April Fool’s Day may be far away but we have already been served a taster, courtesy of Health Minister Datuk Seri Dr Dzulkefly Ahmad.
Thanks to this Yang Berhormat, Pharmaniaga Bhd, the poster child for monopolies, has been gifted a lifeline.
On Nov 18, the drug manufacturer secured a five-year extension for the provision of logistics and distribution services to the Ministry of Health (MoH) ending Dec 31, 2024. This is further to a 25-month interim extension for the provision of medicines and medical supplies to MoH facilities beginning Dec 1 this year till Dec 31, 2021.
This was a surprising U-turn. A few weeks ago, Dzulkefly stripped Pharmaniaga of its privileges. He said the group would no longer be the concessionaire for logistics and distribution services. Instead, and here’s the punchline, an open tender would be introduced. Pharmaniaga’s share price immediately tumbled from RM2.50 on Oct 30 to RM2.08 on Nov 4, a huge drop of 17%.
Now, the market had priced in the fact that Pharmaniaga’s concession to buy, store, supply and distribute at least 700 pharmaceutical products would end on Nov 30.
But this was a goldmine of a concession and Pharmaniaga had a chokehold on the sector. Such an advantage was the reason Boustead Holdings Bhd acquired an 86.81% stake in Pharmaniaga in 2011.
Back then, Boustead paid RM534 mil or RM5.75 per share for the purchase from Khazanah Nasional Bhd’s UEM Group Bhd. This was one of the conglomerate’s best buys: Pharmaniaga has been the sole concessionaire for roughly 25 years since the government privatised the medicine procurement system in 1994.
And that dominant position provided the boost to managing director Datuk Farshila Emran and the investment fraternity. They expected a renewal of the contract. This buoyant and perhaps borderline delusional outlook came about despite the fact that Pharmaniaga has always been on Pakatan Harapan’s (PH) radar ever since it came to power.
Every now and then, the PH government would announce that it is reviewing dominants who enjoyed lucrative contracts under predecessor Barisan Nasional (BN). Pharmaniaga was one of them.
But because the government itself could not agree to Pharmaniaga’s monopoly status, that somehow gave Farshila and the investment cohort a sliver of hope.
In search of a catalyst
“We have the infrastructure, systems and processes. Hence I believe that with all these things in hand, it would be difficult for others to deliver what we have been delivering to the government,” she told reporters on April 25.
Dzulkefly’s initial edict cancelled out Farshila’s confidence. That got tongues wagging too because Farshila was among the key government-linked company chiefs that sang and sashayed in a music video hailing the awesomeness of BN in the run-up to the 14th general election. “Hebat, hebat, hebat Negaraku,” she sang. The song was inspired by BN’s motto.
But Dzulkefly’s statement that day was a huge welcome. One of those rare occasions where a minister could rock the market and not be crucified. This was a good thing because ever since PH took over the government, some analysts have labelled the healthcare segment a laggard.
The sluggish pace of healthcare reforms had been attributed to, among others, keeping voters happy. Naturally that meant having a poor people slant and an uncompromising stance on offering cheap but quality healthcare to citizens. Our national budget is an example of that where MoH has always been among the top recipients of federal funding. For next year, the ministry will receive a RM30.6 bil allocation.
But this is not wrong. In fact, when it comes to universally cheap healthcare services, I’m all for it. Simply because this is one area where subsidies and even open tenders matter. I believe a lot of us, at one point in time, benefited from this and an increase in our “RM1” public healthcare would be the death of any government.
So, for a moment Dzulkefly seemed to be one of the bright spots in the Cabinet. Certainly, there were blips. British American Tobacco (Malaysia) Bhd accused MoH of selective prosecution by targeting a legitimate tobacco company selling legal non-cigarette products while ignoring cheap illegal contraband.
What’s more, he seems comfortable with using the dreaded compulsory licensing, which confers a country access to generic versions of a drug. Malaysia has used it before to procure generics for Hepatitis C under the previous government. That has ruffled the market somewhat as pharmaceutical companies stand to lose millions in profits and therefore scaring them away from the Malaysian market.
Then there is also that fascination with setting a price ceiling. If implemented, that would in many ways put to death some of the smaller pharmaceutical companies as they would have no choice but to sell at hugely reduced prices.
Pharmaniaga’s concession termination, however, smoothed over those imperfections. Of course, saying this now feels like eating dirt. But Dzulkefly’s about-face towards his policy stance raises questions.
The Bumiputera agenda
While he has yet to give an answer to greenlighting Pharmaniaga and making us look like idiots in the process, one can speculate. Maybe it was because PH received a drubbing at the recent Tanjung Piai by-election, therefore losing a parliamentary seat. In haste, the best thing to do was restore Pharmaniaga to its dominant position in an attempt to preserve Bumiputera interests.
Our current system has Bumiputera tender agents which play the role of a middleman between public hospitals and local non-Bumiputera and foreign pharmaceutical companies.
This has been documented in the Malaysia Competition Commission’s Market Review on the Pharmaceutical Sector. According to that document, Bumiputera agents charge a 2-3% fee for literally paper pushing, that is from the supplier to the government.
It’s funny how Malaysia’s non-Bumiputeras are treated like foreigners in their own country. That to supply medicine to the government, they need to play the whole race card and get a Bumiputera agent to help them access the public healthcare space. Also Pharmaniaga is a Bumiputera-majority group. Removing its only edge against the competition would be deemed unpopular.
Maybe it is to keep armed forces pension fund Lembaga Tabung Angkatan Tentera (LTAT) happy. LTAT controls Boustead. This, too, is a vote bank. The armed forces, also majority Bumiputera, has a strong presence in key constituencies such as Setiawangsa in Kuala Lumpur.
What’s more, LTAT chief executive officer Nik Amlizan Mohamed recently fessed up that it could no longer provide those highly sought-after double-digit dividends. She spun the usual previous-management is bad spiel: that financial mismanagement occurred under her predecessor Tan Sri Lodin Wok Kamaruddin. But such creative accounting has not warranted a police report yet. Also we are still in the dark over the findings by external auditor Ernst & Young.
But LTAT only issued a 2% dividend for 2018. If I were a soldier, I’d be up in arms. This is the purse that will take care of me and my family once I retire and all I get is a paltry 2%?
EPF members get more than that. And we know that LTAT is hard-pressed to fork out a higher dividend for 2019. All its equities holdings are underperforming.
If political pressure made Dzulkefly buckle, then it is a sad story. The open tender push and the breaking of Pharmaniaga’s dominance was the right thing to do. I guess the joke is on us.
At least we know one person is happy with this outcome: “back-up singer” Farshila. Here’s what she said when good tidings came her way: “Pharmaniaga is thankful to the government for continuing to place its trust in us and for its recognition of our performance in delivering services for the benefit of the rakyat in line with our motto, Passion for Patients.” Yeah, right…