Indonesia’s flip-flop policies
Indonesian politicians have done it again: flip-flopping on their policies, something that Malaysian corporations with investments in industries there, such as banking and plantations, have had to deal with before.
This time, it is with regards to the airline industry, where a stern rule was declared by ministry officials only recently requiring all airlines operating there to beef up their shareholders’ funds to move them into positive territory from negative. A deadline of July 31, 2015 was given. AirAsia Bhd ’s 49% unit PT Indonesia Air Asia (IAA) requires an injection of some 3,535 billion rupiah to reverse its negative equity position. Alas, days after saying that, the officials decided to soften their stance, saying they would “help and support” these firms instead, looking to now assist, support and nurse all the airlines until their equity positions improve. Perhaps, suggestions that thousands of jobs would be lost as would foreign investments into the country influenced the softening of their stance.
But it turns out that there have been even more policy U-turns in recent times, placing pressure on Indonesian President Joko Widodo to do something about it.
Jokowi, as he is better known, had taken office in October pledging to spur an economy growing at its slowest pace in more than five years.
And Jokowi seems to have acted. According to some reports, he has directed his ministers and top officials to stop all policy U-turns. A Cabinet reshuffle is also reportedly in the offing. Recently, his Government announced and then scrapped policies, including a language test for expats, a toll road tax and a ban on Government officials meeting in hotels. Will it stop?
That’s hard to tell. For some investors, though, that is just the nature of the game in Indonesia. In other words, that’s the business risk one has to live with if you want to tap into the world’s fourth most populous country.
The value proposition of consultants
One way for companies to quickly acquire help beyond their in-house capability is to engage external experts. But as Toyo Ink Group Bhd ’s shareholders were informed recently, consultants do not come cheap. The company on Thursday said it was bringing in Phu My Vinh Consulting Investment & Trading Service Company Limited (PMV) to assist in its proposed power plant project in Vietnam.
Toyo Ink had been pursuing the US$3.5bil deal for the past eight years. The company said the consultancy services provided by PMV would be “critical” in its quest to close the deal. Based on an agreement in January this year, Toyo Ink said it would pay the consultant US$35mil (RM133mil). The fee works out to 1% of the total project cost. The consultancy services agreement (CSA) needs to be approved by Toyo Ink’s shareholders at an upcoming EGM. Toyo Ink said the fee would be funded through a combination of equity and debt financing instruments to be arranged for the project.
Some of the money will come from internally generated funds. Crucially, shareholders need to know exactly when the consultants will get paid.
Under the CSA, PMV will help Toyo Ink in the negotiation of the terms of the contract, power purchase agreement, and the land lease agreement with the relevant authorities. It will also help prepare all requisite documentations for the proposed 2x1,000 megawatt coal-fired thermal power plant project in Hau Giang province, Vietnam.
The project will be implemented on a build, operate and transfer basis, with Toyo Ink as a project investor. The approval from the Vietnamese Government for Toyo Ink to undertake the project feasibility study came last March. So far, it has been a slow process for Toyo Ink, which first announced its plan to invest in a power plant project in Vietnam back in 2007. Hence, it only makes sense if the contribution of the consultant materialises first before it is paid the bulk of its fees. Only then would that significant amount of monies be justified.
Proton’s 30-year journey
This week, national car company Proton celebrated its 30 years in business. The journey has not been smooth, with the once giant of the automobile industry now in second place, and some distance based on car sales, behind rival Perodua.
Proton is a car company that elicits mixed feelings. It’s either you are for or against the car company. That reaction has been manufactured from the protection the company enjoyed to get it going. People had to pay high prices for their automobiles to protect Proton in its formative years. Nobody liked that.
The reality is that people’s incomes have increased over the years, thus expanding their affordability in buying other marques. Brand loyalty is one thing, but like many things in life, once people have more money, their purchasing options grow.
The one thing that is reassuring is that Proton is not crying foul or asking for more protection. The leeway from investors, bankers and the buying public is not what it was a long time ago. In its interview last week, it is clear that it knows of missed opportunities and intends to compete against other cars.
The quality of the product has to improve and Proton is painfully aware of that. Perception is a major thorn in its ability to sell cars and it would be great if it addresses the stigma attached to its cars in the upcoming models.
The big thing now for Proton is the three models it plans to launch next year. It needs them to be winners. It is taking its time to ensure that it doesn’t make the same mistakes in the past, where cars were launched prematurely before all the kinks had been removed from the models.
Many Malaysians may not agree with what Proton has done in the past and its repercussions on the auto industry, but many would want to see it succeed. Its prosperity will mean lower prices and better cars on the road. Happy birthday and best wishes for a better future.