Why Integrax, Tenaga Nasional?

By P Gunasegaram, The Star

The national electricity utility should know better than to court corporate governance transgressions.

IN 2001, the country’s electricity utility, Tenaga Nasional Bhd (TNB), did a very puzzling thing – it purchased a coal mine in Kalimantan, Indonesia, for RM220mil, a move which was heavily criticised in the Malaysian media.

Basically, the critics, including this writer, questioned the need to purchase a coal mine to secure supplies of coal, which is akin to buying an oil company to secure supplies of oil.

What critics said was that the purchase of the coal mine actually tied TNB to purchasing the coal from this mine even if it was too expensive, basically tying its hands from purchasing cheaper coal from other sources.

A power utility could not feasibly be going around purchasing fuel companies to secure supplies but instead should focus on obtaining the best possible supplies from around the world and concentrate on its core business of producing, securing and distributing power efficiently and cheaply.

The sad story ended in 2007 when TNB exited the mining investment for about US$20mil, incurring a huge loss of nearly 70% of the original cost of investment. Its CEO then (and now) Datuk Seri Che Khalib Mohamad Noh said that TNB had learnt its lesson and would stick to its core business.

Really? Then what is TNB doing buying a 22% stake for RM106mil in controversial port operator and marine services firm Integrax Bhd which is currently embroiled in a bitter feud among its sibling shareholders?

Before we go further, we understand that a hundred million ringgit or two is small change for TNB which is used to operating in the billions. It is the association which irritates and, more importantly, raises questions as to its governance process.

If you can be lackadaisical about small change which is not quite small change you can well be lackadaisical about much more than that too.

But let’s give a chance to TNB first. What are its reasons for investing in Integrax? Let’s quote the two most relevant paragraphs from the utility’s announcement to the stock exchange:

“The principal activity of Integrax is investment holding while its subsidiaries are principally involved in port operations, marine services, industrial property and mining. Lekir Bulk Terminal Sdn Bhd, one of the subsidiaries of Integrax, and its associate, Lumut Maritime Terminal Sdn Bhd, are principally involved in the provision of coal-handling services and port facilities for one of TNB’s largest power plants, Stesen Janakuasa Sultan Azlan Shah, Manjung.

“The strategic acquisition will enable TNB to secure the coal-handling services for its said power plant and enhance the efficiency and operations of its power station.”

Ok, the reason is clear enough – it is strategic (as was the coal mine) and it is to secure coal-handling services (in the case of the coal mine it was to secure coal). How eerily similar to the coal mine justification! Are the latest reasons justified?

To put it mildly, we think not. The acquisition of a 22% stake in a public-listed company which has a subsidiary and associate engaged in coal handling should not predispose that company to giving TNB an advantage in securing such services.

A public-listed company must declare all related party transactions and must transact its business in such a way that it does not in any way favour the related party, or indeed any other party. That’s how Integrax must act – legally and morally.

Otherwise minority shareholders have just cause to raise an uproar. Let’s be crystal clear about this: TNB, by acquiring a 22% stake in Integrax, cannot legally or morally coax Integrax, its subsidiaries or associates into giving it coal-handling services.

In other words, just as in the case of the ill-fated coal mine, TNB has no justification for the acquisition of a 22% stake in Integrax. Period.

However much some may justify the acquisition by saying that RM100mil is small cheese for TNB, it remains indefensible and reprehensible. How TNB has allowed itself to get into this moral morass is anyone’s guess.