personally invested RM21m as effectively the 100% shareholder. Note on a 21m investment, the net assets were 386.8m. 18 times the initial investment. That is amazing wealth creation. the profit itself (for 2008 only!) was 37.6m, 1.8 times the initial investment and this is only for one year.
So Onn Mahmud has invested in his name 36.5m (that's 36,500,000) into these companies. Where is this money from?
Net Worth
Based on Onn Mahmud's 100% holding in Achi Jaya Holdings, 15.19% holding in Achi Jaya Properties and 5.43% of Achi Jaya Plantations and the Net Assets of these companies, Onn Mahmud (Just based on his interest in these companies only) is worth (386.8m + (15.19% of 35.3m) + (5.43% of 289m) ) approximately a staggering 407.85m RM (407,850,000).
Herolite Investment Ltd and Grand Shine Trading Ltd
I can't find the ownership details on these companies. If someone more well versed in getting info from the Hong Kong company registrar can guide me I would be grateful.
These companies have collectively invested RM24.6m in Achi Jaya Properties and RM150m in Achi Jaya Plantations. Who are they? And why are they investing in parallel to Onn Mahmud as seen in the share capital section above?
Update : I have traced the ownership of Herolite and Grand Shine Trading through various HK$20.00 companies. The Ultimate parent is one Francisco C Sebastian and Integrated Financial Holdings in the British Virgin Islands. The British Virgin Islands offshore companies do not reveal ownership details to the public.
These are companies capitalised at HK$10,000 (Herolite and Grand Shine Trading are capitalised at HK$10,000) yet investing RM175m in Achi Jaya Plantations and Achi Jaya Properties.
Money can be siphoned off from Achi Jaya Transportation via consulting fees, high salaries, high rentals paid to associated companies, management fees etc. So the P&L of 3.9m does not really show how much is actually earned by the individuals involved. Current assets of 21m generally indicate near cash or cash items.So very liquid, likely fees from being the sole shipping agent.
Also note the low capital invested. 0.5m, while the turonover is 59.4m and the audited profit is 3.9m, almost 8 times the capital invested (for 2008 only!) (and cash of 21m on the balance sheet). I wish I could invest in this business and get these kind of returns.
Below are some excerpts from various sources on Taib's monopoly over timber exports from Sarawak
"
Turning to another important Taib family business, the shipping of all timber exports in Sarawak goes through Archipelago Shipping (Dauvergne 1997: 109), a company almost entirely owned by the Chief Minister’s family.[1] Because shipping a cubic meter of timber to foreign markets costs about $40, and because Sarawak exported an average of ten million cubic meters of timber each year during the 1980s, the company’s cash flow was four billion dollars during the 1980s.[2] Hence, in addition to timber industry holdings, the chief minister and his family are enriched by this shipping monopoly. As Table 4.9 shows, the entire management and 92 percent of the shares in Archipelago Shipping are held by relatives of the chief minister or companies owned by them.
Table 4.9 Taib family ownership of Archipelago Shipping
Name of board member or shareholder
Position in or percentage of shares held in company
Relationship to Taib Mahmud, Chief Minister of Sarawak
Onn Bin Mahmud
Director
Chief minister’s brother
Achi Corporation
52 percent shareholder
Company 100 percent owned and controlled by Onn Bin Mahmud, the chief minister’s brother
Fredahanam Bte Mahmud
Director
Chief minister’s sister
Serira
15 percent shareholder
Company 100 owned percent owned by the three sons of the chief minister’s sister, Fredahanam Bte Mahmud.
Mohd. Arip Bin Mahmud
Director and 10 percent shareholder
Chief minister’s brother
Haji Mohd. Tufail Bin Mahmud
Director and 10 percent shareholder
Chief minister’s brother
Grand Shine Trading
8 percent shareholder
No obvious connection to the chief minister
Masba Holdings
5 percent shareholder
Company 100 percent owned by Abdul Aziz Haji Hussain, who is married to the sister of the chief minister, Fredahanam Bte Mahmud.
Source: documents obtained during 28 October 1996 interview with Institut Pekerjaan Komuniti"
In Malaysia, Sarawak Has a Cash Register on the Port
Chief Minister Abdul Taib Mahmud’s family continues to want its “commission” on timber shipped to Japan
For weeks, as many as a dozen Japanese-registered log carriers have been riding at anchor outside four Sarawak ports in Malaysia after being refused entry to pick up timber for the Japanese market. Several have left empty-handed while the owners negotiate with a company called Achi Jaya Shipping of Sarawak.
The decision to shut out the Japanese vessels is because Achi Jaya is demanding payment of “commissions” of US$2-3 per square meter of timber. The shippers are refusing to pay because Japanese tax authorities earlier ruled that the payments were kickbacks to the family of Sarawak Chief Minister Abdul Taib Mahmud.
Despite the publicity in Japan, Taib Mahmud is hanging tough. Sources say he is continuing to demand payment. When Japanese log carriers turned up at Sarawak ports, in October, they were told they would not be granted permission by Achi Jaya Shipping to pick up timber unless they continued to pay the kickbacks.
With strong ties to the governing Barisan Nasional in Kuala Lumpur and the ability to make local journalists toe the line, Taib has denied allegations of illegality and forced two of Malaysia’s government-linked newspapers to apologize for airing reports on the mess. Malaysiakini, the independent Internet-based publication, has also been threatened with a lawsuit but has refused to retract its story. When contacted by Asia Sentinel, a spokesman for Achi Jaya Shipping declined to comment.
The picture painted by Japanese tax authorities is fairly daunting. According to reports in Japan Times and Yomiuri Shimbun, the Tokyo Regional Taxation Bureau determined that the payments were rebates, not legitimate expenses, and it is likely to impose well over 400 million yen in back taxes and penalties against the shipping companies.
It is mandatory for all log carriers calling at Sarawak ports to register with the chief minister's family-linked company, Dewan Niaga Sarawak, as the sole agent for timber shipments out of the state and to appoint Achi Jaya as their ship-handling agent.
The payments – at least RM32 million (US$9.67 million) - previously were alleged to have been routed through a Hong Kong-based company called Regent Star, according to Japanese tax authorities. Some 90 percent of Regent Star allegedly was owned by Taib Mahmud’s brother Onn until the company was abruptly wound up in June after it became public that the tax authorities had gone after the ship-owners.
The tax authorities reportedly have ordered the Kansai Line to pay 50 million yen in back taxes and penalties for falsely reporting so-called intermediation fees totalling 130 million yen to Regent Star over a seven year period ending in December 2005, in its cost of loading logs in ports in Sarawak, in an effort to hide the payments.
So long as their owners refuse to pay the commissions, permission to pick up Sarawak logs and other timber products will be withheld, a shipping company executive told Asia Sentinel. Several large exporters have started making enquiries with other Malaysian-registered shipping lines in Sarawak but they too would have to go through Achi Jaya Shipping Agency as sub-agents.
The Japanese shipping cartel has made the payments since the early 1980s, reportedly on the order of the provincial government. Although the Japanese tax authorities’ limit on the time period investigated kept the amount to RM32 million, payments made over the last 20 years are said to amount to hundreds of millions of ringgit. Sarawak's log and timber exports since 1970 have been valued at more than US$25 billion, based on figures available at the Trade Statistics Department in Sarawak.
In the Taib Mahmud empire’s defense, the companies said these were legitimate expenses as they were commissions paid to Regent Star in Hong Kong on the directive of the Sarawak provincial government.
A timber industry source said the decision to shut out the Japanese-registered vessels is a blow for exports, especially those with long-term ties to large Japanese buying houses, particularly for plywood. So long as their owners refuse to pay, permission to pick up Sarawak logs and other timber products will be withheld, according to a shipping company executive.
Several large exporters have started making enquiries with other Malaysian-registered shipping lines in Sarawak but they, too, presumably will have to go through Achi Jaya Shipping Agency as sub agents.
A Family Affair
Achi Jaya is yet another part of the corporate empire that makes the state of Sarawak and its 2.2 million people a virtual Taib Mahmud family business, as Asia Sentinel reported in August. All five Achi Jaya Holdings directors are linked to Sarawak’s first family. They comprise Onn Mahmud, his wife Halimatun Abdul Ghani, 23-year-old son Omar Yakub and 28-year-old daughter Siti Hajah Hamidah, and Noor Zakri. Onn and Halimatun were the pioneer directors while their son became a director in January 2007. Onn and his wife together own all the shares of Achi Jaya Holdings. Onn holds 499,999 shares while the wife has one share.
The Mahmud family’s main investment vehicle is a company called Cahya Mata Sarawak, which means “light of Sarawak’s eye” in English and goes by the acronym CMS, originally known as Cement Manufacturers Sarawak Bhd. CMS’s transformation has been remarkable. It was privatized and restructured from a state-owned public-listed company into a private sector public-listed conglomerate controlled by the Taib Mahmud clan.
By 1996, the family had consolidated operations from a publicly-owned cement producer into a private-sector diversified conglomerate involved in stock brokering, road construction, water, quarry operations, steel bar manufacturing, trading, cement production and investment holdings. His 26-year tenure as chief minister also gave the company at least the appearance of having ready access to government power and favors during a time when the family company had a healthy cash flow and high annual turnover that drove up the share price. The company also got involved in numerous infrastructure projects.
PLEASE NOTE. This article was originaly published with photos and charts.
Timber kickbacks: The Shea connection - Malaysiakini.com
Erik Wang
Sep 11, 07 2:03pm
Exclusive He is a complete unknown. Perhaps his parents want him to be someone important - after all, his name ‘Kin Kwok’ means ‘nation-building’.
A search on the Internet does not reveal much of this shadowy man. He was a participant at a golf tournament for the elderly in Hong Kong, suggesting that Shea Kin Kwok is a senior citizen.
Golf aside, Shea is a businessman. He is a shareholder and director of two companies registered in Hong Kong - Regent Star Company Limited and Richfold Investment Limited.
Behind that veneer of anonymity, Shea has indeed much to do with Malaysia, specifically his ties to members of Sarawak Chief Minister Abdul Taib Mahmud’s (photo) family and their business empire.
Shea’s name first surfaced late March when Regent Star was implicated by the Japanese media in a multi-million ringgit timber-shipment kickbacks scandal.
It was reported that a Japanese shipping cartel of the country’s top shipping companies paid at least RM32 million to Regent Star to help “resolve” problems encountered in the exports of timber from Sarawak to Japan.
Japan’s tax authorities had considered these payments as ‘illegitimate expenses’ since Regent Star - believed to be a paper company - did little ‘substantive work’. As a result, the Japanese shipping companies were slapped with back taxes along with heavy fines for ‘hiding’ the funds from the tax authorities.
A week later, malaysiakini broke the news on the alleged kickbacks in Malaysia, quoting Japanese media sources.
Shea is one of two directors of Regent Star. The company was incorporated in Hong Kong 24 years ago. Corporate information obtained from the Hong Kong authorities indicated that Regent Star’s office is in Kowloon.
The company has a paid-up capital of HK$10,000 (RM4,500). Regent Star’s 1985 annual return said its two pioneers directors were Shea Kin Kwok and Kho Eng Beng. Both were appointed a week after the company was formed, and each director held 5,000 shares.
Kho was listed as a British national while Shea was a Hong Kong national. Kho resigned as director in 2001 and was replaced by Ng York Kee, a Philippine national.
In June - two months after the timber kickbacks scandal broke - Regent Star made a surprise move. Ng, on behalf of the company, applied to the Hong Kong Companies Registry for Regent Star to be deregistered.
This came in the wake of Taib’s lawsuits against malaysiakini and two opposition leaders for defamation over the alleged kickbacks scandal. The two PRK state leaders had reprinted press reports on the scandal from malaysiakini and Japanese media organisations for distribution to the Kuching public.
The PKR leaders have since, through their lawyer, written to the Hong Kong Companies Registry and Tax Office to query the deregistration of Regent Star.
Rise of Dewan Niaga Sarawak
The Sarawak government under Taib, who was also forestry minister, appointed Dewan Niaga (Sarawak) Sdn Bhd soon after he took power in 1981 as the local shipping agent for the exports of timber.
Dewan Niaga Sarawak, incorporated in 1981 as a wholly Sarawak-based entity, is the sole agent for timber shipments out of the state. Anyone who wants to export timber has to go through them. The company has an authorised capital of RM1 million with an issued capital of RM200,000. Its directors are individuals closely linked to the state government as well as Sarawak’s Associated Chinese Chamber of Commerce and Industry.
Among them is ex-senator Wee Kok Tiong (photo), son of the late Sarawakian tycoon Wee Boon Ping.
Wee, who was Bandar Kuching parliamentary candidate in the 2004 general election, is from the predominately Chinese Sarawak United People’s Party (SUPP) - a key Barisan Nasional component party in the state. He lost to the DAP candidate in the contest.
Wee is also president of the Associated Chinese Chamber of Commerce and Industry and the vice-chairman of SUPP Kuching branch, as well as a member of the party’s powerful Central Working Committee. He also owns Sarawak-based Chinese-language daily, International Times.
Another prominent director of Dewan Niaga Sarawak is Abdul Aziz Husain. Abdul Aziz, one of the pioneer directors when the company was formed 26 years ago, was Sarawak’s state secretary until 2006. He is also Taib’s brother-in-law.
He has since been appointed group managing director of the public-listed Sarawak Energy Bhd, which is majority owned by the state government. Sarawak Energy is responsible for, among others, the generation, transmission and distribution of electricity in the state.
Two other family members of Taib are also directors of Dewan Niaga Sarawak - younger brothers, Onn Mahmud and Mohd Tufail Mahmud, were appointed in 1988 and 1991 respectively.
Sarawak’s first family
Dewan Niaga Sarawak’s shareholders are Achi Jaya Transportation Sdn Bhd, with 104,000 shares, the Associated Chinese Chamber of Commerce and Industry (80,000 shares) and Koperasi Koppes Bhd (16,000 shares).
The majority shareholder, Achi Jaya Transportation, is the new name for CMS Transportation Sdn Bhd. The company was established in 1983 and described its business as ‘transportation and trading of goods and services’. It has an authorised capital of RM3 million with an issued capital of RM500,000.
Three of the five directors of Achi Jaya Transportation are from the Mahmud family. They are brothers Onn, who is the company’s pioneer director, Mohammad Tufail, who became director two months after the registration of the company, and sister Fredahanam, wife of former state secretary Abdul Aziz.
Another director, Noor Zakri Abdul Ghani, shares the same registered residential address as that of Onn. Noor Zakri is believed to be Onn’s brother-in-law. The final director is one Chiew Chee Hung @ Chiew Chee Ung.
In turn, Achi Jaya Transportation’s sole shareholder is Achi Jaya Holdings Sdn Bhd, with 500,000 shares. Achi Jaya Holdings was set up as Achi Corporation Sdn Bhd in 1983 to provide ‘management services, property and investment holding and property letting’. It has an authorised capital of RM2 million with an issued capital of RM1 million.
All five Achi Jaya Holdings directors are linked to Sarawak’s first family. They comprise Onn, his wife Halimatun Abdul Ghani, 23-year-old son Omar Yakub and 28-year-old daughter Siti Hajah Hamidah, and Noor Zakri.
Onn and Halimatun were the pioneer directors while their son became a director in January 2007. Onn and his wife together own all the shares of Achi Jaya Holdings. Onn holds 499,999 shares while the wife has one share in the company.
This story would not be complete without mentioning CMSB, or Cahya Mata Sarawak Bhd.
Most Sarawakians know CMSB, which is majority owned by Sarawak’s first family. It is a public-listed company and its 2006 annual report put its revenue at RM6.4 billion.
CMSB is a conglomerate involved in manufacturing, construction, construction materials, stockbroking and other financial services, property development, insurance, and until recently, banking. However, its banking business - the RHB Bank - was recently sold to the Employees Provident Fund for RM2.25 billion.
Prominent among the board of directors are two of Taib’s sons - Abu Bakir, 43, and younger brother Sulaiman Abdul Rahman, 38. The elder son is CMSB deputy group chairman and a non-executive director while the younger son is a non-executive director.
Some of the key owners of CMSB are Taib’s immediate family members - wife Laila (11.23%), daughters Hanifah Hajar (13.85%) and Jamilah Hamidah (13.64%), and sons Sulaiman (8.94%) and Abu Bakir (8.92%).
Altogether Taib’s family owns at least 56.58% of the company. His brother, Onn, also owns 0.76% in CMSB.
Given its pedigree, CMSB secures some of plumpest contracts from the Sarawak government. Moreover, it owns more than 2,234 ha of vacant land in various locations in the state as well as offices, factories, quarries, premix operations, shophouses and even a jetty.
Shea’s investments
Shea’s business relationship with Onn dates back more than two decades. Shea’s Regent Star is linked to another Hong Kong-registered company, Richfold Investments, in which one of two directors is Onn.
A check by malaysiakini with the Hong Kong Companies Registry revealed that Richfold Investments was established on the same day as Regent Star - Nov 22, 1983. In addition, the two companies shared the same office in Hong Kong.
Onn owns 49,999 shares of Richfold Investments while Shea holds just one. Onn was appointed director of Richfold Investments together with Shea just a day after Shea was appointed director of Regent Star. (see Chart below)
Ng York Kee, another director of Regent Star, is also listed as Richfold Investments’s company secretary.
However, Shea’s links to Taib’s family is not restricted to Hong Kong. According to BursaMalaysia, Shea was also a substantial shareholder of two Sarawak-based companies.
From the public-listed Sarawak Oil Palm Bhd (SOPB) annual reports of 2002 to 2005, Shea held shares in this well-connected company and was listed under the ‘30 largest shareholders’ category.
His shares were 1,309,400 or 1.38% in 2002, 1,239,400 or 0.97% in 2003-2005. However, it the 2006 annual return, Shea disappeared as a direct shareholder. It is not known if he had cashed out or moved his share ownership to other companies.
Another of Shea’s investments in Sarawak was CMSB, but this appeared shortlived. The CMSB 2001 annual report listed Shea as having 663,000 shares in the company. Subsequent annual reports do not list Shea as a direct shareholder.
For a person who is a complete unknown in Sarawak, Shea certainly has a strong connection to the state.
Is he a proxy?
It is also not clear how much the Japan’s shipping cartel had paid Regent Star over the more than two decades of its existence. The Japanese Taxation Bureau, whose probe is limited to seven years, estimated RM32 million was paid over that period.
This will translate into Japanese consumers having paid millions of ringgit extra for furniture and other timber products. And this could also translate into large tracts of forests saved or much improved livelihood for the native communities in Sarawak and Sabah who regarded land and forests as their life and blood.
But was this money paid to a Hong Kong national called Shea or was he merely a proxy? If so, a proxy to whom?
And just who is Shea? He doesn’t seem to play a significant role in Hong Kong corporate world because a search with Hong Kong Companies Registry does not show he has other business interests save for Regent Star and Richfold Investments.
What can be established however is that Shea is a business associate of Onn and that their association goes back to 1983 - the same year Onn incorporated Archipelago Shipping to be a shipping agent, the same year Dewan Niaga Sarawak executed the shipping agreement with the Japanese shipping cartel for the shipment of logs from Sarawak.
And 1983 is also the same year Dewan Niaga Sarawak appointed Archipelago Shipping to be the sole handler of shipments of all logs exported from Sarawak. What’s more, both Regent Star and Richfold Investments were incorporated at the same time in that year.
Clearly Shea is a person intrinsically linked to the alleged timber kickbacks involving the Japanese shipping cartels and Sarawak’s political elite. But this trail is about to turn cold as Regent Star could soon disappear should its application to close shop is approved by the Hong Kong Companies Registry.
Sarawak Chief Minister Abdul Taib Mahmud took the unusual step of refuting allegations of his personal involvement in a multi-million ringgit timber kickbacks scandal in the state assembly today.
In a 10-page ‘personal statement’, Taib “categorically and completely refute” all the allegations, which first appeared in Japan Times, a Tokyo-based newspaper.
“They are absolutely false,” he said.
Taib, who has been the Sarawak leader for 26 years, reiterated he would take legal action against all those who had made the allegations, both in Japan and Malaysia.
He had earlier vowed to sue malaysiakini and a number of opposition leaders for defamation.
“It must be noted that the said newspaper (Japan Times) and those in Malaysia, have not ... provided any fundamental facts to support their allegations that 1.1 billion yen (RM32 million) was paid to Sarawak officials as ‘kickbacks’ or ‘rebates’ and lubricant to facilitate the timber trade,” he added.
According to the March 29 Japan Times report, the multi-million ringgit ‘commission’ - made over a period of seven years - was paid to Hong Kong-based company Regent Star said to be linked to Taib and his family.
This was uncovered by Japanese tax authorities who deemed the payments made by nine companies, which is part of a shipping cartel, as ‘illegitimate expenses’ since the Hong Kong agency - believed to be a paper company - did little ‘substantive work’ to justify the payments.
According to tax authorities, the shipping companies had tried to disguise the payments as ‘business expenses’ and were thus not taxed.
Japan Times reported that the shipping firms were likely to be slapped with well over 400 million yen (RM11.6 million) in back taxes along heavy penalties for ‘hiding’ the funds from tax authorities.
According to the newspaper, the shipping companies were believed to have used the money as a “lubricant to facilitate their lumber trade”.
The shipping firms, which have rejected the tax authorities' claim and argued that the transactions with Regent Star were legitimate, have denied any wrongdoing.
Taib: I’ve no knowledge Sarawak’s lumber export is controlled by the state government through Dewan Niaga Sarawak - a state-affiliated organ in charge of timber export control which is headed by the Sarawak chief minister's younger brother. The Japanese shipping cartel was established in 1962 to avoid stiff competition among the shipping companies in the import of lumber from Southeast Asia, including Sarawak.
Taib, who is the country’s longest serving chief minister, denied any knowledge in the arrangement made between Dewan Niaga and the Japanese companies.
“All arrangements made by the shipping companies from Japan and Dewan Niaga with regard to the transportation of timber from Sarawak to Japan, or the appointment of Archipelago Shipping as their local shipping agent, were made by the companies themselves without interference or directive from the Sarawak government or the chief minister,” said Taib. Archipelago Shipping has since changed its name to CMS Transportation Sdn Bhd, a company linked to Taib’s family. Malaysiakini has reported that all log carriers seeking to transport timber exports are required to appoint shipping agency Archipelago Shipping as the sole agent for shippers to pick up logs from three key Sarawak ports - Tanjung Manis, Bintulu and Miri.
Taib also said that he and his state government “have no knowledge of Regent Star, and have not received any remuneration or other payments from the alleged Hong Kong company”.
“If there had been any payment by the Japanese shipping companies to Regent Star (as alleged), the Sarawak government and myself as chief minister, are totally unaware of such payments.”
However, Taib did not mention his family’s involvement in the companies that are allegedly involved in the scandal.
He said that he had decided to make the lengthy clarification today as the legal action he vowed to take against his detractors may take time.
Taib’s statement was made in the state assembly this afternoon under Standing Orders 22, which allowed a member to make a personal clarification.
However, the assembly speaker would not allow anyone to ask or speak on the matter after the statement was read out.
that I have been highlighting in my blog. I will focus on those concessionaires that Taib's family has a direct interest in. This will not include those where they are directors but not shareholders. There are questions of propriety when for example the sister of the Chief Minister who is also Minister of Resources (Menteri Perancangan dan Pengurusan Sumber) and the Minister of Finance sits on the board of a timber concessionary. This is a clear conflict of interest given that the Chief Minister allocates these concessions. However direct shareholdings and the economic benefit derived are clearer indications of impropriety.
I will then move away from information in the dissertation to other rent-seeking activity in Sarawak and yes, there is a lot.
UPDATE : Having looked through some documents from the registrar of companies, I can see that the directors have been changed since the dissertation, so have the shareholders and some of the companies have been dissolved (perhaps those concessions have run their course). The dissertation is from 2001. Unless someone does the whole exercise again, it will be hard to identify specific timber concession companies.
So I will move on to the shipping monopoply highlighted in the dissertation and elsewhere and then to all the other reports on Taib's very public wealth.
In Indonesia, Sarawak and Sabah, personal ties by political elites to the timber industry were high and the ability of governments to officially capture timber rent was low. The result of these states' inability to capture timber rent is an enormous loss in official revenue. Table 7.1 below shows the revenues lost in Indonesia, Sarawak and Sabah as a result of concessionaires being asked by the government to pay timber revenues at below-optimal levels. The same figures are also a measurement of the amount of timber rent earned by timber concessionaires and/or unofficially appropriated from them by heads of states and their proxies or clients. The total figure for timber revenues that could have been collected, but were not collected, by all three states over the period of 30 years is more than $40 billion.
Table 7.1 Timber revenues (in dollars) lost in Indonesia, Sarawak and Sabah from 1970-1999
Year
Indonesia
Sarawak
Sabah
1970
Incomplete data
No data
Incomplete data
1971
Incomplete data
2,401,592
381,335,065
1972
Incomplete data
1,033,303
366,427,248
1973
Incomplete data
25,681,232
404,458,457
1974
-10,480,715
26,330,765
334,632,914
1975
-97,215,714
10,328,746
253,635,117
1976
-132,560,353
62,502,857
587,342,233
1977
62,966,781
63,667,843
576,518,136
1978
296,459,594
82,727,918
687,980,386
1979
171,940,408
310,682,736
100,408,2700
1980
1,062,454,516
289,029,845
749,863,277
1981
1,067,607,041
246,348,032
731,203,306
1982
380,903,703
379,826,481
445,179,563
1983
190,984,540
307,356,894
377,397,627
1984
173,277,600
368,643,107
447,364,854
1985
143,683,300
344,832,692
316,233,468
1986
33,675,696
215,022,320
403,320,707
1987
107486676
1,031,753,016
533,185,778
1988
364,501,404
786,749,653
303,704,306
1989
550,354,473
939,383,352
224,719,003
1990
562,931,244
1,085,288,284
67,939,295
1991
710,044,569
1,476,200,318
77,587,208
1992
636,839,176
1,595,902,618
108,913,363
1993
717,041,231
1,473,218,702
12,328,814
1994
1,526,340,259
1,202,321,597
0
1995
1,136,963,700
1,152,647,052
0
1996
2,063,806,110
1,087,124,457
0
1997
1,398,731,712
808,219,598
28,052,812
1998
1,120,832,966
421,304,552
19,524,946
1999
545,357,528
455,542,561
69,351,583
Total
14,784,927,444
16,252,072,121
9,512,282,167
Notes:
With respect to timber revenues collected in Indonesia between 1974 and 1976, the negative values during these years suggest that higher-than-optimal revenues were captured, but only if no transfer pricing took place, which is unlikely.
With respect to Sabah, timber revenues collected between 1994 and 1996 have values of zero (0) because a log export ban was in place during the entire duration of those years. Actually, the log export ban actually went into effect in the beginning of 1993 and was phased out late in 1997. But because during these latter two years, a modest amount of logs were exported, and a small amount of timber revenue collected, it is still possible to derive estimates of revenue forgone per cubic meter. Indonesia, Sarawak and Sabah failed to set timber revenues at optimal levels because their departments of forestry lacked autonomy, not so much from the rent-seeking demands of capital but more importantly from the rent-seeking demands of heads of state (the president of Indonesia, and the chief ministers of Sarawak and Sabah). This study has shown how forestry departments did not possess sufficient levels of autonomy from the predatory demands of heads of state, given that the departments awarded timber concessions to companies in which heads of state, their families or proxies serve as managers and shareholders.
Conclusion
Cutting down rain forests is a double tragedy. Not only are tremendous ecological and social values destroyed forever, but when governments lack the autonomy to capture timber rent from these forests, this can negatively impact the ability of states to prosper. If there is a lesson to impart it is that as little timber rent as possible should be diverted toward patronage ends or enriching rulers. If the rain forest is to be saved, or at least not disappear without anything to show for it, developing nations must create and faithfully implement incentives for the timber industry that encourage greater efficiency and sustainability, including the optimal capture of timber rent (Brown 1999: 72-80). However, this will not occur unless nations restrain their own political elites. Such restraints will not be erected by rulers, or even bureaucrats, who generally lack the autonomy to make such reforms. Rather strong institutional restraints on elites are unlikely to arise unless civil society demands it.
Appendix 1
Analysis of the total rent appropriated annually (in dollars) by a ten-percent shareholder in a timber concession
$20
$40
$60
$80
$100
20,000 hectares
100,000
200,000
300,000
400,000
500,000
40,000 hectares
200,000
400,000
600,000
800,000
1,000,000
60,000 hectares
300,000
600,000
900,000
1,200,000
1,500,000
80,000 hectares
400,000
800,000
1,200,000
1,600,000
2,000,000
100,000 hectares
500,000
1,000,000
1,500,000
2,000,000
2,500,000
120,000 hectares
600,000
1,200,000
1,800,000
2,400,000
3,000,000
140,000 hectares
700,000
1,400,000
2,100,000
2,800,000
3,500,000
Notes:
Top row - rent in dollars per cubic meter appropriated in a particular year
Left column - concession area in hectares
The above table assumes:
a ten percent share in a concession earns a ten percent share of the rent generated by that concession
1/20 of the timber concession is harvested each year
50 cubic meters of commercially valuable timber is removed from each hectare of the concession.
Following are instructions on how to use the table above. In the chapters on Indonesia, Sarawak and Sabah, the reader will come across the names and descriptions of individual shareholders in timber concessions of various sizes. To find out how much a given shareholder banked in a year, take the size of the timber concession in which she or he holds shares, round the size to the nearest multiple of 20,000 hectares, and match it to one of the sample concession sizes in the left column of Table 2.2. Then, using figures 3.6, 4.2, and 5.2, find out the average amount of timber rent not captured during a particular year (in dollars per cubic meter), round it to the nearest multiple of $20, and match it to one of the figures in the top row of the table. Draw two imaginary lines, one left to right from the figure for concession hectarage, and one down from the figure for uncaptured rent per cubic meter. Where the two lines meet will be the annual timber rent appropriated by that individual, during the year selected, assuming that she or he held a ten percent share. Usually, however, shareholdings are not exactly ten percent. If the individual's shareholding is only 2.5 percent, divide by four. If the individual's shareholding is 40 percent, multiply by four, and so on. Following are examples, one from each of the three cases in this dissertation, on how to use the table.
Taking an example from Sarawak, Table 4.4 tells us that Chief Minister Taib's bomoh (traditional healer and spiritual medium), a probable proxy, holds a 20 percent share in the 55,912 hectare Pelutan timber concession. Picking a year at random, let's take 1993, the same year we used in the Indonesia example, we turn now to Figure 4.2, which shows that in that year, the average timber rent per cubic meter not captured by the government of Sarawak was $160 a year. We now go to the table above and draw a line straight to the right from 60,000 hectares, which is the size of the Pelutan concession rounded to the nearest multiple of 20,000 hectares. There is no column for uncaptured rent of $160, so we follow the $100 column down until it meets the first line we drew. We will remember later to upwardly revise our final figure by a multiple of 1.6. The figure in the cell where the two lines meet is $1.5 million per year. Remembering to multiply this figure by 1.6, we get $2.4 million. This means that, assuming the Chief Minister's bomoh held a 10 percent share in the concession, he banked $2.4 million in timber rent in 1993. However, he held a 20 percent share in the concession. So we multiply by two, and arrive at the figure of $4.8 million in timber rent appropriated by him in that year.
Appendix 2 Interviews
Malaysia (General)
Organization Name
Informant's Name
Date(s) of Interview(s)
Aliran
Ariffin Omar
9 July 1994
Aliran
P. Ramakrishnan
9 July 1994
Asian Wall Street Journal
Leslie Lopez
15 August 1996; 21 March 1997; 16 July 1997
Asian Wall Street Journal
Raphael Pura
26 June 1996;
18 August 1997
Deutsche Morgan Grenfell, Senior Analyst
Long Shih Rome
3 April 1997
Dresdner Kleinwort Benson
Seow Choong Liang
25 July 1997
Dresdner Kleinwort Benson, Corporate Finance, Director
Piers Willis
26 November 1997;
23 January 1998
Environmental Protection Society of Malaysia (EPSM)
Gurmit Singh
5 August 1994
Ethylene Malaysia (Etylnas), Operations Department
Aznan Zahid
18 June 1996
Far Eastern Economic Review
S. Jayasankaran
15 August 1996
Federation of Malaysian Manufacturers, Industry Groups Division, Analyst
Lawrence Koong
6 March 1997
Institute for Strategic and International Studies
Rozali Mohamed Ali
14 July 1994
Jardine Fleming
Razani Radzi
8 August 1994
Malaysian Timber Industry Board (MTIB), Marketing Division
Mohd. Kheiruddin
20 August 1996
Ministry of Primary Industries
Abdul Rahim Bin Hassan
9 and 15 August 1996
Pernas
Ismail Halim
15 August 1996
Petronas, Corporate Affairs
Abdul Rahman Ishak
5 June 1996
Petronas Carigali
Sashi Kumar
17 June 1996
Petronas Gas
Syed Mohd. Kamal Alhabshi
18 June 1996
Petronas Gas
Ahmad Pathil
18 June 1996
Petronas Gas
Ozair Saidin
18 June 1996
Petronas Penapisan
Sazali Hamzah
18 June 1996
Princeton University, Woodrow Wilson School
Greg Felker
13 July 1994
Shook, Lin and Bok
Param Cumaraswamy
15 July 1994
University of California, Berkeley, Department of Sociology
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