Questionable
ventures
02/03/2002 NST-PROP
By Prof. Salleh Buang
A news item in a local daily at the end
of February raised some eyebrows because it queried the propriety of joint
ventures affecting State land in Kelantan.
According to the news report, BN Assemblyman
for Paloh, Nozula Mat Diah, had accused the State government of "covering
up its actions" in selling off state land in remote areas "by hiding behind
joint ventures" between its subsidiaries and a private company.
According to Nozula, the subsidiaries involved
are Yayasan Kelantan Darulnain (Yakin), Yayasan Islam Kelantan (YIK) and the
State Economic Development Corporation. These are serious accusations indeed,
and we have no way of knowing whether Nozula has cogent evidence to prove
his allegations.
Nozula claimed that these state agencies
had applied for State land in Hulu Kelantan for purpose of land development
via joint ventures with other parties (joint venture partner, JVPs). After
the land had been alienated to them, they were subsequently "sold off" to
the JVPs.
Nozula's accusation came in the wake of
an earlier statement in the same vein by none other than Gua Musang MP Tengku
Razaleigh Hamzah. Razaleigh had alleged that the Kelantan State government
had "sold off thousands of hectares of land" to some 40 companies to be developed
into oil palm plantations.
We will leave the State government to respond
to these accusations. But let us consider the matter purely from its legal
perspective. Simply put, it will not be too hard to find out relevant details
of the state alienation - if it is indeed true that state land had been alienated
for purposes of development under joint ventures.
An official search carried out at the relevant
land office will reveal not the location and size of the land that had been
alienated to the relevant state agency, but also the express conditions and
restrictions in interest (if any) endorsed on the titles to the land.
If, for example, land had been alienated
by the State Authority to the State Economic Development (SEDC), an official
search will reveal if there is a restriction in interest endorsed on the land
title forbidding the land from being "sold off" by the SEDC to some
other party. If the land title has not been so endorsed, then SEDC is perfectly
free to do whatever it wishes to do with the land. Its decisions invariably
will be primarily determined by economic factors, rather then legal considerations.
Assuming such is the case here, the question
is (assuming what Nozula and Tengku Razaleigh had said is true) why
has the Kelantan State government not imposed such a restriction?
Joint ventures are usually regarded as purely
economic activities of the state agencies themselves, not as official activities
of the State Government. Being purely commercial activities of the relevant
agencies, they do not fall under the purview of the state legislature. That
being so, one can understand why Nozula's queries remained unanswered.
It is harsh reality it is almost impossible
for a private party to acquire State land by way of alienation, unless the
private party concerned has vast economic resources, coupled with immense
political clout. If you do not have these attributes, one way of getting around
this problem is to piggy-back on a state agency itself. Hence, a smart business
entity will team up with a state agency, and via the newly established JV
entity, prevail upon the State Authority to alienate State land to the JV
entity.
In the past, such schemes worked. Some State
Authorities, possibly not being given proper legal advice and not thinking
too far into the future, alienate State land to the JV entity itself, without
imposing any restrictions on any future dealing involving the land. In such
case, the JV entity (as the indefeasible new owner of the land) can very well
do anything it likes with the land, including selling the land to some other
third party.
Other State Authorities, more well advised,
will never alienate the State land to the newly formed JV entity. Instead,
it will alienate the land only to its own State agency or subsidiary who will
in turn enter into a joint venture development agreement with the newly formed
JV entity. In addition, the State Authority will also impose restrictions
against any form of land dealing such as transfer or charge, unless its prior
written consent has been sought for and granted.
Problems normally occur when decisions (affecting
land alienation and joint venture land development) are made by politicians
and administrators after taking cognisance only of political and economic
considerations (in that order), totally neglecting to take in adequate prior
legal advice.
In my experience, too often lawyers are
only brought in after the dirt has hit the ceiling and fingers are being pointed
in all directions to deflect attention and blame from those who should bear
it fully. In such a case, it is no wonder that people will question the
bona fide of the land alienation in the first place.
Professor Salleh Buang is the senior
advisor of a company specialising in competitive intelligence. He is also
active in training and public speaking. He can be reached at
sallehbuang@hotmail.com.
