ONE of the promises of the newly formed government is to eradicate the concept of direct negotiations in the context of contracts awarded by the government.
Direct negotiations have over the last few years become more prominent in Malaysia, taking the place of the competitive bidding process. The argument for direct negotiations is that it saves time, cost and enhances efficiency. However, detractors have pointed out that this is not justifiable. In other words, there is no room for direct negotiations, as projects should always be open to the best parties who can carry out the job at the best price for the government.
One sector in Malaysia that has been hit by direct negotiations is the energy sector. For the last few years, it has been thrust into some level of uncertainty and some would even argue, chaos. Despite the country having laid out a detailed future energy plan, the government decided to embark on direct negotiations.
Recall the project dubbed 4A, which was a 1,440 MW combined cycle power plant to be located in Pasir Gudang, Johor, that was awarded to a consortium back in 2014. That project saw its consortium shareholders fall out with each other. It was eventually taken over by Tenaga Nasional Bhd
(TNB), which is finally getting it off the ground.
In August 2016, another direct award was given to Tadmax Resources Bhd for the development of a 1,000MW combined cycle gas turbine plant. It was reported that TNB would get involved in the project, but the national utility giant walked away from participating. Tadmax is said to have done a deal to bring in a South Korean partner now.
Considering that Tadmax is not known for its expertise in the energy sector, should it take the lead in a project of this size?
Clearly, the role of the Energy Commission in awarding directly negotiated deals needs a serious relook. Should IHH continue its pursuit of Fortis?
IS IHH Healthcare Bhd’s relentless pursuit of India’s Fortis Healthcare Ltd justified?
On Friday, news emerged that cashstrapped Fortis had accepted an investment offer worth 18 billion rupees (US$267.7mil or RM1.06bil) from India’s Hero-Burman consortium, following a fiercely-contested bidding war for the cash-strapped hospital chain.
This had come about after an intense pursuit from various parties for Fortis.
Besides IHH Healthcare’s interest, others pursuing Fortis included a consortium of Manipal Hospitals and TPG Capital, Radiant Life Care, backed by KKR & Co, and China’s Fosun International.
But soon after the announcement by Fortis Healthcare yesterday, IHH Healthcare told Bloomberg that it is still in the race to buy the former and is currently evaluating its options, including reaching out directly to shareholders with a possible hostile bid. IHH Healthcare said it believes its bid is the most compelling for the benefit of all stakeholders.
The strong interest by all parties in Fortis is due to the soaring demand for private healthcare in India, where its public healthcare system remains stretched. Furthermore, private healthcare is poised to get a boost from the government’s plans to implement a healthcare system aimed at providing insurance coverage to a large segment of the Indian population.
But a relentless pursuit by IHH Healthcare has its risks. For one, India remains a country where the terrain on regulated industries can be rough. Foreign investors have lost money being unable to navigate through the regulatory authorities.
The risk of companies controlled by locals navigating issues with authorities is much lower compared to foreign-owned companies. Apart from regulatory risk, the intense bidding could end up in an inflated valuation. Finally, Fortis has problems with its books. The auditor has not given it a clean bill of health, while it has cash-flow problems to run its operations. In light of all this, is IHH Healthcare’s relentless pursuit of this asset justified?
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