bernas

WE hear often enough about how business is not all about the pursuit of profit. How many times have we been told that it's not only the owners who feel the impact of a business decision? That's why people increasingly prefer the term “stakeholders” to “shareholders”.

Perhaps nowhere is this need to temper earnings enhancement with broader responsibilities more acutely felt than at an enterprise that was once a government unit.

While retaining its social obligations, a privatised business is expected to be commercially successful. And when the company is listed, this duality deepens because so much is subject to scrutiny. How does the company protect and fatten its bottom line without creating widespread resentment?

That's a question that the management of Padiberas Nasional Bhd (Bernas) must surely grapple with all the time. The recent brouhaha over its decision to increase the price of rice – the Government subsequently stepped in to reverse the move – underscores the point that Bernas is not like most other listed companies.

Following the privatisation of Lembaga Padi dan Beras Negara in January 1996, Bernas took over the former's role as the custodian of Malaysian paddy and rice industry.

In its annual reports and on its website, Bernas clearly outlines its double identities when it describes its principal activities. On the commercial front, it is basically a rice importer (the only licensed one in Malaysia) and distributor.

At the same time, as part of its privatisation agreement with the Government, the company must “ensure the maintenance of the sufficient supply of rice at reasonably fair and stable prices”.

It does this by maintaining the national rice stockpile, distributing subsidies to paddy farmers on behalf of the Government, managing the Bumiputra Rice Miller Scheme and acting as a buyer of last resort of paddy at the guaranteed minimum price.

In addition, there's a political dimension to Bernas' social duties because the country's granaries are in the Malay heartlands.

All this means that the company's business operations affect a security crop and a staple food. There are national interests at stake. Any attempt to raise its selling prices may potentially lead to a nationwide uproar because such a step affects practically everybody in Malaysia.

And so it did when Bernas announced the hike from July 1.

In the opening sentence of his letter to shareholders in the annual report 2006, Bernas chairman Datuk Syed Abdul Jabbar Syed Hassan referred to “the challenging business environment of escalating fuel prices, rising cost of paddy production and increasing international prices of rice”.

Based on news reports, the price increase took the Government by surprise. Agriculture and Agro-Based Industry Minister Tan Sri Muhyiddin Yassin said under the privatisation agreement, Bernas was obliged to consult the Government before the prices could be raised.

It is understood that Bernas had raised prices before this. The difference this time around was apparently that it was done without the authorities' approval.

If this is so, it is a highly unusual occurrence. It is hard to imagine something like this happening at another listed privatised company such as Tenaga Nasional Bhd (TNB), Telekom Malaysia Bhd (TM) and Malaysia Airports Holdings Bhd (MAHB).

For example, despite agonising cost pressures, TNB had to wait for years before the Government agreed to a tariff hike.

Electricity and rice are vastly different, of course, but there's no doubt that the delicate social-commercial equilibrium applies for Bernas as much as it does for TNB. One thing that sets apart Bernas from the other listed privatised businesses is its shareholding structure.

TNB, TM and MAHB have Khazanah Nasional Bhd as a substantial shareholder. Khazanah is also a key shareholder for other listed companies whose businesses are arguably entwined with national interest. These include MAS, Proton Holdings Bhd and UEM World Bhd.

There are a number other Government-linked organisations, such as Petronas, Permodalan Nasional Bhd, the Employees' Provident Fund and Lembaga Tabung Haji, that have big stakes in companies that to some extent, have an influence over business and life in Malaysia.

The argument here is that the presence of these organisation as major shareholders and in the boardrooms helps ensure that the companies are run in line with national interests.

On the other hand, the three top shareholders of Bernas are Budaya Generasi (M) Sdn Bhd (30.79%), Wang Tak Co Ltd (17.58%) and Serba Etika Sdn Bhd (6.46%). Budaya Generasi is linked to tycoon Tan Sri Syed Mokhtar Albukhary, while Wing Tak is a wholly-owned subsidiary of the Hong Kong-listed Lee Hing Development Ltd.

Lee Hing's two longest-serving directors are corporate figures in Malaysia – chairman and managing director Tan Boon Seng and non-executive director Ang Guan Seng. Tan is executive director of IGB Corp Bhd, while Ang is managing director of Petaling Garden Bhd.

Not that there's zero Government involvement in Bernas. Through Minister of Finance (Inc), the Government holds a special rights redeemable preference share in Bernas. As the name suggests, this golden share allows the Government to exercise veto powers in certain situation so as to protect public interests.

MOF (Inc) is represented on the Bernas board by Datuk Dr Zulkifli Idris, the secretary general of the Agriculture and Agro-Based Industry Ministry, and Azman Umar, a senior Finance Ministry officer. Each of them has an alternate director.

Given that the Government had not been informed earlier, it looks like the entire board of directors had not been party to the latest decision by Bernas to raise the price of rice.

Bernas may well have strong grounds for the price hike. However, the controversy has not done any good to its goodwill and can be a hindrance to future bids to increase prices. Consumer and investor confidence is fragile. Much can be learnt from the experience of the Khazanah-controlled listed companies.

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