KUALA LUMPUR: In a move that was not totally unexpected, the board of Sime Darby Bhd has asked its president and group chief executive (GCE) Datuk Seri Ahmad Zubir Murshid to take a leave of absence following huge cost overruns and project losses at its energy and utilities (E&U) division.

His departure comes before the expiry of his employment contract on Nov 26 and amidst the Sime Darby board unveiling, for the first time, the depth of losses in the E&U division arising from its oil and gas projects in Qatar and the Bakun hydroelectric dam.

A work group set up to review the losses at the division estimates a negative impact of RM964 million on Sime Darby’s results for the second half of the current financial year ending June 30, 2010 (FY10).

Assuming the entire amount is provided for in its books, it would mean that Sime Darby could potentially chalk up a marginal loss in its third-quarter results to be announced on May 27.

For the first half of FY10, Sime Darby reported a net profit of RM1.113 billion. Its operating profits for the first and second quarters were RM992.8 million and RM831.9 million.

In a press conference yesterday, Sime Darby chairman Tun Musa Hitam said the board established a work group to probe the E&U division after questionable positions relating to its financial status and corporate governance issues emerged six or seven months ago.

“This forced us to want to look deeper,” he said, adding that a work group comprising board members Datuk Seri Panglima Andrew Sheng as chairman, Tan Sri Wan Mohd Zahid Mohd Noordin and Datin Paduka Zaitoon Othman was set up in October last year. They were assisted by accouting firms, legal firms and cost consultants.

He said the full board had met on Wednesday and “deliberated on the roles of everyone in the top management in administrating and managing this particular division”.

“Secondly, the board identified the damages that had been caused as a result of the goings-on in the past. Thirdly, the board, recognising the importance of good corporate governance, identified the groups, individuals and whomever in circumstances who were responsible and accountable within the context of good corporate governance.

“It is based on these that we came to the conclusion that we did. It would not be appropriate for me now to list each and every one of the whys and hows simply because, for the moment, the decision stays as it is,” said Musa.

Asked if Ahmad Zubir was effectively fired by the board, Musa said: “It is up to people to interpret. God’s gift to us is that we have a sense of analysis.We can make our own judgment about things. The fact is he has left the group as of today.”

Ahmad Zubir also vacates his directorship in the group and ceases to be a member of board committees — tender committee, strategic investment committee and China operations committee.

Pending the appointment of a new president and GCE, Datuk Azhar Abdul Hamid, currently executive vice-president of the plantations division has been appointed acting GCE.

However, the company seems to have reserved the right to appoint someone else as a permanent GCE, saying in its announcement: “Meanwhile, the board’s nomination committee has been tasked to search for a new GCE.”

In response to a question, Musa said the nomination committee was not restricted in its search for a new GCE, which could be “personalities” within or outside the group.

Current head of plantation upstream, Franki Anthony Dass has been appointed acting executive vice-president, plantation division.

The RM964 million loss that Sime Darby incurred related to four projects, including the high-profile Bakun hydroelectric dam project in which the group holds 35.7% equity interest. The other projects are Bulhanine and Maydan Mahzam jobs with Qatar Petroleum (QP) that were worth RM975 million, the Maersk Oil Qatar (MOQ) project awarded for RM2.2 billion and a marine project tied to the MOQ.

In arriving at the provisions of RM964 million, the board reversed out RM200 million in revenue from the QP job, booked an additional RM159 million for the MOQ job and allocated RM450 million as its share of losses from the Bakun project. Another RM155 million was included in the provision for the marine project.

Prior to the additional provisions announced yesterday, the company had already set aside RM367 million for the MOQ project.

Group chief financial officer Tong Poh Keow declined to comment on reports that the group had requested the government for reimbursement of an additional RM700 million on top of an earlier claim for RM708 million that has largely been disbursed from the Bakun project.

“For this project, we are bound by non-disclosure agreements, so it is not that we do not want to give you the facts,” she said.

Elaborating on the restricted information pertaining to the cost overruns, Sheng said the E&U contracts were complicated and involved not just one but several clients, with whom Sime Darby was currently in negotiations.

Musa also emphasised that the current action was only short term and a further exercise would be announced by the board with long-term steps to revamp and to improve the management and efficiency of the group. “We took over the huge conglomerate only two years ago, and we intend to improve the structure (of the group) without destroying the fabric of it,” he said.

This article appeared in The Edge Financial Daily, May 14, 2010.