Getting Rich in Malaysia Cronyism Capital Means Dayak Lose Home
August 25, 2008 (Bloomberg)
By Yoolim Lee
After a stomach-churning takeoff
from a 550-meter runway at Long Banga airstrip on the Malaysian
side of the island of Borneo, the 19-seat plane soars over a
green tropical wilderness. This is one of the world’s last
remaining virgin rain forests.
About 30 minutes into the flight to the bustling oil town
of Miri, the lush landscape changes, and neatly terraced fields
of oil palms take the place of jungle. Twenty years ago, this
was forestland. Now, those forests are lost forever.
The shift from rain forest to oil palm cultivation in
Malaysia’s Sarawak state highlights the struggle taking place
between forces favoring economic development, led by Sarawak
state’s chief minister, Abdul Taib Mahmud, and those who want to
conserve the rain forest and the ways of life it supports.
During Taib’s 28-year rule, his government has handed out
concessions for logging and supported the federal government’s
megaprojects, including the largest hydropower site in the
country and, most recently, oil palm plantations. The projects
are rolling back the frontiers of Borneo’s rain forest, home to
nomadic people and rare wildlife such as orangutans and
proboscis monkeys.
At least four prominent Sarawak companies that have
received contracts or concessions have ties to Taib or his
family.
Transforming Malaysia
The government of Malaysia plans to transform the country
into a developed nation by 2020 through a series of projects
covering everything from electric power generation to education.
The country’s gross domestic product, which has been growing at
an average 6.7 percent annual pace since 1970, shrank 6.2
percent in the first quarter.
In Sarawak, Taib’s government is following its own
development plans that call for doubling the state’s GDP to 150
billion ringgit ($42 billion) by 2020. Sarawak Energy Bhd.,
which is 65 percent owned by the state government, said in July
2007 it plans to build six power plants, including hydropower
and coal-fired generators.
The state government also wants to expand the acreage in
Sarawak devoted to oil palms to 1 million hectares (2.5 million
acres) by 2010, from 744,000 at the end of 2008, according to
Sarawak’s Ministry of Land Development. Companies that formerly
chopped down hardwood trees and exported the timber are now
moving into palm plantations.
Lawsuits Filed
Meanwhile, many of the ethnic groups who have traditionally
lived from the land in Sarawak -- known as Dayaks -- have filed
lawsuits that aim to block some projects and seek better
compensation.
Sarawak’s ambitions could be hindered by a lack of good
governance, which would shut out overseas investors, says Steve
Waygood, head of sustainable and responsible investment research
at Aviva Investors in London, which manages more than $3 billion
in sustainable assets.
“Even just the perception of corruption can lead to
restricted inflows of capital from the global investment
community into emerging markets such as Sarawak,” says Waygood,
who wrote about reputational risk in a 2006 book, “Capital
Market Campaigning” (Risk Books).
“The largest and most responsible financial institutions
are very careful to avoid funding unsustainable developments,”
he says.
Unilever, which buys 1.5 million tons of palm oil a year --
4 percent of the world’s supply -- for use in products such as
Dove soap and Flora margarine, announced in May that it would
buy only from sustainable sources.
No Direct Purchases
“Unilever does not source any palm oil directly from
Sarawak,” says Jan Kees Vis, Unilever’s director of sustainable
agriculture. “We buy from plantation companies and traders
located elsewhere.”
He says Unilever has committed by 2015 to buy all of its
palm oil from sources certified by the Roundtable on Sustainable
Palm Oil, a group representing palm oil producers, consumers and
nongovernmental organizations that seeks to establish standards
for sustainably produced palm oil. The Malaysian Palm Oil
Association, a government-supported group of Malaysian
plantation companies, is a member of the RSPO.
About 35 percent of the world’s cooking oil comes from palm
-- more than any other plant, according to the U.S. Department
of Agriculture. And 90 percent of the world’s palm oil comes
from Malaysia and Indonesia.
Skittles and Soap
The oil is an ingredient used in everything from Skittles
candy to Palmolive soap to some kinds of biodiesel fuel. Palm
oil futures have climbed 45 percent this year as of Aug. 24 on
concern that dry weather caused by El Nino may reduce output.
Crude oil prices rose to a 10-month high of $74.24 a barrel,
spurring demand for biodiesel.
Malaysia lost 6.6 percent of its forest cover from 1990 to
2005, or 1.49 million hectares, the most-recent data available
from the United Nations Food and Agriculture Organization show.
That’s an area equivalent to the state of Connecticut.
Neighboring Indonesia lost forestland at the fastest annual
rate among the world’s 44 forest nations from 2000 to 2005,
Amsterdam-based Greenpeace says.
“Palm oil is the new green gold after timber,” says Mark
Bujang, executive director of the Borneo Resources Institute in
Miri, a city of about 230,000 people in Sarawak. “It has become
the most destructive force after three decades of unsustainable
logging.”
While Malaysia’s palm oil exports have more than doubled to
a record 46 billion ringgit in 2008 from 2006, according to the
country’s central bank, the gain has come at a price.
Displaced People
Development projects and palm plantations have displaced
thousands of people, some of whom have lived for centuries by
fishing, hunting and farming in the jungle. Almost 200 lawsuits
are pending in the Sarawak courts relating to claims by Dayak
people on lands being used for oil palms and logging, according
to Baru Bian, a land rights lawyer representing many of the
claimants.
A handful of activists have been found dead under
mysterious circumstances or disappeared, including Swiss
environmental activist Bruno Manser, who vanished in the jungle
in 2000.
Cutting down rain forests to cultivate palms in Sarawak has
consequences far beyond Malaysia, says Janet Larsen, director of
research at the Washington-based Earth Policy Institute.
The forests that are being destroyed help modulate the
climate because they remove vast stores of carbon from the
atmosphere. Chopping down the trees ends up releasing greenhouse
gases.
'Lungs of the Planet’
“These last remaining forests are the lungs of the
planet,” Larsen says. “It affects us all.”
Chief Minister Taib, 73, has multiple roles in Sarawak.
He’s also the state’s finance minister and its planning and
resources management minister -- a role that gives him the power
to dispense land, forestry and palm oil concessions as well as
the power to approve infrastructure projects.
Until last year, Taib held the additional role of chairman
of the Sarawak Timber Industry Development Corp., which fosters
wood-based industries in the state.
Anwar Ibrahim, the former Malaysian finance minister who’s
the head of the country’s opposition alliance, sees parallels
between Taib’s rule and those of other long-standing leaders in
Southeast Asia, such as former Indonesian President Suharto and
former Philippine leader Ferdinand Marcos.
“It’s an authoritarian style of governance to protect their
turf and their families,” says Anwar, who was fired as deputy
prime minister by then Prime Minister Mahathir Mohamad in 1998
and jailed on charges of having homosexual sex and abusing
power. The sodomy conviction was overturned in 2004.
‘Driven by Greed’
Sim Kwang Yang, an opposition member of parliament for
Sarawak’s capital city of Kuching from 1982 to 1995, agrees with
Anwar’s assessment. “It is crony capitalism driven by greed
without any regard for the people,” he says.
Taib’s adult children and his late wife, Lejla, together
owned more than 29.3 percent of Cahya Mata Sarawak Bhd., the
state’s largest industrial group, with 40 companies involved in
construction, property development, road maintenance, trading
and financial services, according to the company’s 2008 annual
report.
Local residents jokingly say that the company’s initials,
CMS, stand for “Chief Minister and Sons.”
In total, CMS has won about 1.3 billion ringgit worth of
projects from the state and the federal government since the
beginning of 2005, according to the firm’s stock exchange
filings.
Taib declined to comment for this article. In an interview
he gave to Malaysia’s state news agency, Bernama, on Jan. 13,
2001, Taib said CMS’s ties to him had nothing to do with its
winning government jobs.
‘Not Involved’ in Contracts
“I am not involved in the award of contracts,” he said.
“No politician in Sarawak is involved in the award of
contracts.”
He told Bernama he doesn’t ask for special treatment of his
sons. “I never ask anybody to do any favors,” he said.
Mahmud Abu Bekir Taib, the elder of Taib’s two sons, is
CMS’s deputy chairman and owns 8.92 percent of the firm,
according to the annual report. Sulaiman Abdul Rahman Taib, the
younger son and CMS’s chairman until 2008, holds an 8.94 percent
stake.
Taib’s two daughters and his son-in-law are also listed in
the annual report as “substantial shareholders.”
Taib’s History
Taib, a Muslim who belongs to the Melanau group -- one of
about 27 different ethnic groups in Sarawak -- entered politics
at the age of 27 after graduating from the University of
Adelaide in Australia with a law degree in 1960.
He held various ministerial positions in Sarawak and
Malaysia before taking over in 1981 as the chief minister from
his uncle, Abdul Rahman Yaakub. Rahman, now 81, ruled Sarawak
for 11 years.
Taib, who has silver hair, appears almost daily on the
front pages of Sarawak newspapers, sometimes sporting a goatee
and a pair of rimless glasses, at the opening of new development
projects or local events.
He lives in Sarawak’s capital city of Kuching, an urban
area of about 600,000 people on the Sarawak River. Its
picturesque waterfront is dotted with colonial buildings, the
legacy of British adventurer James Brooke, who founded the
Kingdom of Sarawak in 1841 and became known as the White Rajah.
Brooke’s heirs ruled the kingdom until 1946, when Charles Vyner
Brooke ceded his rights to the U.K. Sarawak joined the
Federation of Malaysia on Sept. 16, 1963, along with other
former British colonies.
Cousin’s Role
At Taib’s mansion, which overlooks the river, he receives
guests in a living room decorated with gilt-edged European-style
sofa sets, according to photos in the July to December 2006
newsletter of Naim Cendera Holdings Bhd., which changed its name
to Naim Holdings Bhd. in March.
Naim is a property developer and contractor whose chairman
is Taib’s cousin, Abdul Hamed Sepawi. He is also chairman of
state power company Sarawak Energy and timber company Ta Ann
Holdings Bhd., and is on the board of Sarawak Timber Industry
Development Corp. and Sarawak Plantation Bhd.
Naim and CMS jointly built Kuching’s iconic waterfront
building, the umbrella-roofed, nine-story Sarawak State
Legislative Assembly complex. Naim has won more than 3.3 billion
ringgit worth of contracts from the state and the federation
since 2005, its stock exchange filings show.
Companies Respond
Ricky Kho, a spokesman for Naim, said the company declined
to comment for this article. Naim’s deputy managing director,
Sharifuddin Wahab, said in an interview with Bloomberg News in
July 2007 that the chairman’s family ties weren’t why the
company won government contracts.
“We have been able to execute our projects on time, we
stick to the budget and the quality of what we hand over to the
government is up to their expectations, if not more,” he said.
“Our teams have always acted professionally” when working
with the government, whether on large or small projects, CMS’s
group managing director, Richard Curtis, said in an e-mail. “CMS
is governed by the strict listing regulations of the Malaysian
stock exchange,” he said, adding that the chairman and the group
managing director are both independent.
“The large projects carry with them an equally large risk,
including a huge reputational risk, particularly for crucial
projects by the government,” he said. “It is the government’s
prerogative and discretion to award projects using a variety of
approaches that includes open and closed tenders as well as
directly negotiated processes, to the contractors and developers
they feel will deliver the project as promised.”
Malaysia’s reputation as a place to conduct business has
deteriorated in recent years, according to Transparency
International, the Berlin-based advocacy group that publishes an
annual Corruption Perceptions Index.
‘Monument of Corruption’
Transparency ranked the country 47th out of 180 in 2008,
down from 43rd in 2007. Transparency also has singled out the
Bakun Hydroelectric Dam, under construction on the Balui River
in Sarawak, as a “monument of corruption.”
The index lacks fairness, says Ahmad Said Hamdan, chief
commissioner of the Malaysian Anti-Corruption Commission,
because it doesn’t take into consideration the size of the
population of the countries in the ranking, for example.
“I’ve seen a lot of improvement in civil service in the
past 10 years,” he says.
Dead Fish
Early this year, hundreds of dead fish started floating on
the muddy river near the Bakun dam site. The fish were killed by
siltation, which was triggered by uncontrolled logging upstream,
Sarawak’s assistant minister of environment and public health,
Abang Abdul Rauf Abang Zen, says. He says the Bakun dam has very
strict environmental assessments and isn’t to blame for the
siltation.
In January, Tenaga Nasional Bhd., Malaysia’s state-
controlled power utility, and Sarawak Energy said they won
approval from the national government to take over the operation
of the hydropower project through a leasing agreement. Sarawak
Energy also won preliminary approval to export about 1,600
megawatts of electricity from the 2,400-megawatt Bakun project,
once it begins operating, to Peninsular Malaysia. The remaining
power will go to Sarawak.
Taib announced a plan called New Concept in 1994. The aim
was to bring together local people, with their customary rights
to the land, and private shareholders, who would provide capital
and expertise to create plantations. The plan called for
companies to hold a 60 percent stake in the joint ventures, the
state to own 10 percent and the remaining 30 percent to go to
local communities in return for a 60-year lease on their land.
‘Emotional’ Disputes
That time period equals about two complete cycles of oil
palm development. An oil palm typically matures in 3 years,
reaches peak production from 5 to 7 years and continues to
produce for about 25 years, says Nirgunan Tiruchelvam, a
commodities analyst at Royal Bank of Scotland Group Plc in
Singapore.
The policy has led to some disagreements. In his interview
with Bernama in 2001, Taib said land acquisitions by the state
have led to “emotional” disputes because some people seek too
much compensation.
“We are not allowed to pay more than market value,” he
told Bernama. He said people need to prove that they have
traditionally lived in an area -- for example, by providing an
aerial photograph -- in order for the state to grant them title
to the land.
“If there are disputes, they go to the court,” Taib told
Bernama.
Some local people say they received no compensation at all
for their land. In Kampung Lebor, a village about a two-hour
drive from Kuching, 160 families, members of the Iban group that
was formerly headhunters, live in longhouses and survive by
fishing and some farming. The Iban are Sarawak’s largest single
group of Dayaks, who make up about half of the state’s 2.3
million population.
Land Overlap
In mid-1996, the state handed out parcels of land that
overlapped with the community’s customary hunting and fishing
areas to the Land Custody and Development Authority and Nirwana
Muhibbah Bhd., a palm oil company in Kuching.
In mid-1997, the authority and the company cleared the land
with bulldozers and planted oil palm seedlings, according to a
copy of Kampung Lebor’s writ of summons filed to the High Court
in Kuching.
Government ‘Cruel’
“The government is cruel,” says Jengga Jeli, 54, a father
of five in Lebor. “Fruit trees have been cut down. It’s become
harder to hunt and fish. Now we are forced to get meat and
vegetables from the bazaar, and we are very poor.” Jengga’s
village filed a lawsuit in 1998 against Nirwana, LCDA and the
state government in a bid to get compensation.
The case was finally heard in 2006 and is now awaiting
judgment, according to Baru Bian, who is representing the Iban
in Kampung Lebor. Reginal Kevin Akeu, a lawyer at Abdul Rahim
Sarkawi Razak Tready Fadillah & Co. Advocates, which is
representing Nirwana and LCDA, declined to comment.
The cases show that the development projects, including
plantations and dams, haven’t helped poverty among the local
people, many of whom live without adequate electricity or
schools, says Richard Leete, who served as the resident
representative of the United Nations Development Program for
Malaysia, Singapore and Brunei from 2003 to 2008.
Poverty Remains
“This is the paradox of Sarawak -- the great wealth it has,
the natural resources in such abundance, and yet such an
impoverishment and the real hardship these communities are
suffering,” says Leete, who chronicled Malaysia’s progress since
its independence from Britain in his book “Malaysia: From
Kampung to Twin Towers” (Oxford Fajar, 2007). “There has no
doubt been a lot of money politics,” he says.
In the rugged hills about 150 kilometers (93 miles) south
of Kuching, some 160 Bidayuh families, known as the Land Dayaks,
are clinging to their traditional habitat, while a dam is under
construction nearby. They live by farming and fishing.
With only a primary school in the village, children have to
go to boarding schools outside the jungle to get further
education, crossing seven handmade bamboo bridges and trekking
two hours over the hills when they return home.
The state has offered the Bidayuhs 7,500 ringgit per
hectare, 80 ringgit per rubber tree and 60 ringgit per durian
fruit tree in compensation for their native land, says Simo ak
Sekam, 48, a resident of Kampung Rejoi, one of four villages in
the area. In Rejoi, about half of 39 families have refused.
Bamboo Bridges
“We don’t want to move because we are happy here,” Simo
says. “We feel very sad because our land will be covered with
water. The young generations won’t know this land. They won’t
see the bamboo bridges.”
The builder of the local reservoir is Naim Holdings -- the
company headed by Chief Minister Taib’s cousin. The government
awarded Naim the 310.7 million-ringgit contract without putting
it out for bids. Naim’s statement announcing the deal in July
2007 said it won the job on a “negotiated basis.”
One of the most threatened groups is the Penan, nomadic
people who live deep in the jungle on the upper reaches of the
Baram River. On a steamy equatorial morning in late October
2007, Long Kerong village leader Kelesau Naan and his wife,
Uding Lidem, walked two hours to their rice-storing hut.
Kelesau, who was in his late 70s and who had protested logging
activity in their area, told Uding he’d go check on an animal
trap he had set nearby. He never came back.
Skull and Bones Found
Two months later, his skull and several pieces of his
bones, along with his necklace made of red, yellow and white
beads, surfaced on the banks of the Segita River. Inspector
Sumarno Lamundi at the regional police station says the
investigation is ongoing.
It was just the latest tragedy among activists working for
the Penan since the early 1990s, when rampant logging took
place. At least two other Penan were found dead, including Abung
Ipui, a pastor and an advocate for land rights for his village.
His body was found in October 1994 with his stomach cut open.
Manser, the Swiss activist for the rights of the Penan,
vanished without a trace from the Borneo rain forests in May
2000 and was officially declared missing in March 2005.
Kelesau’s death has made the Penan willing to stand up for
their survival.
“We are scared of something terrible happening to us if we
don’t resist,” says grim-faced Bilong Oyoi, 48, headman of Long
Sait, a Penan settlement close to Long Kerong.
Penans ResistancePenan
Bilong, who wears a traditional rattan hat decorated with
hornbill feathers, says his group is setting up blockades to
resist logging activities. They are also working with NGOs to
get attention for their plight and filing lawsuits.
With the help of the Basel, Switzerland-based Bruno Manser
Fund, an NGO set up by the late activist, Bilong and 76 other
Penan sent a letter -- which some signed using only thumb prints
-- to Gilles Pelisson, the chief executive officer of French
hotel chain Accor SA.
The letter urged Accor to think twice about partnering with
logging company Interhill Logging Sdn. to build a 388-room
Novotel Interhill in Kuching. The Penan community says
Interhill’s operations in Sarawak have a devastating effect on
them. Accor responded by sending a fact-finding mission to
Sarawak to investigate Interhill’s logging activities.
“If the worst-case scenario occurs and if no action plan
is implemented, we will not continue with our partnership,”
Helene Roques, Accor’s director for sustainable development in
Paris, said in June. In mid-August, she said she expects “good
results” by the end of September.
Rio Tinto Venture
No foreign investor has made a larger bet on Taib’s
development plans than Rio Tinto Alcan, a unit of London-based
mining company Rio Tinto Plc. A joint venture between Rio Tinto
and CMS for a $2 billion aluminum smelter has been negotiating
power purchase agreements with Sarawak Energy for more than 12
months, according to Julia Wilkins, a Rio Tinto Alcan
spokeswoman in Brisbane, Australia.
CMS meets Rio Tinto’s requirements as a joint-venture
partner, she says. “CMS is a main-board-listed company with its
own board of directors,” she says. “It has a free float of
shares in excess of the minimum market requirement. The chairman
and the group managing director are both independent.”
Malaysia grants special economic advantages to the
country’s Malay majority and the local people of Sabah and
Sarawak states on Borneo, collectively referred to as Bumiputra
-- literally, sons of the soil.
Still, the country is leaving behind many of its ethnic
minorities, says Colin Nicholas, a Malaysian activist of
Eurasian descent who has written a book about the mainland’s
oldest community, “The Orang Asli and the Contest for Resources”
(IWGIA, 2000).
‘Completely Powerless’
One person trying to help the Dayaks is See Chee How, 45, a
land rights lawyer who became an activist after meeting Sim, the
former opposition member of parliament in Kuching.
In 1994, See witnessed an attack on Penan demonstrators
who’d erected a roadblock to prevent logging trucks from driving
through their land. A 6-year-old boy died after security forces
used tear gas on the demonstrators, he says.
“They were completely powerless,” recalls the soft-spoken,
crew-cut See, sporting a white T-shirt and a pair of jeans, in
his office above a bustling market in Kuching. “They were
depending on logging trucks to move around because their
passageways had been destroyed by logging trails.” See now works
with Baru Bian, 51, one of the first land rights lawyers
representing the Dayaks in Sarawak.
Lawsuits and Votes
Nicholas says Sarawak’s people have to fight for their
rights not only through lawsuits but by voting.
“The biggest problem we have with indigenous people’s
rights is that we have the federal government and state
government run and dictated by people who have no respect or
interest for indigenous people,” he says. “We need a change of
government.”
The prime minister’s office declined to comment.
Opposition leader Anwar says change is possible. His
alliance won control of an unprecedented five states in
Peninsular Malaysia in a March 2008 election. Malaysian Prime
Minister Najib Razak’s ruling coalition has lost at least four
regional polls held this year.
“I think this is a turning point,” Anwar says.
Still, Taib’s coalition won 30 of Sarawak’s 31 seats in
March 2008 parliamentary elections. That helped the ruling
National Front coalition led by then Prime Minister Abdullah
Ahmad Badawi retain a 58-seat majority, ahead of Anwar’s
People’s Alliance. Sarawak is due to hold the next election by
2011.
Taib defended his government’s program to turn forestlands
into oil palm plantations as a way of improving living standards
for the Dayaks at a seminar on native land development in Miri
on April 18, 2000.
“Land without development is a poverty trap,” he said,
according to his Web site. Many Dayak people, who have seen
their land transformed as a result of Taib’s policies and
companies linked to him, say they are still waiting to see their
share of wealth.
For Related News and Information:
Stories on Malaysia: NI MALAY BN <GO>
Stories on palm oil markets: TNI PALMOIL AGMARKET BN <GO>
Malaysian economic statistics: ECST MA <GO>
For top environmental news: GREEN <GO>
(Published in the October issue of Bloomberg Markets magazine.
--With assistance from Claire Leow in Singapore and Ranjeetha
Pakiam in Kuala Lumpur. Editors: Laura Colby
To contact the reporter on this story:
Yoolim Lee in Singapore at +65-6212-1581 or
yoolim@bloomberg.net
To contact the editor responsible for this story:
Laura Colby at +1-212-617-1167 or lcolby@bloomberg.net |
