By P. Gunasegaram
It seems that almost anything touched by 1MDB’s tentacles becomes poisoned with controversy and questions. Its entry into solar power in Malaysia is no different and leaves in its trail more questions than answers – and a link to an Obama fund raiser to boot.
Much has been written already about our self-styled, state-owned strategic development company 1Malaysia Development Bhd’s (1MDB) links with a key fund raiser for US president Barack Obama’s 2012 reelection campaign.
Even when we begin with facts disclosed by 1MDB over this deal and add in facts from other sources, this deal stinks and raises the question of how 1MDB inexplicably paid US$69 million or some RM300 million for a 49% joint venture which had no venture in the first place.
First, the facts. 1MDB and DuSable Capital Management issued a joint media statement over an allegation made by opposition MP Wong Shen who sought clarification from the prime minister over a solar power joint venture between the two.
According to him, on 27th October he asked for a status update on the 1MDB-DuSable solar power project in Kedah. “Prime Minister Najib Abdul Razak, in his capacity as the Finance Minister gave a curious one line written reply: that 1MDB has never signed a joint venture agreement with DuSable,” he said.
“Unsatisfied with this answer, on two occasions, I asked the Prime Minister to come clean on the deal, in particular after revelations US$524,000 was paid for fees and disbursements to DuSable.”
What’s so special about DuSable? According to its website, DuSable is a “Washington, DC based private equity firm with a focus on renewable energy and infrastructure. DuSable is a developer of utility-scale solar plants in Asia and Africa and has been awarded over 1,500 Megawatts of power in both continents since inception.”
Frank White Jr
But more interestingly, its founder and CEO is Frank White Jr, who is a fund raiser for Obama. White was the national vice-chair of President Obama’s 2012 reelection campaign and served as a co-chair for Obama’s 2013 inauguration committee as well.
Did DuSable have a joint venture with 1MDB? To clarify this, 1MDB and DuSable, issued a joint statement. According to the statement, in 2013, 1MDB engaged DuSable “to assist with project development of utility-scale grid connected solar power generation capability, for which DuSable Capital Management was remunerated US$506,000 for costs and expenses.”
It did not say when in 2013 but by that time 1MDB had already bought the power assets of Tanjong Plc, which has many years of experience in the power sector in Malaysia and overseas. So, the first question is why pay DuSable over US$500,000 for this study when you have your own power company to do some of the studies?
The statement next said that on 18 March 2014, 1MDB received a letter of award from the Ministry of Energy, Green Technology and Water, Malaysia granting the right to develop multiple utility scale solar photovoltaic power plants, with an aggregate capacity of up to 500MW.
However, 1MDB was required, amongst others, to undertake detailed feasibility studies, execute a power purchase agreement (PPA), source equity and debt financing and procure other requisite approvals for each individual solar power plant.
And here comes the joint venture agreement. According to the 1MDB-DuSable joint statement, on 11 April 2014, 1MDB, (via its wholly owned subsidiary, 1MDB Synergy Sdn Bhd), and Yurus Private Equity Fund I, LP entered into a master joint venture agreement (JVA), to jointly develop up to 500MW of solar power plants in Malaysia. DuSable Capital Management was appointed as the investment adviser to the Yurus PE Fund. The master JVA shareholding was 49% Yurus PE Fund and 51% 1MDB Synergy.
However, records with the US Securities Exchange Commission, which KINIBIZ checked, listed DuSable as a general partner of the Yurus fund and White as a “managing member” of DuSable, indicating that DuSable was not just an investment adviser but a partner as well.
Other reports, which KINIBIZ could not confirm, said that Aabar Investments PJS, whose parent company is International Petroleum Investment Company or IPIC, a unit of the Abu Dhabi government, was also an investor in the Yurus fund.
Recall that IPIC guaranteed a US$3.5 billion loan to 1MDB in 2012 and how some US$1.4 billion was put back as a deposit with IPIC as a security deposit in return for a guarantee for that loan. Effectively that reduced the funds available to 1MDB from the loan by a huge amount. Also a large part of the payments allegedly went missing as reported by the Wall Street Journal.
Now comes the interesting part. According to the 1MDB-DuSable joint statement, on 2 October 2014, as part of the IPO plans of Edra Global Energy Berhad (Edra), 1MDB acquired the entire 49% interest of Yurus PE Fund in the master JVA, for US$69 million. “This acquisition ensured that 1MDB and Edra would own 100% of the rights to develop up to 500MW of solar power plants, prior to the launch of a proposed IPO of Edra”.
Some six months after signing a JVAfor a project which was not yet existing and which 1MDB had secured in the first place, 1MDB was paying US69 million or some RM300 million for this 49% stake.
Assuming that no money had gone into developing anything here, and indeed there would have been none because no concrete award had been made in respect of this solar 500MW master JVA, Yurus pocketed a hefty profit of RM300 million for merely exiting a contract.
This mirrors yet another strange deal 1MDB did before where it may have paid up to US1 billion (a massive RM4.4 billion) to extinguish an option given to Aabar to purchase a 49% stake in the power assets of Edra, 1MDB’s energy arm. Considering that Edra’s energy assets are worth no more than RM10 billion, to pay RM4.4 billion or 44% of the purchase price for extinguishing an option represents a ridiculous excuse for transferring money out of 1MDB.
Let’s look at the rest of the joint statement. On 12 April 2014 (a day after the master JVA was signed), 1MDB, (via its wholly-owned subsidiary 1MDB Solar Sdn Bhd) entered into a PPA with Tenaga Nasional Berhad for the construction of a 50MW (one tenth of the 500MW envisaged in the master agreement) solar power plant in Kedah. “It is important to highlight that Yurus PE Fund and DuSable Capital Management were not and never were, signatories to this PPA, nor did either party, at any time, have ownership of 1MDB Solar”.
“1MDB and DuSable Capital Management subsequently engaged in discussions for a partnership to develop, finance and construct the proposed 50MW solar power plant in Kedah. However, no project level joint venture agreement was reached between the parties for this solar power project or any other individual solar power project.”
Sure. But it cannot be denied that DuSable was listed as a general partner of the Yurus fund. And if indeed the other partner was Abaar, both of them coolly pocketed RM300 million for nothing more than exiting from a project which 1MDB had obtained in the first place but for which no money had been pledged.
How convenient and profitable it is to enter into an agreement with 1MDB and then just exit and get paid handsomely for it, very handsomely.
And so the sorry saga of 1MDB goes on and on and on.
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