Four issues Felda must resolve under new plan

KUALA LUMPUR: The Federal Land Development Authority's (Felda) new strategic plan must address or redefine four fundamental issues if the agency is to achieve long-term financial sustainability.

They are Felda's commercial mandate, fragmented settler land, non-core assets and legal framework.

It is learnt that these were proposed by a special committee when it submitted Felda's new strategic direction to Prime Minister Datuk Seri Anwar Ibrahim on Sept 25 this year.

The plan comes against the backdrop of the deep financial problems laid bare in Felda's 2019 White Paper, which included a forensic examination of eight investments and asset transactions.

The White Paper found that Felda's liabilities surged 1,100 per cent from RM1.2 billion in 2007 to RM14.4 billion in 2017, while its profit fell sharply.

By 2018, its cash reserves had dwindled to about RM35 million from RM2.5 billion between 2007 and 2011.

The forensic review also identified RM2.2 billion in impairment or losses across eight transactions, equivalent to about half the original investment value.

Among the transactions scrutinised was the RM2.3 billion acquisition of a 37 per cent stake in Indonesia's PT Eagle High Plantations, which was valued at only about RM500 million by March 2019.

The White Paper concluded that weak financial management and governance shortcomings had adversely affected Felda's financial position.

It called for restructuring its investment and loan portfolios and stronger governance and spending controls.

It is understood that the first issue is the need to draw a clearer line between Felda's commercial responsibilities and its wider social and political obligations.

The committee believed Felda cannot achieve financial independence if commercial decisions are continually driven by political considerations.

The belief is that if the commercial decision that determines its financial sustainability is always driven by political decisions, then Felda will never achieve financial sustainability and independence.

The new plan therefore needs to redefine Felda's mandate and determine which responsibilities should remain with the agency and which should be taken over by other government bodies.

For example, housing, education, healthcare and rural development should not automatically be funded by Felda if those responsibilities fall within the mandates of other agencies.

The second issue is the fragmentation of settler land through individual titles, inheritance and subdivision among successive generations.

The fragmentation makes it increasingly difficult to manage plantations as economically viable estates, affecting planting, harvesting, procurement and replanting.

A potential long-term leasing or professional management model could allow settlers to retain ownership while their land is managed collectively to preserve economies of scale.

However, any such model would have to clearly separate ownership, management and income distribution, with safeguards for settlers.

The third issue is Felda's portfolio of non-core investments and assets, including matters highlighted in the 2019 White Paper.

The plan needs to establish which assets can be recovered, restructured or should be recognised as effectively unrecoverable, rather than continuing to carry loss-making or non-strategic investments.

The Indonesian Eagle High investment is one example where Felda needs to determine whether further recovery efforts are commercially justified.

Some properties acquired during FGV's expansion after its 2012 listing could also be difficult to monetise because of falling values or unresolved legal, financial and governance issues.

The fourth issue is the legal framework governing Felda and its land.

It is learnt that three laws may need review or amendment of the the Group Settlement Areas Act 1960, the Land Development Ordinance of 1956 (or Felda Act), and the National Land Code 1965.

The laws need to address fragmented ownership, succession, land transfers and coordinated plantation management while protecting settlers' ownership rights.

The Felda Act may also need to clarify the agency's commercial mandate and its ability to undertake long-term leasing, professional management and restructuring arrangements.

Taken together, these four issues will determine whether Felda's new strategic direction can move the agency towards a more commercially sustainable model while preserving its core responsibility to settlers.