Terengganu forms own investment fund

History will be made soon when the Terengganu state government sets up its own RM10 billion sovereign wealth fund, the first state in Malaysia to do so and a move aimed at ensuring steady revenue after the oil and gas money dries up.

The decision to set up the Terengganu Investment Authority — a body to be run solely by professionals — is also an indictment of the unsatisfactory manner royalty funds from oil and gas have been used by politicians for the last two decades.

The Malaysian Insider has learnt that the proposal for a sovereign wealth fund was put forward by the Yang di-Pertuan Agong, Tuanku Mizan Zainal Abidin, who is also the Ruler of the east coast state. The state exco endorsed the proposal at its weekly meeting yesterday.

Political observers say that the decision to set up the authority is probably driven by the desire to ensure that royalty from oil and gas is spent wisely and in the long-term interest of the state, and not squandered on flashy projects.

While the oil and gas resources in the state have not been tapped fully, concerns have been raised that insufficient emphasis has been placed on how to maximise the royalty payments.

Under the TIA, the Sultan of Terengganu will be the chairman of the Board of Advisors. The Menteri Besar of the state will also be represented on this board.

But the Board of Directors will comprise only professional managers. The idea here is to ensure that investment decisions are made by professionals and without the interference of politicians.

Sources in the state said that RM10 billion will be invested both within Terengganu and also the rest of Malaysia. But the TIA will also have a mandate to invest globally.

The RM10 billion will be sourced from the local and foreign capital markets with a proposal for the Federal Government to provide a government guarantee of up to RM5 billion.

As a measure of long-term sustainability, TIA will continue to reinvest its profits to generate higher growth. Dividends will be declared to the state of Terengganu and its partner investors.

It is interesting that the idea of the wealth fund was mooted by Tuanku Mizan. Since Election 2008, the Malay Rulers have played a more active role in the affairs of their respective states as well as set the markers on important national issues.

This higher profile is a result of the changed political landscape with five states under the Opposition and power no longer concentrated with the Prime Minister or the Barisan Nasional government.

The more uncertain political terrain marked by incessant politicking and little else has led to the Malay Rulers providing leadership and guidance on several issues, including the debate over the social contract and race relations.

-TMI