1MDB’s origins can be traced to the 2008 general election, which saw the Umno-led Barisan Nasional (BN, National Front Federal Government) losing its two-thirds majority. The BN lost five states, which had an effect on the position of the menteris besar (chief ministers) of states under BN rule. In Perlis, there was a change in menteri besar said to be due to intervention by royalty.
The same thing happened in Terengganu where the Sultan was unhappy with the then menteri besar Datuk Idris Jusoh. One of the major issues was the utilisation of oil royalty amounting to more than RMI billion per annum by the Umno-Ied state and federal government agencies.
To stop the unaccountable spending of oil royalty, the Sultan, together with a few advisers, came up with the idea for the Terengganu Investment Authority (TIA).
A year after its conceptualisation, TIA was established with the blessings of the state and federal governments in March 2009. It is said that as part of the “settlement” of the unaccounted-for oil royalty, the federal government gave a RMS billion guarantee to kickstart TIA.
One of the key people who had advised the’ King in establishing TIA was Low Taek Jho, a young merchant banker with strong links to the Middle East. Known as Jho Low to his friends, the young man is also said to be well connected and has done a few major corporate deals. His “lavish” lifestyle in New York was the subject of a feature article in the New York Post last month. Jho, the son of Penang businessman Datuk Larry Low – a former shareholder and director of MWE Holdings Bhd – has however denied that it was he who had splurged on a lavish celebration as had been reported.
Coming back to TIA, the idea was to establish the fund along along the lines of Mubadala Development Company, the SWF of Abu Dhabi. In fact, Khaldoon AI-Mubarak, CEO of Mubadala and chairman of Abu Dhabi Executive Affairs Authority, still sits on the board of 1MDB.
The fund size was initially targeted at RM11 billion, comprising RM5 billion from the federal government and another RM6 billion to come from the securitisation of future annual oil royalty that Terengganu gets from Petronas (the national oil corporation).
But after the initial RM5 billion, raised by a federal government guarantee, the troubles at TIA began. The state, led by Menteri Besar Datuk Ahmad Said, wanted control over the utilisation of the money, something that went against the charter of the fund.
The funds were supposed to be managed by a professional team and overseen by a board of directors and advisers. It was a triple-layer structure to ensure the money is well spent.
But the prime movers behind the funds found out early that this was easier said than done. Subsequently, TIA became a federal entity, which gave birth to 1MDB.
Thank you Lim Sian See for the heads up!