BY Bakri Musa
The proposal by the University of Malaya’s governing board to let a private entity, PPC-MINT-GLOMAC, develop 27 acres of campus land deserves greater scrutiny. The university’s press release of February 9, 2008 did not contain sufficient details for the public or government to make an informed decision.
I am supportive of our universities going into partnership with private entities to develop campus assets, real estate and others. That would conserve the universities’ limited financial and other resources which they could then focus on purely academic matters. Creatively and properly structured, such partnerships would benefit the university and its community, the government and thus the public, as well as the participating private companies. Handled less competently and it would result in the rapacious stripping of valuable public assets to benefit only the lucky few. God knows, Malaysia has plenty of such examples, with the boondoggle Port Klang Development Project being the latest and most expensive. Taxpayers will ultimately be left holding the multi billion ringgit tab; it is criminal that our leaders would let such scarce funds be squandered.
According to the press release, the university would stand to collect at least RM312M, or RM200M plus the profit from the project, whichever is higher. Profit figures are tricky; they can be subjected to highly “creative” accounting. Enron posted record profits the year before it filed for bankruptcy. At the other end, it is the job of smart accountants to “reduce” profits (at least on paper) especially when reporting to tax agencies. A quick and dirty maneuver would be to simply inflate your expenses by paying your executives, consultants and directors outrageous compensations. Another would be to “expense” what otherwise would be capital expenditures; meaning, charging the expense in one year instead of spreading them over many.
Also not stated in the proposal is whether those profits would be a one time payment as when the developers would sell their finished projects, or a steady stream with the developers maintaining and operating their projects. The latter would produce a smaller initial payout but the university would benefit from the steady and predictable stream of income.
One significant financial improvement would be to tie the payments not to profits but to revenues. Top Hollywood stars know only too well the difference when their compensations are tied to profits as in the old days. Thus today they all opt for a share of the revenue, not profits.
Yet another improvement would be not to sell but to lease on a long term basis (with renewal options) the land to private developers. Those are valuable pieces of real estate; its value can only go up in land-starved Klang Valley. By leasing instead of selling, the university would not lose future gains in value.
In subsequent separate statement, UM’s Deputy Vice-Chancellor Amin Jalaludin indicated that the university will maintain ownership (title) of the land. This must mean some sort of lease arrangement. The university owes the public a duty to declare the terms of that lease.
These are but some of the major financial considerations. Others more financially savvy could come up with other creative and innovative financing schemes.
Non Financial Considerations
While financial considerations are important and a major determinant of the viability of the project, an equally if not more crucial consideration is to ensure that such a development and partnership scheme would enhance or further the goals and activities of the universities. Unfortunately on this important point, both the university and developers are curiously silent.
For one, what does the university intend to do with the money it would get? If the funds were to go into the general revenue for running the campus, then the future benefits would be minimal and impact not noticeable. However if the university were to dedicate the new money for specific projects like funding a new center for science research, expanding the library, or making the campus wireless, that would be much more meaningful and the impact more lasting and readily appreciated. With the benefits so tangible and readily appreciated, that would encourage further similar beneficial partnerships.
Similarly with the developer; it is not forthcoming on what it wants to do with the precious property. The company’s development plans should interest the university and the public. If the developer plans for a convention center, then that would be positive as it would complement the university’s goals. The university could use the facility for its convocations and for hosting conferences. The same benefit would accrue to the university with the building of a Research and Development Park.
On the other hand if the developer plans to build exclusive high-end condominiums, that would not add value to or enhance the university’s goals or benefit its community. For one, none of its professors could afford to buy or live in one of the units. However if it is for modest and affordable flats, that could alleviate the campus housing problem.
So in addition to the financial arrangements, the university must also get a clear commitment from the developer and impose restrictions on the use of the property. These should the minimal factors the university governing board members must deliberate. Anything less and they would not be fulfilling their fiduciary and other responsibilities. Minister of Higher Education Dato Mustapa must ensure these conditions are met before considering the venture.