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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.

 

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