30.12.2019 (New Straits Times Online) - KUALA LUMPUR: Felcra Bhd, which posted RM187.12 million in losses in 2018, is set to narrow its losses this year as the new management sought to restructure the government entity, raise its business competitiveness and ride on rising oil palm prices.

In a recent interview with the New Straits Times, Felcra chief executive officer Mohd Nazrul Izam Mansor expressed optimism that Felcra was on track to strengthen its financial position from 2020.

Felcra is 99 per cent-owned by the Minister of Finance Incorporated (MoF Inc) while the balance of one per cent is held by the Federal Land Commissioner.

Nazrul said the recent rise in palm oil prices to the current level of RM3,000 per tonne and the ongoing business transformation was helping Felcra to narrow its losses this year.

“If palm oil prices continues to trade higher for the next 12 months, we should be able to post profits in 2020. Our business transformation is expected to bear fruits from 2021 onwards," he added.

Since the change of government after the May 2018 general elections, Felcra has seen a change of guards, too.

Felcra's board of directors consists of Datuk Mohamad Nageeb Ahmad Abdul Wahab, who is also Felcra chairman, Datuk Maznah Abdul Jalil, Datuk Dr. Suzana Idayu Wati Osman, Datuk Yatimah Sarjiman, Datuk Shahrol Anuwar Sarman and Mohd Salem Kailany are new appointees joining Datuk Dr. Ahmad Jailani Muhamed Yunus, Datuk Azailiza Mohd Ahad and Dr. Habibah Suleiman.

In October 2018, the Pakatan Harapan government had appointed Nazrul to succeed Datuk Zulkarnain Md Eusope.

Trained as an accountant, Nazrul has had working stints at PwC Malaysia, Padiberas Nasional Bhd and Tradewinds Group; besides large private companies involved in heavy engineering, plantation, electricity and facilities management.

When asked how he felt about the appointment to lead Felcra and whether he had to take a drastic pay cut from his previous job in the private sector, Nazrul said: “I was surprised with this job offer but after deliberating on it, I realised this is the opportunity for me to give back to the country.

“Yes, I have had to take a significant pay cut at Felcra but I feel compelled to take on this responsibility, to serve and give back to the people.

“I’m a Majlis Amanah Rakyat (Mara) scholar and both my parents were clerks at Rubber Industry Smallholders Development Authority (Risda) before they retired some time ago,” Nazrul added.

Established in 1966, the Federal Land Consolidation and Rehabilitation Authority (Felcra) scheme was set up to help smallholdings of oil palm, rubber and padi achieve economies of scale and become more competitive via amalgamation and rehabilitation.

With more than 250,000ha of land in Malaysia, Felcra is managing land owned by 110,271 participants nationwide. About 90 per cent of the participants are of the B40 low income group.

Nazrul said Felcra participants are small landowners who had surrendered control of their smallholdings with Felcra for 25 years. Felcra then charges 6.5 per cent estate management fees and one per cent marketing fees out of agricultural produce revenue.

“Felcra is not like Felda although we are both under the purview of Ministry of Economic Affairs. Felcra’s participants are not like Felda settlers.

“Felcra provides end-to-end estate management services and the participants are not involved in the day-to-day operations of the land they own,” Nazrul had sought to differentiate Felcra’s status from Felda.

In April this year, Economic Affairs Minister Datuk Seri Azmin Ali tabled a White Paper in Parliament and received approval from the government to inject RM6.23 billion into Felda as a rescue package.

Nazrul explained Felcra may be facing problems of tight cash flow due to low palm oil prices, operational inefficiencies and slow recovery of receivables amounting to RM2.5 billion from its participants.

Since taking the helm, Nazrul had sought to restructure Felcra, which has long been saddled with debts incurred by its 110,271 participants who own 220,000ha.

He and his team also seek to maximise potentials of Felcra's 30,000ha landholding.

They are working towards better transparency, sustained income and continued fulfilment of social obligations to participants.

When explaining Felcra's losses, Nazrul said operational inefficencies, impairment and adoption of the revised Malaysian Financial Reporting Standards (MFRS) 116 and 141 since January 2018, had resulted in higher depreciation charges and therefore, exacerbated Felcra’s costs.

“Felcra faces liquidity issues because it has been shouldering the participants’ debts and working capital. All this while it has been behaving like a mini-bank extending loans, of which repayments are in the form of oil palm fruits and rubber latex sales,” he said.

This structure worked when prices of palm oil and rubber are on the rise but when agricultural commodity prices fall and remain depressed for a long time, Felcra would have to fund loss-making estates belonging to participants and bear their cost of living loans. This, inevitably, dragged Felcra’s financials into the red.

“Felcra should not behave as a mini-bank when its original role is more like an asset management company, of which profits are fully dished out to participants, three times a year besides executing its social mandate. So, we’ve been working hard to restructure Felcra so as to be more efficient.

“We must ensure the estates owned by participants are managed to market standards. We are working to improve on agricultural practices and optimise mill operations.

“We’ve enhanced treasury operations by separating Felcra’s commercial account from the participants’ account. This was mixed in the past and caused a moral hazard.

“We have also appointed Amanahraya Trustees to oversee Felcra’s participants’ accounts, in the interest of transparency,” he added.

Last Friday, the third month benchmark palm oil futures on Bursa Malaysia Derivatives Market, gained RM67 to close at RM3,072 per tonne.

In the last two months, palm oil prices started to rise from an average of RM2,200 per tonne to the current level of RM3,000.

This welcomed blessing is helping oil palm planters ease their cash flow and pare down their debts.

"The increase in palm oil prices will greatly improve the earnings of our participants. For each RM100 increase in palm oil prices, it would translate into RM50 million in profits.

"We are bullish that the price will continue to sustain at buoyant levels, in view of higher biofuel mandates by the governments of Malaysia and Indonesia, in 2020," Nazrul added.

In May this year, it was reported Felcra had plans to issue bonds and sell off non-core assets. Now that palm oil priced has started to improve, Nazrul reiterated his team was still going ahead with the fundraising plan.

The government has been encouraging oil palm planters to embrace Malaysian Sustainable Palm Oil (MSPO) certification, which is aimed at boosting the crop's profile in the global market.

Asked on Felcra’s progress in getting MSPO-certified, Nazrul said: “We’ve spent RM4.7 million on this initiative. By the end of this month, all our estates and mills will be 100 per cent MSPO-certified.”

On the delay on Felcra’s Semarak20 mixed development project here, Nazrul said: “After extensive deliberation with Felcra board and the government, they have decided to continue with it.

“The Semarak20 development will see good take up rates because it is strategically located near the Kuala Lumpur City Centre (KLCC) with direct access into Duta-Ulu Kelang Expressway, Ampang-Kuala Lumpur Elevated Highway, Jalan Ampang and Jalan Tun Razak.

"Site-works has just resumed early this month. Barring unforeseen circumstances, Semarak20 should be ready for handover in 2022," Nazrul added.

The Semarak20 is made up of a 35-storey office tower, 43-storey serviced apartments and six floors of commercial centre, including two floors of convention centre with over a million sq ft gross floor area.

The project commenced in March 2015 and was originally planned to complete by December 2019.

After Felcra had invested more than RM350 million into the project, it is currently 41 per cent into completion.