SKIN revival on the cards
After the renegotiations of some government projects deemed vital, submissions have been made to rescue the concession dubbed Sistem Kawalan Imigresen Nasional or SKIN.
FOLLOWING the renegotiations of some government projects deemed vital, submissions have been made to rescue the concession dubbed Sistem Kawalan Imigresen Nasional or SKIN.
In July 2017, a unit of Prestariang Bhd, Prestariang SKIN Sdn Bhd (PSkin), inked a 15-year concession agreement with thethen Barisan Nasional government to implement the RM3.5bil border protection project.
Last December, though, the same unit received a letter from the Home Ministry confirming the Cabinet’s decision to terminate the SKIN project by way of expropriation.
The contract’s termination took effect on Jan 22 this year.
But sources now say a number of factors are being presented to the government for it to consider reviving SKIN. These factors include a reduction in the total cost of the project, weakness in the existing immigration system, the long delay associated with a new tender process and a new ownership structure which would see a government-linked investment fund becoming the major owner of the project.
SKIN is a new core immigration system meant to replace the Immigration Department’s existing “MyIMMs” infrastructure. Built in the 1990s, MyIMMs is said to be a patchwork of different systems, which, in turn, has led to oft-reported instances of border control compromise and the inability of the government to carry out crucial threat assessments.
Another crucial part to the saga is the fact that the cancellation opens up the government to a compensation suit by PSkin, which could seek up to RM1bil in termination fees, say some.
Prestariang has already said it is not in default of the concession agreement and that it is entitled to compensation in accordance to the formula set out in the agreement. Negotiations are ongoing.
CIMB Research in a report dated Dec 13, 2018, stated that the compensation formula as stipulated in the concession agreement is based on a specific formula, which “is the net present value (NPV) of the availability charges (similar to power purchase agreements)”. The research house added that the previous NPV for the SKIN project was a whopping RM770mil.
“The concession holder has already appointed a top legal firm in the country to look into the matter,” says a source close to the matter, adding, “If it goes to the courts, it will be the first legal suit of a significant amount against the new government,” a source adds.
Interestingly, the new proposal being looked at may entail Retirement Fund Inc or KWAP taking the driver’s seat in terms of ownership of the project.
According to sources, KWAP is in talks with a new technology partner to revive SKIN under more amicable terms to the current government. If these talks materialise, then KWAP and the new partner could replace the current shareholders of the SKIN project, says a source without providing any more details.
But what could be KWAP’s justification in entering the fray? It is likely that the retirement fund is seeking to recoup significant losses it had endured as a major shareholder of Prestariang. KWAP also used to have a top official sitting on the board of Prestariang and so the fund is very familiar with the SKIN project.
The fund did not respond to StarBizWeek’s queries at press time.
KWAP had a 13.02% stake in Prestariang in May prior to the 14th general election. Following the change in government and concerns of the cancellation of the SKIN project, Prestariang shares were significantly sold down. KWAP has since then whittled down its stake in Prestariang to just under 6% at present, with the fund suffering significant losses in the selldown.
Cost savings and urgency of project
Going by recent decisions of the new Pakatan Harapan government, it is cost savings coupled with a desire to keep some mega-projects ongoing due to their economic benefits which are driving the decision-making. The parties proposing SKIN’s revival are focused on this.
Consider the case of the East Coast Rail Link. Following a suspension of the project in July, latest reports are that Malaysia is still negotiating with China, with a few reports stating that the latter has agreed to halve the cost of the US$20bil (RM81bil) rail project. Such an infrastructure project, if done at the right costing structure and involving some level of local contractors, would be a boost to the local economy.
Elsewhere, the Mass Rapid Transit 2 (MRT2) and Light Rail Transit 3 (LRT3) are also projects that are going to be resumed, on newly renegotiated terms.
Sources say the new proposal going to the government to revive SKIN is working on a lower cost structure. But even with a discounted figure of say RM500mil, can the current government afford the project?
Prestariang in a Jan 22 media statement clarified key payment terms of SKIN, which indicates that the project is not that burdensome to the government, financially speaking.
For one, PSkin, which is 70% owned by Prestariang, was to finance, build and operate the new system for 15 years before transferring it to the government. The government would only need to make the first payment in the third year of development of the project.
Since the concession agreement had stipulated April 2018 as the beginning of the concession, this means that the first payment would only need to be made by the Malaysian government after April 2021. Back-of-the-envelope calculations indicate that the payment would be around RM290mil per year for the remaining 12 years of the concession. This figure would be reduced to around, say, RM250mil per annum, assuming the project is now costed at RM500mil cheaper.
Prestariang has said that the SKIN project would not have burdened the government or citizens, as it is a self-funded project which could have generated new income and created savings for the government.
Home Ministry’s differing view
However, the Home Ministry has prot vided a different opinion on the matter. It had early on pushed for the cancellation of SKIN, which was awarded to PSkin via direct negotiations.
Last year, Home Minister Tan Sri Muhyiddin Yass in had said that the decie sion was to make way for the development of a new system that would be comprehensive, effective and user-friendly, and one that is value for money and could save government funds.
In December, Muhyiddin announced that the SKIN project was to be replaced with a fully-online Integrated Immigration System called myIMMs Global and that there would be an open tender for it.
Two weeks ago, Muhyiddin issued a media statement in response to a news article that alleged that the cancellation of SKIN was linked to the appointment of a senior officer of the ministry. Thearticle alleged that the contract for the new system was granted to a company linked
to the senior official in the ministry.
Muhyiddin has denied the allegations. In his response, he stated that the special committee tasked to review the SKIN project in detail had discovered that the concession was hefty and benefited the concessionaire more than it did the government.
He also said that the scope of SKIN did not meet the requirements of the Immigration Department and that the new system would save the government RM1bil.
However, no details were provided. The minister said the scope and specifications of the new system are currently being developed and would be awarded via an open tender process, which, in turn, is expected to be ready in April.
However, while an open tender process is always good practice, some argue that in this case, an open tender may cause delays the country cannot afford and may not necessarily provide the government with any significant savings.
According to experts, it could take more than a year for the process of submissions and reviews and technical specifications to be finalised, and that it will take even longer for the new system to be up and running.
In the case of the SKIN project, Prestariang in a recent statement revealed that prior to the contract award to PSkin, it had to undergo three years of comprehensive technical, commercial and legal evaluation by the Home Ministry and other relevant government agencies. These include Jabatan Imigresen Malaysia, the Malaysian Administrative Modernisation and Management Planning Unit, Unit Kerjasama Awam Swasta, the Economic Planning Unit, the Finance Ministry and the Attorney-General’s Chambers.
One other factor in consideration is the cost of maintaining the current MyIMMS system. It will likely take another few years before the new tendered out system is finally up and running. SKIN, on the other hand, could be up and running by 2021 if it proceeds as planned.
So, it’s left to be seen if all the issues have been considered sufficiently in the deliberations on cancelling SKIN. If a new white knight which is seen to be a credible party teams up with a party like KWAP, they are likely to be in a good position to rescue a project as vital as SKIN.