November 30, 2015
COMMENT: Politicians in power and those they employ in the civil service, statutory bodies, government-linked corporations are arrogant. They always assume that we are stupid. May be they can fool some Malaysians all the time, but not all of us all the time. Arul Kanda Kandasamy does not seem to get the message and that is why he continues to spin and even lie.
The first thing I learned Economics 101 (Theory of the Firm) is that if total revenue minus total cost equals zero, the firm is said to have broken even. Graphically, it is the point of intersection between the total revenue curve and the total cost curve. I stand to be corrected, and if I am wrong, then I must have learned nothing from my microeconomics course at the University of Malaya under the late Professor Dr. Yip Yat Hoong in my First Year in 1960. I also knew concepts like opportunity cost, transaction cost, and “holding cost”, inter alia.
In the case of the sale of assets, one disposes them at book value, or on revaluation, or at discount to book value depending on circumstances. I do not know what Arul and his finance team did during negotiations. We are expected to accept his word that 1MDB broke even when Edra Global Energy Berhad was sold to China’s CGN Group.
The Chinese certainly did not pay a premium for those power assets. Probably, being hard-nosed businessmen, they bought them at discount by way of direct negotiations with some sweeteners including extension of the concessionary period, power offtake price to Tenaga Nasional, and tariffs with respect to some of the IPPs. Again, we are kept in the dark about the Sales & Purchase Agreement between 1MDB and the new Edra owners from China. That is Malaysia. We love to operate in the dark.
All I can say at this stage 1MDB did not make a profit from the sale of its power assets. However, it has been able to use the proceeds to reduce its debt. That was why bond markets reacted favourably to the news of the sale. Can someone else in the know educate me? I cannot trust Arul to tell the truth.–Din Merican
Teo: Does 1MDB’s Arul think Malaysians are idiots?
by FMT Reporters
Kulai MP Teo Nie Ching has charged in a statement that 1MDB Chief Arul Kanda Kandasamy “doesn’t know how to count” if he claims that the trouble-stricken government-owned company has “broken even”. “How is the sale of Edra Global Energy Bhd and its subsidiaries a ‘break even’ in 1MDB’s books? Can Arul Kanda please enlighten us?”
“Do they think Malaysians are idiots who failed their elementary mathematics in school?” The break-even in economics, business, and specifically cost accounting, is the point at which total cost and total revenue are equal, meaning there is no net loss or gain, she pointed out.
Teo was commenting on 1MDB claiming, in responding to former Prime Minister Mahathir Mohamad, that it has broken even on its investment with the help of the sale of its power assets.The MP noted that 1MDB bought the power companies for RM12.1 billion. “The energy assets have now been sold for RM9.83 billion. How is that breaking even?”
“If Arul Kanda regards that as breaking even, no wonder he can claim 1MDB to be profitable. The RM2.27 billion is nearly a 20 per cent loss for 1MDB.” In terms of debt, she added, it was even worse. “Yes, the sale of Edra to CGN Group represents a reduction in 1MDB debt by RM17 billion.”
However, she continued, the total debts incurred and assumed by 1MDB when acquiring these power companies was approximately RM30 billion. “The RM30 billion comprises USD3.5 billion (RM15 billion) bonds, RM7.4 billion short-term loans and RM8 billion inherited debts. Hence, even after reducing the debt pile by RM17 billion, there is still another RM13 billion outstanding without any asset-backing in 1MDB.”
Even if the state investor has received RM2 billion cash dividends over time throughout its ownership of the power assets, said Teo, there was still a debt of RM11 billon.