HIGHLIGHTS OF THE REPORT ON MTDC & ITS IMPLICATIONS

Everyone may not find it interesting or useful to read the whole report on MTDC published by the Auditor General’s office. So I thought it’s good to try to highlight the important points of the report and discuss its implications.

• MTDC’s capital structure was designed in a way that government would contribute 45% of the share capital while the remaining 55% was for the general public. However government currently controls 57% of the company’s share capital. Like in the case of other public limited companies in Maldives, government is not yet ready to surrender their majority stake in MTDC. It seems that government doesn’t really appreciate the importance of fully privatised public limited companies for the development and smooth running of a stock market in our country.

• Without the usual procedure of bidding, government has awarded 10 islands to the company at a very low rate of rent and additional islands are expected to be offered. This can be a kind of indirect subsidy which gives an unfair benefit to the shareholders of the company. This is against the spirit of a free and competitive market. However this is justified as long as the company is owned by a diverse base of shareholders from the general public and the benefits and the profitability of the company flows to a large proportion of the population. As the report revealed this is not what’s happening in the company. The company is largely controlled by a bunch of business tycoons like Villa Group and Champa who has already made huge investments in tourism sector and exploits millions of dollars as profit every year. Instead of ordinary people these rich people are exploiting the benefits of the tax cuts and other concessions to the company at the expense of the income flows for the government budget. So it’s the poor who loose eventually and the rich gets richer.

• Shareholders from the general public had to pay the full amount of the share price but the government deferred a part of the payment under a special arrangement. This discrimination is a clear violation of the regulations and common principles of running a public limited company. This shows the government’s disregard for the common law principles.

• As observed by the auditor there is no full time managing director or CEO in this company which is completely unacceptable for a public limited company of that size. Without a full time managing director such a company can’t be properly managed and we can see mismanagement in various areas of the company. The board of directors and the government who controls the majority stake in the company should be responsible for this.

• The company has decided to distribute a surprisingly large amount as the first year’s dividend while the net profit and reserves were too low to support for such a lavish distribution. From a business point of view, a company in its early stages of development and growth should reinvest a relatively large proportion of their profit. So making such a lavish distribution, especially when the profit was so low and deplete its reserves is completely against sound business policies and ethics. Perhaps the government and few business tycoons who control the company were badly in the need of urgent liquidity for which MTDC was the perfect source. This can be further argued as the report suggests that government demanded some extra payments in advance from the company which were not obligatory under any agreement.

• Report has identified some unrealistic forecasts in the initial share prospectus issued by the company, which should never have been allowed to happen or the regulator should take proper actions against those who are responsible for this.

• Management has violated the rights of the shareholders by failing to act responsibly and by failing to observe the principles of good governance. For example; materials were purchased and contracts were awarded without a competitive bidding process. Some large payments or transactions made by the company were not supported by proper documents or evidence. Managers of a public company are acting as the agents of shareholders so their primary concern should be to maximize the wealth of shareholders and to protect the interests of the shareholders. It’s very clear that the management of the company has failed in this task so far.

Based on these factors, I think it is right to say that the company has failed to fulfill the very objectives for which it was created. The company is no longer run to provide the opportunity to the general public for investing in tourism sector and to share in the profits. With their many resorts those rich resort owners are not yet satisfied to leave the ordinary folks to share even a loa laari in the profits generated from the tourism sector. Otherwise they would not have sabotaged the attempts to create a public company which could open the opportunity for ordinary households to involve in the tourism sector investments. May be they enjoy keeping us in the need to go to them, basically for everything in our life. People, it’s up to us to decide whether they really mean it when they say they are committed to bring the “change we need” if elected as the president. What I know is, it’s not the change I need when they deprive us of every opportunity to become self sufficient.