1MDB – one digit and three letters, an acronym used now to describe the state of the affairs of Malaysia. You’ve read about it, thought about it and probably still are as confused as we are about all the numbers and the alleged corruption that’s taken place.
We decided to take a step back to see where and how it all started.
1. Terengganu origins
1Malaysia Development Berhad (1MDB) began with a different name.
In 2008, it started as a sovereign wealth fund, called the Terengganu Investment Authority (TIA), created to boost economic development for people in Terengganu, through sustainable and long-term investments. The TIA was then turned into a federal agency to allow its economic benefits to reach more Malaysians, rather than just those in the state.
The Prime Minister’s Office in 2009 announced that this authority was to invest billions of ringgit in real estate, tourism and energy.
2. Royalty
The TIA was proposed by the former King, Yang di-Pertuan Agong Tuanku Mizan Zainal Abidin. It was agreed that the fund then would be operated by professionals, with supervision by investors and foreign bankers. Shahrol Halmi, its chief executive officer was a former executive partner at Accenture.
The authority was to have had a triple-tier check and balance system comprising the board of directors.
First, this means that it must have had representatives from the stakeholders who cannot hold positions in the Government or occupy any political positions, followed by a board of advisers and a senior management team which will have a “mix of experienced, prominent local and international individuals”.
In news shared from the Prime Minister’s Office, Tunku Mizan was to have been the chairman of the TIA board of advisors, while accompanied by the Mentri Besar who was also on the board.
The Mentri Besar of Terengganu (MB Inc) was to have owned 100 per cent of the ordinary shares of TIA with the Ministry of Finance (Inc) and the TIA Foundation, supposedly planned for social development initiatives.
At that time, TIA’s board was to be advised by an economic advisory panel which had representation from the Employees Provident Fund (EPF) chief executive officer Datuk Azlan Zainol and Felda Holdings’ managing director Mohd Bakke Salleh.
The green light was given for TIA to invest into businesses in Terengganu and other parts of the country, as well as global bonds.
3. Political squabbles
In this book, Pilot Studies for a New Penang, edited by Ooi Kee Beng and Goh Ban Lee, it was pointed out that the formation of sovereign fund TIA was proposed to manage the revenue from royalties and gas, a source of tension and in-fighting within UMNO’s Terengganu divisions.
There was tension within UMNO and Barisan Nasional ranks at this time being post 2008 election period after several states fell to opposition parties. Barisan Nasional’s hold on ruling Malaysia was shaken after opposition gained control of Selangor, Penang, Kedah and Kelantan.
4. Investing oil royalty
Oil-rich state Terengganu’s revenue from this precious resource had to be managed, so it was to be done through the TIA. This report stated that the TIA would raise RM11bil for investments. Nearly half of it were to be government-guaranteed bonds while, the remainder were bonds to be collateralised by oil royal payments to Terengganu.
Oil royalty payments are fees that the Federal Government pays to the Terengganu state government as part of an arrangement to drill oil off the state.
When Terengganu was under opposition rule in 2000, the Federal Government had cancelled such payments, only to reinstate it when control went back to the ruling coalition.
5. Federal Government gains 10 per cent net profit
A Bernama report on the Prime Minister’s Office site quoted Prime Minister Najib Razak as saying at the time that the Federal Government was to profit 10 percent from investments in the TIA. He was responding to a question on the rationale of the government’s guarantee for the TIA’s RM5 billion fund.
The shareholders (as explained in No.4) had also owned one preference share each. This entitles the holder to certain approval rights as well as a 10 percent share of TIA’s annual after-tax profits.
Najib, who is the current Minister of Finance, was certain that the TIA was a good decision in terms of the true spirit of partnership with the Terengganu state government and would help the state government and also boost the country’s economy.
6. Penang Investment Authority
Terengganu’s counterparts in Penang were keen on replicating this new investment body and in May 2009, Chief Minister Lim Guan Eng expressed interest to do so, calling it the Penang Investment Authority (PIA), while applying for a RM5 billion guaranteed capital.
Lim had said the proposed authority would focus on several major economic projects in high-end value-added manufacturing, biotechnology, knowledge economy, Information, Communications and Technology, research and development and tourism in Penang, as well as other parts of Malaysia.
In a similar model as the TIA, the authority would be 100 per cent owned by Chief Minister Incorporated, with the Finance Ministry holding a preference share that entitles it to certain approval rights with respect to the appointment of directors, and also 10 per cent of PIA’s yearly net profits.
7. Terengganu backs out
About a year after the TIA was established, the state government of Terengganu decided to withdraw. It’s all turning murky at this stage when we trawl the online space for media reports, finding very little, only news quoting statements that the entity was federalised in July 2009.
The former Terengganu Mentri Besar Ahmad Said had said that the Prime Minister was angry with him and, along with a host of other reasons, this caused the state government to pull out of the TIA.
Ahmad Said made controversial headlines by see-sawing on his position when he was allegedly removed as Mentri Besar. At the same time, when questioned by the media, he denied resigning from UMNO, and Barisan Nasional.
8. Fights over whether it was about oil
Sometime this year, the current Mentri Besar of Terengganu Ahmad Razif Abdul Rahman, had come out to refute claims that the state’s oil and gas industry had been made collateral for the former TIA, now 1MDB.
He claimed that “In fact, Terengganu Investment Authority (TIA) does not have any relation with 1Malaysia Development Berhad (1MDB),” as a response to former mentri besar Ahmad Said’s allegations that TIA had tried to pawn the state’s oil and gas industry.
Ahmad Razif went on to argue that the state government had also unanimously decided to back out after realising that the time was not right, not wanting to bear any risks after realising the state could not manage TIA.
This brought on rebuttals from opposition politican Rafizi Ramli who insisted that 1MDB’s Memorandum of Articles and Association Agreement is no different from that of its precursor TIA.
He claimed that checks with the Companies Commission of Malaysia (CCM) showed that 1MDB shares the same company registration number with the TIA. The Prime Minister had also announced that the TIA was to be turned into a federal agency.
8. Middle East models
We then found this report, describing TIA’s model that’s supposedly based on an Abu Dhabi investment firm.
In 2009, The firm, called Mubadala Development Company, was to invest in partnership with TIA energy, real estate and hospitality sectors across Malaysia.
News published on the site of the Malaysian Embassy in Abu Dhabi quoted Najib as stating that the Abu Dhabi Crown Prince General Sheikh Mohammed bin Zayed Al-Nahyan, had agreed to Abu Dhabi raising its investments in Malaysia, starting with US$1 billion.
