Malaysian Maverick: Mahathir Mohamad in Turbulent Times by Barry Wain (fantasy novels to read .TXT) 📕

later that the people who were put in charge initially "had no idea of managing a steel mill at all...So I had to change" them.[113]

Dr. Mahathir turned to his friend, Eric Chia. [114] The burly, tough-talking Chia, who once headed UMW Holdings Bhd., an auto and heavy-equipment assembler, took over Perwaja in 1988 as the prime minister's personal troubleshooter with the authority to do what was necessary to turn it around. Just how much latitude he had became clear when a finance ministry representative on Perwaja's board tried to tighten internal financial procedures. Chia told him to get lost: He was reporting to Dr. Mahathir and had approval to do as he pleased.

With characteristic gusto, Chia plunged into the task of revamping Perwaja and building an integrated steel industry around it. The company poured in a further RM2 billion, building a new direct-reduction facility in Trengganu, and a rolling mill and a beam-and-section plant in Kedah. The funding included a fresh government equity injection of RM650 million. Perwaja also borrowed heavily from local and overseas banks, among them Bank Bumiputra, whose loans to the steelmaker totaled RM860 million. The Employees Provident Fund, the national pension plan that was used as a conduit for bumiputra share allocations in the tin caper, extended a loan of RM130 million, guaranteed by a group of Malaysian banks.

Chia's hustle and confidence seemed to work. He announced Perwaja's first profit in the early 1990s, winning praise from Dr. Mahathir, who visited the Trengganu site and basked in the glow of apparent success. Chia's boast that the government would recoup its investment quickly by privatizing the main operating unit, Perwaja Steel Sdn. Bhd., and listing it on the stock exchange, appeared close to reality.[115]

Then everything fell apart. Actually, it was an illusion all along, discovered after Chia resigned abruptly in August 1995 with scarcely a word of explanation for his seven years as managing director. Anwar Ibrahim, the finance minister, told the Malaysian Parliament that Perwaja lost RM376.5 million in the year ended 31 March 1995. [116] It swelled total losses since Perwaja was formed to RM2.49 billion, two and a half times the company's paid-up capital and reserves, and up from RMl billion in accumulated losses when Chia took control. Long-term debt was threatening to obliterate the company. [117] Anwar, whose finance ministry's holding unit owned 81 per cent of Perwaja, announced that the government would honour all Perwaja's commitments and repayments. The pledge was considered vital, as a default on one loan could trigger cross-default clauses in loan agreements with other creditors, exposing Malaysia to a potential banking crisis. [118] Anwar ordered a comprehensive external audit of the company's finances and management by accounting firm Price Waterhouse & Company.

A confidential report prepared by Perwaja's new management team, under Managing Director Wan Abdul Ghani Wan Ahmad, was even more stunning. It sent shockwaves through Malaysia's political and business establishment after it was submitted to Anwar at the end of 1995 and leaked to the press. Perwaja's situation was perilous, requiring at least RM400 million in cash immediately to keep going. Unable to pay some creditors, it was seeking a moratorium on repayment of interest and principal on part of its RM5.7 billion in bank borrowings. "In the current global steel scenario, where competition is overwhelming and margins are thin, Perwaja's strategy of over-gearing is suicidal," the report said. It added, "Perwaja is over-borrowed, over-geared and insolvent."[119]

It was the report's findings of alleged mismanagement under Eric Chia, however, that were the most explosive. Among other things, it alleged that the company's finances were damaged by inaccurate accounting records and by hundreds of millions of ringgit in apparently unauthorized and one-sided contracts with Malaysian and foreign companies. It also listed instances of successful and attempted alleged misappropriation of Perwaja funds, including the overseas payment of 2.89 billion yen, over which Chia was eventually charged — and cleared. The report strongly suggested that the irregularities contributed to Perwaja's financial and operational problems. In one case, Perwaja Rolling Mill & Development Sdn. Bhd., the other main operating unit, allegedly misused the proceeds of a US$196 million loan from three Japanese companies. The loan was meant for spare parts and services for the beam-and-section mill. Instead, it was "fully utilized for other purposes", such as unrelated capital expenditures and repayment of unrelated debt. As a result, the new mill needed RM70 million to buy spare parts and had still to be commissioned.[120]

According to the report, between 1992 and 1995 Perwaja signed 25 maintenance contracts valued at RM292 million with local companies whose lack of experience undermined Perwaja's operations. The contracts were allegedly exorbitantly priced and permitted some contractors to purchase parts independently and bill Perwaja for them. One contractor bought RM103 million of spare parts of "questionable" quality for Perwaja Rolling Mill, "far beyond" what the company needed, but still Perwaja paid up. Another company was getting almost RM200,000 a month for gardening, cleaning and vehicle maintenance, showing "the degree of absurdity of such contracts that Perwaja had entered into".[121]

Some business arrangements with foreign contractors were equally dubious. One Japanese company was being paid commission of US$3 a tonne for iron-ore pellets and scrap purchased on world markets, when the international rate was about US$0.75. A Singapore commodity-trading outfit had been engaged to market Perwaja's direct-reduced products at a shipment price of US$112 a tonne, when the quoted market price was US$150.

The preliminary findings of the Price Waterhouse audit, which Anwar disclosed in Parliament in mid-1996, essentially confirmed the internal assessment. In what was the government's first detailed account of what went wrong, Anwar said, "The practices and the way business was carried out by the Perwaja group is [sic] very disappointing, and it is no surprise that Perwaja is facing a financial crisis." Price Waterhouse, he said, criticized Perwaja's lack of financial controls, its tendering procedures for supply and capital-investment contracts, and the absence of performance-evaluation controls for contractors. The company's board, consisting mostly of retired diplomats, civil servants and