Wednesday, February 29, 2012

NFC Breached Companies Act 1965

We have revealed the RM250 million loan agreement between the Government and NFCorp which clearly restricted the use of the monies for the purpose of “establishment and operation” of a National Feedlot Centre “to be consistent with the Government of Malaysia’s policy of developing, nurturing and promoting the production of beef”.

However it is clear that the millions of ringgit of the loan have been used for purposes other than that of cattle-rearing including the purchase of high-end luxury condominiums in Malaysia and Singapore and investment in businesses in Singapore.

Such acquisitions and investments with the loan funds have not been made through the NFCorp entity but through the individual directors of the company.  In effect it meant that NFCorp has lent money to the individual directors of the company and/or directly to companies which had common directors with NFCorp.  Such director-related companies would include Meatworks (Singapore) Pte Ltd which is not owned by NFCorp but by the individual directors of NFCorp.

Not only is such use a blatant breach of the loan agreement, it is illegal under the Companies Act to extend such loans.  In Section 133 and 133A under the “Loans Prohibited” category, “a company shall not make a loan to a director of the company or of a company which by virtue of section 6 is deemed to be related to that company, or enter into any guarantee or provide any security in connection with a loan made to such a director by any other person…”

Even for certain types of loans which are permissible, such as housing loans for employees and advances on expenditure to be incurred, they are only legal if prior shareholders’ approval has been obtained.  It is obvious in this case that no prior approval has been obtained from the Ministry of Finance which has a golden share in NFCorp.

In addition, Section 133A extends the prohibition to include loans to persons connected with directors of the lending company. Such persons include other companies in which its directors have an interest in 20% of the equity of such companies.

Finally, Section 133(4) makes directors in breach of the prohibition guilty of a criminal offence and such directors are made jointly and severally liable to indemnify the company against any resulting losses.

In response to the statement by the Director of Commercial Crimes Investigation Department (CCID) Datuk Syed Ismail Syed Azizan which recommended that NFCorp be charged for criminal breach of trust (CBT), NFCorp had claimed on Sunday 26th February 2012 that the conclusion made by the Police was “premature” and failed to take into account the “intentions” of its Directors.

NFCorp had claimed that “the so-called ‘unrelated companies’ of NFCorp where the fund was channeled to, were always meant to be the subsidiaries of NFCorp”.  However such a claim is in fact a clear admission of wrongdoing under the Companies Act.

The statement by NFCorp that “the directors of NFCorp sat on the board of these associate companies” would “prove exactly the point of the attempt to rationalize” the group of unrelated companies, is in fact the exact offence which the Companies Act seek to make illegal.

Therefore we call upon the Attorney-General to act not only on the case of CBT where the government’s loan funds have been abused, but also for clear breach of the Companies Act where NFCorp lent liberally to its directors and directors’ companies.

Tuesday, February 28, 2012

NFC Spins Itself Into A Corner

In response to my press conference held on Saturday to reveal the NFCorp RM250 million loan agreement with the Malaysian Government, the company has yesterday responded publicly to claim that I have "misled the public".

I have highlighted the fact that the Directors have clearly breached the loan agreement by using the loan funds for purposes other than that of that specified in the agreement, which is to rear cattles and improve its quality and production in the country.

However NFCorp argued that "the loan agreement had to be read concurrently with the implementation agreement, the powers of the company as set out in its memorandum and articles of association and other related documents."

In essence, the company claims that the Loan Agreement signed with the Government must be read concurrently with the company's memorandum and articles of association (MAA). They clarified that the MAA allowed the company to “to invest and deal with the money of the company not immediately required in such manner as may from time to time be thought fit."

Therefore, according to NFCorp it is important that the agreements and the company’s MAA "for a holistic understanding of MoF’s terms and conditions for the loan."

NFCorp even tried to justify their generous use of tax-payers' funds channelled through the loan by the fact that the Government owns a Golden share in the company.  They argued that the Government's share in the company means the former's complete approval with its use of funds lent to the company.

Even to someone not trained in law like myself, the statement from NFCorp must be one of the most preposterous but beautifully written legal gobbledegook I've read in my short political career.

There is absolutely no provision in the loan agreement for the use of the monies to be "guided" by the company's MAA.  The fact that NFCorp MAA may allow the company to set up a casino does not in any "legalise" the use of the loan funds for its set up. The Government's stake in the company makes absolutely no difference to the legal effect of the loan agreement.

In fact I would go so far as to say that the statement by NFCorp is a clear admission of their guilt in breaching the strict terms of the loan agreement.

I found it laughable that NFCorp has also attempted to justify their purchase of luxury condominiums in Malaysia and Singapore by relying on the clause in the loan agreement which said

"12.1 - In the event that the Loan Facility is utilized to fully pay for the purchase of landed properties, the Borrower hereby agrees that it shall create the necessary charge/assignment over such landed properties in favour of the Lender."

Firstly, given the strict purpose of the agreement to promote cattle-farming, surely any acquisition of property must be directly related to the industry such as cattle-grazing land.

Secondly, and most incredibly, surely NFCorp can't be arguing that the luxury condominiums they have purchased can be defined in any possible way as "landed property". Or worse, that they were purchased for cattle-rearing purposes, or would we find new technological wonders on how to farm cattles in high-rise luxury residences?

The company is obviously so bankrupt of ideas and is desperately clutching at straws to save themselves from the wrath of the Malaysian public and the claws of the enforcement authorities.

Finally, if the above statement and legal justification of NFCorp's use of funds was advised by their lawyers, then my only advice to the directors is perhaps to consider appointing better lawyers to save their skin.

Monday, February 27, 2012

All NFC & Its Directors Assets Must Be Frozen

The Police and MACC must immediate freeze all the assets of National Feedlot Corporation Sdn Bhd as well as that of its directors not only in Malaysia but also internationally to ensure public funds have not been used for personal gains

After hastily announcing that the Police did not find any evidence of criminal breach of trust (CBT) by the directors of NFC as early as 1st December 2011, the Police has finally recommended to Attorney-General yesterday for them to be charged.

What has been blatantly obvious to Malaysians at large has taken the Police more than 4 months to complete their investigations.  It is clear from the NFC loan agreement made available yesterday that NFC has breached the terms of the loan agreement by utilising funds for purposes other than that approved.  It has already been widely proven and admitted that the directors of NFC had used monies from the loan to acquire properties in Kuala Lumpur and Singapore.

Following the confirmation by the police and to prevent the transfer of assets illegally obtained via alleged criminal breach of trust, we call upon the police to freeze any transfer or sale of assets owned by both the NFC and its directors.

We understand from the statement on the 14 January 2012 by the Prime Minister, Dato' Seri Najib Razak that the assets of the NFC have been frozen. However, from the exposes made to date, many of the assets acquired either directly or indirectly with NFC funds are made in the names of the individual directors.  These would include properties in Malaysia and Singapore, as well as companies in Singapore such as MeatWorks (Singapore) Pte Ltd.

To ensure that these assets are not disposed off at the expense of the tax-payers who funded the RM250 million soft-loan, the Police must now initiate actions to have these properties and assets frozen since they are recommending that the Directors be charged for CBT.

The failure of the police to do so, and should it be discovered later of such disposals, then the enforcement agencies will have to be taken to task for jeopardising public interest.  The police must take all necessary actions to ensure that the public funds would be recoverable in the event of a charge and conviction.

NFC Loan Agreement Exposed!

Haven't NFC Defaulted on its RM250 Million Loan?

NFC has defaulted on soft loan, claims MP
Kuek Ser Kuang Keng | 4:31PM Feb 25, 2012

The agreement between National Feedlot Corporation (NFC) and the government reveals that the company has defaulted on its RM250 million government soft loan for over a year, claimed Petaling Jaya MP Tony Pua.

According to the much-sought agreement leaked to Pua (right) by an unnamed source, NFC enjoys a three-year installment and interest-free grace period from the day it obtains the first drawdown.

Earlier on, NFC had said that the first drawdown of RM7 million was in January 2008.

Hence the repayment should begin as early as January 2011 when the three-year grace period ended, Pua pointed out.

"We are now in February 2012. Our understanding is that they have not paid a single sen. They are long beyond the grace period," he said.

However, NFC claimed that it will start servicing its loan repayment beginning this year as stipulated in its loan agreement.

The DAP national publicity secretary then took to task the Finance Ministry (MOF) for not doing anything to recover its loan and freeze the project as NFC had clearly defaulted on the loan.

No penalty

On the penalty stated in the agreement in the event of a default, he flashed a wry smile and pointed out that Clause 11 of the document states that NFC only needs to pay default interest on the outstanding loan at a non-compounding flat rate of two percent annual interest.

This is the same interest rate as for the whole loan.

"This is one of the worst loan agreements I have ever seen," said Pua, who was a CEO and founder of a Malaysian IT company listed in Singapore before venturing into politics.

During the press conference at the DAP's Kuala Lumpur national headquarters today, Pua distributed copies of the agreement to reporters.

The agreement was signed by NFC chairperson Mohamad Salleh Ismail and his son Wan Shahinur Izran who is also NFC director, and two senior MOF officials representing the government, on Dec 6, 2007.

Salleh is the husband of Women, Family and Community Development Minister Shahrizat Abdul Jalil who has been under tremendous pressure to resign from cabinet after the scandal exploded.

In a related development, the Bukit Aman Commercial Crime Investigation Department (CCID) today announced that the police have recommended to the attorney-general to charge several NFC directors for criminal breach of trust.

35-page NFC loan agreement

Sunday, February 26, 2012

National Feedlot Loan Agreement Prohibits Property Purchase

Pua reveals NFC's controversial loan agreement
Kuek Ser Kuang Keng | 1:03PM Feb 25, 2012

Petaling Jaya MP Tony Pua today revealed the contents of the much-sought loan agreement between National Feedlot Corporation (NFC) and the government, affirming the perception that it was lopsided and the purchase of luxurious properties breached the agreement.

The 35-page document clearly states that the purpose of the RM250 million government soft loan at two percent annual interest is solely for the National Feedlot Center project.

"The Borrower shall use the Loan Facility to part finance the Project as described in the First Schedule of this Agreement," read Clause three of the document under the topic ‘Purpose'.

Hence the earlier statements made by NFC directors that the loan can be used for property investment, said Pua, were "complete rubbish".

"The fund can only and strictly used to part finance and set up the center, nothing else," he said.
Clause 18.1 of the agreement under the topic "Particular Covenants", it was again stated that as long as the loan is still not repaid, NFC shall use the loan for the purpose of the project.

During the press conference at the DAP's Kuala Lumpur national headquarters today, Pua distributed copies of the agreement to reporters which he described as "one of the worst loan agreements I have ever seen".
He claimed that the document is genuine and provided by an unnamed source.

According to Pua, the parliamentary Public Accounts Committee (PAC) where he is a member, is supposed to disclose the agreement at the next meeting but its chairperson Azmi Khalid has yet to call for one after last November's.

Although the agreement contains provisions for the government to monitor NFC's operations, it was not fully utilised by both the Agriculture and Agro-Based Industry Ministry (MOA) and the Finance Ministry (MOF), claimed Pua.

The agreement requires the NFC to submit a project progress report before being allowed to withdraw funds from the special loan account.

The report has to be certified by an authorised technical committee comprising four representatives, one each from the MOA, the veterinary department, Universiti Putra Malaysia (UPM) and Universiti Kebangsaan Malaysia (UKM).

However, Pua noted that despite the Auditor-General's Report revealing that the project had failed to meet its target, NFC continued to draw from the loan.

"The Agriculture Ministry is equally culpable for the mess," he said.

At the same time, the MOF took no action although NFC is required to provide monthly bank statements of the special loan account to the ministry on a quarterly basis, detailing how the loan was used, Pua noted.

"Unless NFC submitted false reports... We don't know if they submitted false reports. The MOF has to verify the reports," said Pua, adding that MOF officials had told the PAC that no NFC report mentions the purchase of condominiums.

Apart from the ministries' failure to supervise the project, the agreement gives favourable conditions to NFC should there be a default by the company.

The agreement was signed by NFC chairperson Mohamad Salleh Ismail and his son, Wan Shahinur Izran, who is also NFC director, and two MOF officials representing Malaysian government, on Dec 6, 2007.

Salleh is the husband of Women, Family and Community Development Minister Shahrizat Abdul Jalil who has been under tremendous pressure to resign from cabinet after the scandal exposed.

In a related development, the Bukit Aman Commercial Crime Investigation Department (CCID) today announced that the police have recommended to the attorney-general to charge several NFC directors for criminal breach of trust.

35-page NFC loan agreement
Source: © 2012

Monday, February 20, 2012

BN fiddles with Budget Deficit

When the 2012 Budget was presented in October 2011, the Prime Minister Dato’ Seri Najib Razak had announced that the Federal Government will reduce the budget deficit from 5.4% in 2011 to 4.7% in 2012.  The figure is also reduced from a deficit of 5.6% in 2010 and 7.4% in 2009.

On the surface the reduction in deficit has been commendable despite it being still significantly higher than our medium term target of less than 3%.

However the Barisan Nasional (BN) Federal Government budget deficit figure is a complete sham, or in layman’s term, “legalized accounting fraud”.  Under pressure to reduce the Government’s deficit to appease international investors and to demonstrate financial prudence, Najib’s administration has chosen to deploy creative means to finance the Government’s financial extravagance.

Taking the 2012 Budget as an example, if one were to parse through the hundreds of pages of expenditure allocation, he or she will be shocked that some of the big ticket expense items promised by the Federal Government is completely “unbudgeted” for.

Malaysia’s single largest infrastructure project, the Klang Valley MRT which works have commenced and is expected to cost a record RM53 billion is not provided for in the 2012 Budget.  The first MRT line, the Sungai Buloh – Kajang line alone is expected to cost RM20 billion, and billions of ringgit of contracts have already been awarded.

The expenditure is not included in the budget because the project is expected to be funded from loans raised by Dana Infra, a Ministry of Finance (MoF) owned special purpose vehicle (SPV) and guaranteed by the Federal Government.

Similarly, Syarikat Prasarana Bhd, another wholly-owned MoF company has already awarded RM6.5 billion of contracts for the LRT Line Extension Projects since the end of last year with more expected to be awarded this year, and yet, none of these expenditure items were provided for in the 2012 Budget.

Furthermore, another wholly-owned subsidiary of the Government, Pembinaan BLT (PBLT) has been given RM10 billion federal government guaranteed financing to build 74 police stations which will subsequently be leased back to the Government.  Many of these stations will be built this year and next and yet again, none of these expenditure items are found in the 2011 or 2012 Budgets.

Because all these large ticket items have all been excluded from the Government’s budget, Najib is able to claim false credit that his government has been prudent in managing expenditure and has been able to “reduce” its deficit from a high of 7.4% in 2009 to the projected 4.7% in 2012.

The only reason why the government has been able to “reduce” the deficit is because Government expenditure has been “externalized” to wholly or majority-owned Government agencies which is in turn not reflected in Malaysia’s annual budget.  As a result, this form of “off-balance sheet” financing mechanism has been used with increasing size and frequency in recent years causing Malaysia’s contingent liability or funds guaranteed by the Government to increase from RM84.3 billion in 2009 to RM96.9 billion in 2010.  This figure would have increased significantly beyond RM100 billion in 2011.

The Government is under pressure to spend more in part to support many of Barisan Nasional crony businesses who are not able to secure projects competitively, as well as to increase public investment to cope with the decline in private investment in the country.

If all of the “off-balance sheet” expenditures cited above and more which has not been accounted for, are taken into consideration in the Federal Budget, then the real budget deficit for 2012 will easily be in excess of 7%.  This creative manipulation of our federal budget is sheer legalized accounting fraud to present a false picture of financial competence and prudence.  The accelerated increase in size of our hidden debts, if unchecked, will sooner or later cause a massive shock to our financial system, not too different from what the Greeks are suffering from today.  When the shit hits the fan, Malaysians and our children will certainly be made to pay for it.

Saturday, February 18, 2012

Of Debt Ceilings and Creative Accounting

The Loan (Local) Act 1959 and Government Funding Act 1983 puts in place a 55% federal government debt limit relative to Malaysia’s Gross Domestic Product (GDP) as determined by the Ministry of Finance (MoF).  Based on the Government’s Economic Report 2011/2, our federal government debt will hit RM455.7 billion as at the end of 2011 which works out to 53.8% of our GDP, or a whisker away from the statutory borrowing ceiling.

However, what is worrying is the fact that the “statutory borrowing ceiling” has actually been raised multiple times by the Barisan Nasional (BN) Government over the past decade to “legalise” the federal government debt level which has been increasing at a much faster pace than our GDP.

The 55% statutory borrowing ceiling only came into effect in July 2009 by order of current Second Finance Minister Dato’ Seri Ahmad Husni Hanadzlah.  Prior to the revised limit, the limit was set at 45% in June 2008, barely 13 months before by the then Second Finance Minister Tan Sri Nor Md Yakcop.

It was 5 years before that when the limit was raised to 40% in April 2003 by the then Second Finance Minister Dato’ Sri Jamaluddin Jarjis.

Hence our statutory borrowing ceiling has been raised by 15% of our GDP in just 6 years.  The question is if the ceiling is repeatedly raised with such nonchalance, why did the Government bother setting a limit at all?  Given that our debt level is expected to increase beyond 55% over the next 2 years, are we expecting the Federal Government to once again raise the ceiling in Parliament to circumvent the breach?

In fact, we are extremely concerned that the Federal Government, which is mindful of their debt level relative to the GDP, is using all sorts of creative measures to by-pass the limit set by law.

It should be noted that the MoF will be raising approximately RM20 billion to fund the first phase of the Klang Valley MRT mega-project this year.  However, based on the fact that the MRT was never debated in the 2012 Budget tabled in Parliament for approval last year, it is clear that the funding will be raised by a wholly-owned “special purpose vehicle” (SPV) known as Dana Infra, and guaranteed by the Government.

This way, the BN Federal Government kills two birds with one stone.  Firstly, the debt raised will not be part of the Federal Government debt (because Dana Infra is “not” Federal Government) and hence will not be perceived to jeopardise our credit standings.  This is despite the fact that all parties are expecting MRT to be a financially loss-making project and that the Federal Government will have to fund Dana Infra’s debt repayments at some point in the future.

Secondly, by placing the debt and expenditure of the MRT project in a SPV, such expenditure then escapes the purview of direct parliamentary oversight because it is never debated in Parliament as an official Budget item.  As mentioned earlier, there is not a single line item in the 2012 Budget approved at the last parliamentary sitting for the purposes of constructing an MRT despite the fact that this will be Malaysia’s largest ever infrastructure project by far.

Such creative manipulation of our federal government debt and expenditure is not limited to just the MRT project but many other multi-billion ringgit projects such as the construction of 74 police headquarters with government-guaranteed RM10 billion debt by MoF-owned Pembinaan BLT Sdn Bhd, or the proposed RM20 billion sukuk plan by Pengurusan Aset Air Bhd (PAAB) to restructure the country’s water assets.

Governments all over the world, especially in developed countries like the United Kingdom and Germany, are now changing their laws to require such debts and contingent liabilities to be incorporated into the Government’s financial statement to ensure greater transparency and financial accountability.  This is to avert a financial crisis which has already enveloped the Euro-zone over the past 2 years.

However, it appears that the Malaysian government is still sitting back and resting easy, while making full use of the “loop-hole” in our government financial reporting standards to continue to recklessly indebt future Malaysians with none of the checks put in place.

Friday, February 17, 2012

Off Balance Sheet, Contingent Liabilities and Hidden Debts

Based on the Government’s Economic Report 2011/2 published last year, our Federal Government debt will hit RM455.7 billion as at the end of 2011.  This was a 11.9% increase from RM407.1 billion incurred in 2010.  Our debt levels have been increasing rapidly in recent years compared to RM242 billion in 2006 and RM146 billion in 2002.

As it stands, our Federal Government debt has hit 53.8% of our Gross Domestic Product (GDP) compared to 53.1% in 2010 and 44.6% in 2006.

However, what is of greater concern is the Government “off-balance sheet” financing which isn’t reported as Federal Government Debt.  In recent years, the Government has increasingly issued debt papers via its statutory bodies and corporatized entities.  These loans are obtain with guarantees provided by the Government, but are not reflected as Federal Government borrowings.

In 2010, the “off-balance sheet” financing activities has hit a record high of RM96.9 billion in 2010, a 14.9% increase from RM84.3 billion in 2009.  These are loans which have been taken with a Government guarantee, which the Government is obligated to pay should the borrowers fail to settle the debts.  As an example, if the Federal Territories Foundation is unable to repay the proposed RM300 million loan from EPF to provide financing for the low-cost housing purchasers, then the Government will have to step in to make the RM300 million payment to EPF.

Hence for all intents and purposes, even though these loans are not taken by the Government, they are essentially government debt or otherwise known as contingent liabilities.  Adding RM96.9 billion to the current debt of RM455.7 billion, the effective debt which Malaysian tax-payers are liable for is RM552.6 billion.  This expanded figure would then constitute 65.2% of our GDP, well above the 55% federal government loan limit as defined in the Loan (Local) Act 1959 and Government Funding Act 1983.

The list of statutory bodies and corporate entities which have been given Government guarantees are as per the table below.  Based on the list, there are some serious concerns over the performance or non-performance of these loans which will require bail outs by the Federal Government.

For example, the PTPTN and Syarikat Prasarana Negara Bhd owes RM17.0 billion (17.5%) and RM9.1 billion (9.4%) respectively and they have both been heavily criticized by the Auditor-General for their weak financial management and their inability to repay their loans.

The list also includes Syarikat Penerbangan Malaysia Bhd (RM7.0 billion) which was set up to bail out Malaysian Airlines System (MAS); 1MDB (RM5.0 billion) which in turn lent nearly all its money to a questionable foreign company, PetroSaudi International Limited and Silterra Bhd (RM1.0 billion) which has made more than RM2 billion in losses to date.

What is interesting is also the fact that loans of Tan Sri Syed Mokhtar Al-Bukhary-owned Port of Tanjong Pelepas (PTP) also received financial guarantees from the Government.  PTP’s “guaranteed” loans have in fact increased from RM715 million in 2009 to RM1.275 billion in 2010.

Expert testimonies in 2009 in the United Kingdom Parliament has heavily criticized Government guarantees to statutory bodies, government-linked companies or “private-finance initiatives” as an attempt to hide real debt levels in order to achieve better credit ratings.  Professor Dieter Helm of Oxford University said that such initiatives had succeeded as "an exercise to get investment off the public balance sheet so that the debt numbers look better than they otherwise would have done."  The Greek financial crisis has similarly unraveled as a result of hidden contingent liabilities not reflected as official government debt or reported in its balance sheet.

For a start the BN government must reflect all its guarantees and contingent liabilities in the annual Economic Report and Budget to be debated in Parliament and it must impose measures to slow down the rate of growth of Malaysia’s debt levels.  Malaysia should not wait for a major financial crisis of Greek proportions before attempting to reform our public sector finance.  At the pace which our debts are increasing, we are accelerating headlong into a financial disaster.

Tajudin Ramli Gets Off Scot Free

he Government must disclose why it has decided to write off RM589 million of court ordered payment from Tan Sri Tajuddin Ramli and who is ultimately responsible for the losses

Tan Sri Tajudin Ramli has now gotten off scot free from his Court-ordered obligations to pay back to Pengurusan Danaharta Bhd, an agency 100% owned by the Ministry of Finance amounting to a whopping RM589.15 million excluding interest.

The High Court had in December 2009 rule in favour of Danaharta and its two subsidiaries on the on the full amount outstanding and had ordered Tajudin to pay an interest of 2% above the base lending rate of Malayan Banking Bhd until the date of full realisation.  The Court had also dismissed Tajudin’s counterclaim to the tune of over RM14 billion excluding damages and cost.

Danaharta’s claims are based on the claims that Tajudin had defaulted on a syndicated loan of RM1.792 billion, which he took in 1994 to acquire the Government’s 32% stake in Malaysian Airlines System (MAS).

In Tajudin’s defence, he claimed that he was never meant to be personally liable for the term loan as the government had agreed to an overriding agreement to indemnify him of any liability that arose from his acquisition of MAS shares from Bank Negara Malaysia.

Tajudin has also claimed that the then Prime Minister Tun Dr Mahathir Mohamad and then Finance Minister Tun Daim Zainuddin, “instructed” him to pay RM8 per share for MAS when the market price was around RM3.50.

However, in a shocking decision by the Government, Danaharta has been instructed to “settle” the suits in the Court of Appeal by completely writing off the outstanding debt from Tajudin Ramli and causing an immediately loss of RM589.15 million to the tax-payers’ coffers.

The Prime Minister and Finance Minister, Datuk Seri Najib Razak must immediately explain why the BN government is writing off the entire debt and letting Tajudin off scot free without even defending itself in the Court of Appeal.  The decision smacks of sinister motives especially since the Government has already won its case in the High Courts.

The decision of the BN Government proves that it is intent on letting off its cronies easy despite having caused hundreds of millions of ringgit to the Government.  Where is Najib’s “New Economic Model” where the Prime Minister declared to foreign investors that “the behaviour of rent-seeking and patronage will no longer be tolerated”?

Or is the settlement a result of the Government’s agreement with the Tajudin defence that he is completely indemnified by Tun Dr Mahathir Mohamad and Tun Daim Zainuddin from having to bear any responsibility for losses?

If the latter is the main reason, the Najib must immediately take actions against both the former prime minister and finance minister for not only gross negligence but having wilfully provided guarantees and indemnity to Tajuddin in the privatisation of MAS.

If the billions of ringgit of losses in PKFZ can result in both the former President and Deputy President of Malaysian Chinese Association, Tun Ling Liong Sik and Tan Sri Chan Kong Choy to be charge for misleading the cabinet in open court, surely then Tun Dr Mahathir and Tun Daim Zainuddin must be similarly investigated for possibly providing illegal guarantees and indemnity their cronies.

It is clear from the above settlement, the BN Government has no political will to manage our treasury in any prudent fashion.  Large-scale leakages, corruption and wastages will continue under a BN government that is keen to promote cronyism and marginalise accountability.  Minister in the Prime Ministers’ Department Datuk Idris Jala, has continuously warned of possibly bankruptcy if we fail to manage our finances prudently.  Should BN continue to rule after the next two elections, then Datuk Idris’ warning might just come true.

Thursday, February 16, 2012

Global Sugar Prices Down, But Subsidies Up?

The Minister of Domestic Trade, Consumerism and Cooperatives, Datuk Ismail Sabri has announced earlier this month that the Government has entered into a 3-year contract to import raw sugar for US$26 per 100 pound signed in January 2012.

As a result he has announced that the Government had to increase the subsidies for sugar sold in the country from 20 sen to 54 sen per kilogramme. According to the Minister, the increase in subsidies to was due to “skyrocketing” global prices.  Consequently, the government would now have to pay RM567 million for sugar subsidy this year compared to RM262.4 million last year.

The question that needs to be asked however, is why did the Government sign a 3 year contract to purchase sugar at US$26 per 100lbs when the last traded price of sugar as at December 2011 was on US$23.42 per 100lbs or a significant 10% below the Government’s purchase price?

Based on the fact that Malaysia imports approximately 1.24 million tonnes or 2.73 billion pounds of sugar per annum, Malaysia would have overpaid by RM64 million.

What is of greater concern is that the Government is locking in the purchase of sugar at high prices when the global sugar prices have been trending downwards.  After hitting a peak of US$29.47 per hundred pounds in July 2011, the price of sugar has fallen consistently every month – US$28.88 (August), US$26.64 (September), US$26.30 (October), US$24.52 (November) to US$23.42 (December) per 100lbs.

In fact, a February 5th Bloomberg report cited Macquarie Group Ltd as claiming “sugar prices may fall to as low as 18 cents a pound this year as a forecast surplus for the 2011-12 season becomes available”.

The report further added that “sugar supplies are set to outpace demand by 9 million metric tons in the 2011-12 season that began in October, according to trader Olam International Ltd. The estimated surplus has started to reach the market and will increase throughout the year, said Carlos Murilo Barros de Mello, managing director at Macquarie Brasil Participacoes Ltda.”

If sugar prices does indeed hit US$18 per 100lbs, then Malaysia stands to lose approximately RM491 million per annum. Instead of having to increase subsidies, Malaysia could have further reduced sugar subsidies without having to increase the price of refined sugar.

Datuk Ismail Sabri must explain how the US$26 per 100lbs transaction is arrived at.  The Minister had arrogantly said “let me remind you that the government is smart” when announcing that the Government had entered into the long-term contract.  It is now looking like the Government is being completely foolish in its attempt to be smart and it’s costing the tax-payers hundreds of millions of ringgit more than necessary.

The Minister must also explain why is it that it is the Government who has to commit and pay for raw sugar import when it should be the Malaysian sugar duopoly – Malaysian Sugar Manufacturing Bhd and Tradewinds Bhd which should importing the raw sugar at the lowest possible prices.  Shouldn’t these companies be forced to compete and not be sheltered by the Government from market risks?

Tuesday, February 14, 2012

MRT: Structured for Higher Cost

Gamuda Bhd has announced to Bursa Malaysia on Friday last week that its jointly-controlled entity, MMC Gamuda KVMRT (PDP) Sdn Bhd, has executed the PDP Agreement with Mass Rapid Transit Corporation Sdn Bhd in respect of the implementation of the project known as the Klang Valley Mass Rapid Transit Project-Sungai Buloh-Kajang line (KVMRT-SBK).

Assuming the “successful” delivery of the KVMRT within the agreed target cost, it shall be paid a fee which is equivalent to 6% fee of the aggregate of all the awarded works contracts.

First of all, a 6% project fee is almost unheard of in a project of this scale.  Based on an estimate that the KVMRT-SBK is expected to cost RM18 billion, the fees to the PDP alone will be RM1.08 billion.  This fee will only be reduced if the PDP wins the tender for the underground tunnelling works – in which case the value of the tunnelling works will be excluded from the calculation of the fee.

The reason why the fee is so high is simple – not only was there no competitive tenders, which would surely have brought the fees down, the Government has chosen to award the contract and commenced work on the KVMRT a year ago before the fee was even agreed upon.  Such recklessness on the part of the Government has resulted in it being beholden to the PDP with little room to manoeuvre or negotiate.

Any ordinary man on the street will know that it is ridiculous to ask a contractor to start the kitchen renovation without first agreeing to the cost.

On top of the fees, the PDP will also be separately reimbursed for “overheads, fees for engineering consultancy, quantity surveyors and system integration works and fees for site investigations and topographical survey” amounting to RM2.85 billion.  Adding the reimbursables to the estimated PDP fee of RM1.08 billion, the PDP will effectively collect RM3.93 billion for playing the role of a project manager.

What’s worse, despite the supposed role of the PDP having to bear any cost-overrun for the KVMRT, the PDP has managed to negotiate into its contract a 15% “allowed contingency”.  This means that if the cost of the overall project were to increase by up to 15%, the PDP will still collect every sen of its fee including a 6% of the 15% “allowed contingency”.  A 15% variation based on a RM18 billion project value for the SBK line would be a possible cost increase of up to a massive RM2.7 billion without penalty to the MMC-Gamuda joint-venture.

Secondly, and perhaps more critically, not only has the PDP contract been awarded with no open or competitive tender, the structure of the agreement is such that the overall cost of the project is incentivised to be inflated.

Given that the PDP is being paid on a percentage of contract cost and has to bear any cost-overrun beyond the 15% “allowed contingency”, the PDP which has to help the Government evaluate the various tender proposals will be incentivised to pick the bids with higher prices than the lower ones.

For example, if there are 5 bids to construct the MRT terminal at Taman Tun Dr Ismail (TTDI), there is greater incentive for the PDP to recommend the bid with the highest or higher prices, instead of the lower priced ones.  The simple reason is that the higher priced ones will translate into a higher fee for the PDP given the fixed 6% structure.

The entire MRT project has been awarded and structured in such a reckless manner that the consequences in a few years’ time may have a devastating impact on the KVMRT’s viability.  The higher than necessary cost for the project would necessitate the imposition of higher MRT fares on the Klang Valley commuters, which will in-turn negate the intention of shifting the population to public transport.  Finally, given the size of the project, a drastic increase in cost will have an over-bearing impact on Malaysia’s financial position as the KVMRT is expected to be financed entirely by debt.  As it stands, we are already weighed down with a RM462 billion federal government debt.

The Government must explain with full details and transparency, how these issues will be addressed to ensure that Malaysians and our children will not be burdened by its reckless implementation.

Sunday, February 12, 2012

National Feedlot Centre Chief Lying Through His Teeth?

I am completely shocked to read that National Feedlot Centre (NFC) Chief Executive Officer Wan Shahinur Izmir making the claim that the NFC "had the right to use the RM250 million government loan as it deemed fit" as long as it repaid the interest.

“The issue of NFC managing its loan monies amounting to RM250 million is the company’s responsibility to administer and utilise... NFC retains the prerogative to invest the funds in the best interests of the company,” Izmir said.

The CEO of NFC, who is also the son of Datuk Seri Shahrizat Abdul Jalil, responded as such to additional exposes that the NFC loan has been used to purchase 2 new luxury condominium units in Singapore worth RM17 million each under the name of Datuk Seri Mohamed Salleh Ismail, who is the chairman of NFC as well as Shahrizat's husband.  These purchases were on top of another luxury condominium in Singapore, 2 luxury units in Bangsar as well as a piece of land in Putrajaya.

However during our Public Accounts Committee meeting on the NFC scandal on 23 November 2011, the senior Ministry of Finance (MoF) official was very specific in saying that the loan cannot be used for purpose other than that specified, and there was definitely no provision for the loan to be used for property "investment".

The senior MoF officer even explained that the purpose for each drawdown must be clearly stated.  When further queried, the officer confirmed that the MoF who provided the RM250 million loan facility had never received an application to purchase propety.

Therefore if the senior MoF official was telling the truth when testifying with the PAC, then Wan Shahinur Izmir must be lying through his teeth to defend the indefensible.

During the meeting, the PAC has specifically requested for documents relating to the NFC scandal be presented to the committee for review and verification.  These documents included the loan agreement, the schedule, terms and conditions of loan drawdown by MoF, financial reports of the NFC as well as other relevant documents.

It was decided during the meeting that the next meeting shall be held at the soonest possible time in January to ensure that the PAC is able to get to the bottom of the scandal.

It is unfortunate that no meeting has yet been called by the PAC chairman to date on this matter, as well as on another matter - the 1MDB projects - to date.  We hope that the matters will not be delayed further as the rakyat deserves to know the truth, and nothing but the truth as soon as possible especially on these projects which have scandalised the nation.

Saturday, February 11, 2012

Request to Meet Transport Minister over RM3.9b KLIA2 Scandal

The cost of the new “low cost terminal” KLIA2 had increased drastically from the originally estimated RM1.7 billion in 2007 to RM3.9 billion last year.  The underlying reason was the shift of the airport from the originally proposed northern site (KLIA North) to the current western site (KLIA West) which is under construction. The shift of the site has caused the cost of construction to bloat because KLIA West was already identified as unsuitable for the construction of an airport due to it being a peat swamp.  This is increased the cost by at least RM1.2 billion.

In addition, the shift to KLIA West has resulted in the need for a 3rd runway costing RM270 million as well as a 2nd control tower costing an estimated RM300 million, which would not have been required had the new low-cost terminal be built in KLIA North.
However despite knowing full well that the KLIA West is unsuitable for airport construction and will incur substantially higher cost, MAHB has intentionally chosen not to disclose this crucial information to the relevant Government officials involved.

The Transport Minister, Dato’ Seri Kong Cho Ha has only since responded a month ago that I was “deliberately politicising” the issue and that he doesn’t “have much to answer because the decision was not made by Ministry of Transport”.

I will now be writing formally to the Minister to seek an appointment to receive clarification from him over the issue.  As the Minister-in-charge of airports in the country, and with the Ministry’s Secretary-General Dato’ Long See Wool sitting on the Board of Malaysia Airports Holdings Bhd, the Minister cannot disclaim responsibility over the fiasco which involved tax-payers’ monies.

Tan Sri Bashir Ahmad, Managing Director of MAHB had on 29th November 2011 had the cheek to deny that public funds will be used to fund the drastic increase in cost of KLIA2, the new “low-cost” airport.

The cost of the airport first announced in July 2007 by the Transport Minister then Datuk Seri Ong Tee Keat was RM1.7 billion.  The airport was also supposed to be completed by September 2011 but has since been delayed several times to the now April 2013 deadline.

Despite Tan Sri Bashir’s denial that public funds will not be used, MAHB has announced to Bursa Malaysia on 30th January that it will raise approximately RM598 million from a proposed share placement exercise.  The action by MAHB to raise additional funds from the market proves that public financial interest has been compromised as a result of the RM2.2 billion increase in cost of KLIA2.

Existing major shareholders of MAHB which act indirectly as trustees to Government and public funds are forced to dilute their shareholding by 10% as a result of the exercise.  In addition, MAHB has announced that “assuming that the net earnings of the MAHB Group for the financial year ended 31 December 2011 remains unchanged, the earnings per share (EPS) of the MAHB Group will be reduced proportionately with the increase in the number of MAHB shares”.

The above proposed issuance of new shares to raise funds, is on top of RM3.1 billion in debt MAHB has raised in 2010, of which RM2.5 billion has already been drawn down for the purposes of financing the new KLIA2.

The Minister of Defence, Dato’ Seri Zahid Hamidi had cordially invited Pakatan Rakyat Members of Parliament to seek clarification from him over the defence procurement controversies such as the RM9 billion Second Generation Patrol Vessels (SGPVs) and the RM7.55 billion Armoured Personnel Carriers (APCs).  The Minister of Health, Dato’ Seri Liow Tiong Lai, who is also Dato’ Seri Kong’s party colleague had also welcomed us to the Ministry of Health over Kedai Rakyat 1Malaysia (KR1M) health infringements.

Our request for a meeting will be faxed today to his office and I am certainly that Dato’ Seri Kong Cho Ha will have nothing to hide and similarly welcome us to the Ministry to provide all the necessary clarifications of the drastic overspend by MAHB on KLIA2 to the tune of RM2.2 billion.

EPF housing loan 'comes with 2.67 times guarantee'
S Pathmawathy | 1:31PM Feb 8, 2012

Although not all their questions have been answered, Pakatan Rakyat MPs are somewhat comforted by the Employees Provident Fund's (EPF) clarification on the RM1.5 billion home-loan plan.

"It will not be loaned directly to house buyers... it's given to the government and backed by a surety 2.67 times the value of the total loan amount given by EPF," Petaling Jaya DAP MP Tony Pua said today.

"We were also made to understand that it's not up to RM1.5 billion as announced by Federal Territories and Urban Wellbeing minister... for the time being EPF is only lending RM300 million.”

In their memorandum, however, the Pakatan MPs urged EPF's directors and investors to reject the loan scheme.

"EPF's purpose is to prepare retirement interest for their members... therefore Pakatan Rakyat is of the opinion that it is wrong, cruel and immoral to gamble and expose hard-earned savings to such risk to parties with weak credit levels," they said in the memorandum.

The minister, Raja Nong Chik Raja Zainal Abidin, had said last week that the money would be used as an "easy financing scheme" for 20,000 eligible Public Housing Project (PPR) tenants and potential buyers who cannot obtain bank loans.

According to Prime Minister Najib Abdul Razak, the scheme is designed to help the lower-income group who have failed to obtain housing loans from financial institutions.

Pakatan, then accused the government of encouraging “sub-prime” lending.

Pua, together with parliamentarians Nurul Izzah Anwar (PKR-Lembah Pantai) and Dzulkefly Ahmad (PAS-Kuala Selangor) submitted a memorandum listing out their qualms to EPF’s deputy chief executive officer of investments Shahril Ridza Ridzuan, who briefed the MPs on the proposed loan scheme.
According to Nurul Izzah, EPF will monitor how well the plan is meted out before channelling the rest of the fund in trenches.

Dipping into retirement funds

“We have the assurance from EPF that they will impose strict terms and conditions to ensure the funds of contributors will be protected and defended,” Pua told reporters after the 45-minute meeting at the EPF headquarters in Kuala Lumpur.

On top of the surety, EPF funds will also be managed and distributed by a financial institution and not the Federal Territories Foundation, he said.

"So that the work will be transparent, loans will not by given to those who don’t qualify and (there is) disciplined collection.”

However, Pua posed a question to Raja Nong Chik asking for the rationale on dipping into retirement funds entrusted to EPF when commercial banks can also impose stringent terms before giving out loans.

“Why can’t commercial banks also set similar regulations and directly disperse loans to house buyers just like for a regular housing scheme,” he quizzed.

The opposition MPs have been staunch opponents of the move saying that EPF’s role was to ensure the financial security of the retirement funds of its contributors.

Both Pua and Nurul Izzah suggested turning to Bank Rakyat and Malaysia Building Society Bhd for the purpose instead.

Nurul Izzah also demanded to know why, when the proposal was mooted in 2010 Raja Nong Chick had announced that the government had identified nine banks which would be dispersing loans to house buyers who qualify.

“We will continue to monitor the situation, our main concern is how the funds are used.

“With asymmetric information how are we to know for sure that the people’s money with not be wasted?” she added.

Stressing that the institution should not be exposed to risks, Dzulkefly reminded the government that the EPF “is not in the business of doing micro-credit lending or retail lending to individuals”.

“We would like to assert that we are always in support of those who need to buy houses but not in this manner... but with the explanation today, we have been vindicated and consoled,” he said.

Friday, February 10, 2012

Pakatan Memorandum to EPF on Low-Cost Housing Loan


On behalf of Members of Parliament from Pakatan Rakyat, we hereby submit a memorandum calling upon the Employees Provident Fund (EPF) Board of Directors as well as its Investment Panel to review and reject the proposed plan to extend RM1.5 billion in high-risk loans for low-cost housing purchasers in Kuala Lumpur.

  1. We fully support measures by the Government to assist the poor to own their own properties and remain cognizant of past efforts that have been undertaken by the government without drawing on workers’ retirement savings.
  2. We are extremely concerned that Employee Representatives and members of the EPF Board have denied knowledge of the special loan scheme. Former EPF board member, Sabah Commercial Employees Union (SCEU) general secretary Rebecca Chin who only recently retired a week ago, and current Malaysian Trades Union Congress (MTUC) President Mohd Khalid Atan have confirmed that they were unaware of the special loan scheme and no endorsement was made by the Board.  This gives rise to the suspicion that the Federal Government has imposed the obligation upon EPF without due process.
  3. MTUC Secretary-General, Abdul Halim Mansor has also publicly objected to the plan by EPF to extend RM1.5 billion in loans to low-cost housing purchasers who fail to secure financing from commercial banks.
  4. Depending on the structure of the loan scheme, it may be in breach of the EPF Act 1991 as there are no provisions for EPF to extend loans to individuals with low-cost housing units as collateral.  We call upon the Board to make available the details of this special loan scheme to provide the assurance that it is in compliance with the Act.
  5. We are also seeking confirmation on the statement by the Minister of Federal Territories and Urban Well-Being that several banks and financial institutions were approached and that only EPF ‘stepped forward’. The names of these banks and their rationale for declining to participate must be disclosed to justify the EPF’s purported willingness to “step forward”.
  6. Most importantly, the EPF must not be turned into a “lender of last resort” by any party, including the Federal Government for its social welfare programmes.  The scheme will set a bad precedent for the fund being abused politically to win votes in the future.
  7. While the Prime Minister, Datuk Seri Najib Razak has tried to play down the scheme by claiming that the RM1.5 billion loan is only a fraction of EPF fund size, such infraction could well be expanded for other purposes and extended to other states in the country thus over-stretching the risks that the EPF is forced to take without reasonable returns to tally.

The EPF “aims to provide financial security for its members’ retirement purposes. The fund is committed to preserving and growing the savings of its members in a prudent manner in accordance with best practices in investments and corporate conduct.”  Hence, it is Pakatan Rakyat’s view that it is wrong, wicked and immoral to exploit and risk the workers’ hard-earned monies and savings in a special home financing scheme for those with weak credit ratings.

The EPF Board of Directors and its Investment Panel must exercise their powers in the interest of the contributors, above any other parties with vested interests, including the Federal Government.  It is for the Federal Government to assume the responsibility of social welfare by providing a roof over the head of all Malaysians, and not the responsibility of the EPF.

Thank you.

Yours faithfully,

MP Lembah Pantai

MP Petaling Jaya Utara

MP Kuala Selangor

Wednesday, February 08, 2012

Nong Chik Should Learn "Subprime" Before Debate

The Malay Mail reported yesterday that Federal Territories and Urban Wellbeing Minister Datuk Raja Nong Chik Zainal Abidin has challenged both of us “to a one-to-one public debate” on “use of money from the Employees’ Provident Fund (EPF) for a low-cost housing loan scheme.”

Raja Nong Chik said “these impoverished people cannot get housing without help. Are they saying that these people do not deserve housing?” However, he added that we should debate him “one-to-one in front of all the residents.”

First and foremost, we have repeatedly stated that Pakatan Rakyat fully support the noble objective of ensuring that affordable housing for low income urban dwellers. However, the fulfilment of this aim - home ownership for the urban poor - is the responsibility of the government of the day, and not the responsibility of Malaysian workers.

Hence, we are more than happy to debate with the Minister in the interest of the public to ensure that all relevant issues are thrashed out in an open and transparent fashion.  In order to ensure that the public receives the full story behind the controversy, the debate must be conducted on a level playing field.

The debate must not only be open to low-cost housing residents in Kuala Lumpur, it should be open to all Malaysians, especially the stakeholders who are EPF contributors.  Preferably, the debate should be televised to ensure that Malaysians who are not able to make it to the debate like contributors from East Malaysia have the opportunity to listen to both sides of the argument.

In addition, in the interest of transparency and accountability, we believe that Raja Nong Chik who is willing to openly debate this issue, will have no problems providing full disclosure of the agreements made between all the government entities and EPF.  Only then all the members of parliament as well as the public can have full information access to debate this issue.

Raja Nong Chik had in the Malay Mail report even tried to teach us what is “sub-prime” loan.  He said the MPs were mistaken in comparing the loans to the sub-prime loans which he said referred to inflated loans sold at double the property value.

“Do they even know what subprime lending is? These properties are worth double or even triple of what City Hall is asking,” he explained.

Perhaps in the Minister’s attempt to be clever, he is asking for pie in his face.  The Federal Deposit of Insurance Corporation (FDIC), and independent agency of the United States Federal Government clearly refers “sub—prime” as “the credit characteristics of individual borrowers. Subprime borrowers typically have weakened credit histories that include payment delinquencies… They may also display reduced repayment capacity as measured by credit scores, debt-to-income ratios, or other criteria that may encompass borrowers with incomplete credit histories” with no mention of “property value”.

What we have here today is the EPF lending money to borrowers who Raja Nong Chik himself has admitted will not qualify for loans from commercial banks.  The fact that the low-cost property value, which Raja Nong Chik claims to be worth double or triple the selling price has nothing to do with the issue of “sub-prime”.

Perhaps the Minister might want to polish up his knowledge of subprime credit and lending before taking on the challenge to debate either one of us, to save himself from further public embarrassment.

EPF Employee Representative Board Members Must Reject Low-Cost Housing Loan Scheme

We welcome the statement by the Malaysian Trade Union Congress (MTUC) Secretary-General, Abdul Halim Mansor who objected to the plan by EPF to extend RM1.5 billion in loans to low-cost housing purchasers in Kuala Lumpur who failed to secure financing from commercial banks as reported in The Malaysian Insider yesterday.

It is clear that the loan scheme is in breach of EPF Act 1991 which has no provisions for EPF to extend loans to individuals with the low-cost housing units as a collateral.  The EPF may lend funds to federal and state governments, to corporate bodies or even to its members subject to terms and conditions under Clause 26 which defines the “power of the Board to invest”.

The attempt by the Federal Government to turn EPF into a lender of last resort for social welfare programmes will also set a bad precedent for the fund being abused politically to win votes in the future.  While the Prime Minister, Datuk Seri Najib Razak has tried to play down the scheme by claiming that the RM1.5 billion loan is only a fraction of EPF fund size, but if approved, the scheme could well be expanded and extended to other states in the country.

The EPF on its website says that it "aims to provide financial security for its members’ retirement purposes. The fund is committed to preserving and growing the savings of its members in a prudent manner in accordance with best practices in investments and corporate conduct.”  Hence the workers’ retirement funds must not be exploited and risked in a low-cost housing programme for those with extremely poor credit ratings.

Hence we call upon the MTUC to take an official position to strongly object to the abuse of EPF funds in the EPF Board where the former is represented.  Encik Mohd Khalid Atan, the President of MTUC sits on the EPF Board with 3 other members as representatives of employees.  The others are Loke Yim Pheng, Secretary-General of the National Union of Teaching Profession (NUTP), Hadiah Leen, President of Sarawak Bank Employees Union (SBEU) and Azlin Awang Chee, General Secretary of the Sabah Commercial Employees Union (SCEU).

The representatives must voice their objections to the low-cost housing loan scheme which will put at risk Malaysian workers’ savings and is in breach of the EPF Act.

We also call upon the “Professional Representatives” sitting on the EPF Board to uphold public interest by calling for the scheme to be reviewed.  The 3 professional representatives are Tan Sri Lee Lam Thye, Heng Hock Cheng and Halim Hj Din.

The EPF Board of Directors must exercise their powers in the interest of the contributors, above any other interested parties, including the Federal Government.  The Directors must insist that any loans in this case, must be extended directly to the Federal Government and not to the individual low-cost house purchasers.  It is for the Federal Government to bear the responsibility of social welfare by providing a roof over the head of all Malaysians, and not the responsibility of the EPF.

We fully support measures by the Government to assist the poor to own their own properties. However such measures cannot be at the expense of abusing Malaysian workers' retirement savings as specifically outlined in the EPF Act.

Tuesday, February 07, 2012

EPF Low-Cost Housing Loan: MoF Manipulates Debt?

(Joint Media Statement by Nurul Izzah Anwar and Tony Pua)

The abuse of EPF to extend soft loans to low-cost housing purchasers is a blatant attempt by the Ministry of Finance to circumvent the need to add to the Federal Government debt

What appears to be a routine and noble scheme to assist the poor who are unable to secure bank financing to purchase their low-cost housing units has stirred controversy ove-r how the Employees Provident Fund is being abused by the Federal Government for political motives.

Under normal circumstances, any welfare programmes will be funded by the Federal Government through its tax revenues.  In the event that tax revenues prove insufficient, the Federal Government may issue bonds to raise money to finance its deficit expenditure.  Again under normal circumstances, EPF could subscribe to the bonds issued by the Federal Government, hence in effect lending to the Federal Government.

It is hence extremely odd that the Minister of Federal Territories and Urban Well-Being, Datuk Raja Nong Chik Nong Raja Zainal Abidin announced that the Employee Provident Fund will be extending RM1.5 billion in loans directly to those who failed to secure commercial loans to purchase their houses.

The difference between the two approaches is that the Federal Government is considered a low-risk borrower and hence the contributions by Malaysian workers to the EPF are considered safe, while the loans to those who failed to obtain commercial housing loans are considered very high-risk borrowers.

We have over the past week attacked the Government for putting EPF funds at risk.  However, the fact that the Government could have easily circumvented the entire controversy and still achieve the objectives of helping the poor by issuing bonds to the EPF, arouses suspicion that something is amiss.

We can only conclude that the Government did not want to borrow directly from EPF, and instead passed the buck to EPF to lend directly to the low-cost housing purchasers because the Government does not want to further increase further to its much criticised and already high debt levels.  The Federal Government debt has reached RM456 billion as at the end of 2011, which is a 88.4% increase from RM242 billion 5 years ago in 2006.

Will our debt levels expected to increase significantly in the next year as a result of massive infrastructure projects such as the RM53 billion Klang Valley MRT, the RM7.1 billion West Coast Expressway, the Ministry of Finance (MoF) is attempting all means to reduce its debt obligations.

Instead of issuing debt papers, the MoF is attempting to hide its debt exposure by issuing Government guarantees instead. Therefore, the EPF is being asked to lend RM1.5 billion to those who failed to secure loans from banks, and the loans will be in some form “guaranteed” by the Federal Government.  This way, the RM1.5 billion will not be reflected as an increase Federal Government debt.

In the current climate of sovereign credit crisis, especially in Europe as epitomised by the Greek financial fiasco, the Federal Government is attempting what is called “off-balance sheet financing” to hide from public view its total debt exposure.  In fact, as at the end of 2010, the Government’s contingent liability i.e., loans which were “guaranteed” by the Government but are not directly part of the Federal Government debt has reached RM96.9 billion in 2010, which is a sharp 14.9% increase over RM84.3 billion in 2009.

In the event that some of these guaranteed loans goes into default, then the Federal Government will be directly exposed to the debt and this will trigger a debt induced financial crisis in Malaysia.  For example, the government guarantee for Port Klang Free Zone project’s RM3.6 billion has resulted in the Federal Government having to extend at least RM4.6 billion in loans to bail-out the project.  The cost is further expected to increase to RM12.5 billion.

Apart from MoF debt papers, there are already alternatives available to help the poor. Cagamas Bhd was set up in 1987, enabling banks to extend more housing loans. And recently in 2008, the government established a fund to provide loans for farmers, small traders, i.e those without fix incomes to buy low and medium cost housing.

Unfortunately, to be constantly perceived by the rakyat as the champion for the poor, the government is now coming up with a new and ill thought scheme – utilizing EPF monies to hide its current debt levels.

The MoF must not renegade from its responsibility as not only the caretaker of our coffers but also as a prudent decision maker as MoF screens and approves all decisions made by EPF’s investment panel.

The Ministry of Finance and the Federal Territories Ministry must hence come clean on why it has chosen to risk the worker’s retirement savings and the real reason why the Government can’t fund the housing for the poor directly.  The MoF must solve its own financial problems and not for the Malaysian workers to bear the burden of the BN government’s follies.

Sunday, February 05, 2012

Najib's Poor Leadership Stalls Economic Reforms

Najib’s poor leadership stalling economic reforms, says Pakatan
By Shazwan Mustafa Kamal February 02, 2012
KUALA LUMPUR, Feb 2 — Pakatan Rakyat (PR) leaders have blamed Datuk Seri Najib Razak’s poor leadership as prime minister and Umno president as the main cause behind stalled economic reforms, saying he lacked the political will to weed out corruption and push for transparency in the awarding of lucrative government contracts.

The PR leaders were commenting on banker Datuk Seri Nazir Razak who had said economic reforms are not moving as fast as was hoped due to distractions from a general election which has to be held by early next year.

While agreeing with what the CIMB group chief executive officer said about the state of the government’s economic reforms, opposition leaders charged that the impending general election should actually push Najib’s administration to expedite reforms, not stall them.
“Reforms have stalled because Najib lacked the political will to overturn the patronage and gravy train system in BN and particularly in Umno.

“Najib is fearful that the reforms will destroy the very fabric that glues Umno together, that is the opportunity for its leaders and members to secure lucrative contracts with the government and government-linked companies,” DAP national publicity secretary Tony Pua told The Malaysian Insider.

Pua pointed out that despite transparency and accountability being a cornerstone of Najib’s Government Transformation Programme (GTP), lucrative procurement contracts continue to be dished out without any open tenders.

The Petaling Jaya Utara MP has been leading in demanding Najib reveal the details of its direct negotiations with Kumpulan Europlus Bhd (KEuro), a company which, he said, has no experience in building the RM7 billion West Coast Expressway (WCE).

KEuro announced on Thursday that it has been awarded a 60-year concession for the RM7.07 billion WCE, which will connect Banting in south Selangor to Taiping in north Perak. The new highway will serve as an alternative to the North-South Expressway.

“I completely agree that economic reforms are completely stalled and the NEM (New Economic Model) and ETP (Economic Transformation Programme) have now become a programme of continuity and not of the purported transformation,” said Pua.

He charged that the prime minister showed failure in leadership by not expressing or acting against senior Umno ministers involved in financial scandals, citing the National Feedlot Corporation (NFCorp) as an example.

For the full article in The Malaysian Insider, click here.

Low-Cost Housing Loan: In Breach of EPF Act 1991

Both the Prime Minister and the Minister of Federal Territories tried to justify the use of RM1.5 billion from Employee Provident Fund (EPF) to provide loans for social housing yesterday after being criticised for abusing workers' retirement funds for political purposes.

Datuk Seri Najib claimed that RM1.5 billion needed was "not substantial compared to EPF funds".  He further added that "the scheme does not undermine the interests of the EPF because the value of the housing units in the market is far higher than the purchase price... If a buyer is unable to or does not repay the loan, the unit can be sold for a higher price."

Raja Nong Chik also explained that "To the EPF, this is a secured business transaction, a secured loan, it is more secured than other corporate land property which is guaranteed by a government agency — the DBKL (Kuala Lumpur City Hall)."

Firstly the Prime Minister must be castigated for having the cheek to claim that the RM1.5 billion is an insignificant amount relative to the EPF fund size. Regardless of whether it is RM1.5 million or RM1.5 billion or even RM15 billion, the EPF funds must be managed stringently and not be subjected to abuse.  Similarly whether the amount is a RM100 or a RM1 million bribe, if its a crime, being the lesser amount provides absolutely no justification.

Secondly, if the low-cost properties are so collateral-worthy, that the market price is much higher than the purchase price, then why can't these loans be made via commercial banks and not through EPF social lending programmes? If DBKL is able to provide the guarantee, and the guarantee is even "better than normal corporate property", then surely, banks will be rushing to provide the loans and not shy away from them.

The EPF on its website says that it "aims to provide financial security for its members’ retirement purposes. The fund is committed to preserving and growing the savings of its members in a prudent manner in accordance with best practices in investments and corporate conduct.”

Therefore the EPF is not a lender of the last resort for the poor and neither is it a social welfare organisation.

Finally, the social housing loan scheme is in breach of the EPF Act 1991 which regulates the fund in terms of permissible investment activities.  Under Clause 26 the Act, the EPF may lend money to Federal and State governments. It can also provide loans to and subscribe to bonds of registered corporate bodies in the country.

It may even provide loans to members of the Fund "for the purpose of purchasing or building a house". The EPF housing loan to its members is based on a proportion of the worker's contribution to the Fund.

However, no where in the Act does it say it can provide loans to individuals to acquire low-cost apartments using the property as a collateral. Despite the "guarantee" from DBKL, the loans are being made out directly to the property owners who may or may not have contributed to EPF.

We fully support measures by the Government to assist the poor to own their own properties. However such measures cannot be at the expense of abusing Malaysian workers' retirement savings as specifically outlined in the EPF Act.

The Federal Government if need be, can borrow directly from EPF as it does normally, for its social welfare programmes.  The EPF should not however be directed to provide loans directly to the general public and put itself at risk of default by the individual borrowers.

Najib who is also the Finance Minister must stop the social housing loan scheme in its current form to not only ensure compliance with the EPF Act, but more importantly, ensure that the workers' hard-earned savings will not be jeopardised in the guise of politically motivated charity.

Saturday, February 04, 2012

Letter: Schemes for poor shall not be at the expense of EPF contributors

Dear YB Tony Pua,

Permit me to introduce myself as a retiree  from private sector who had been an EPF contributor. I thank you very much for bringing up the issue of EPF advancing monies for low cost houses in Willayah Persekutuan. As much as we support schemes for supporting the poor, as rightly pointed out by you and others, it shall not be at the expense of EPF contributors like us. I wish to bring to your kind attention few issues which I hope your team will examine for the benefit of contributors like us. As this has direct and long term implication for every EPF contributor, I humbly request you to vehemently protest and protect innocent contributors like us.

1. Who is the borrower in this case and who is the lender? Only the lender can foreclose a property and if EPF is not the lender what is the use of a collateral? If EPF is not the direct lender what locus standi does EPF  have for foreclosure? Is there loan agreement with EPF and the borrower ie individual borrower? How is EPF going to implement land code act in the event of defaults? Is EPF permitted to lend to individuals who are not even EPF members? Can EPF, in this case as a 3rd party, take any action against defaulters? ( There is no guarantee etc). What recourse does EPF have in the event the organisation behind this does not exist after a few years as these loans can be as long as 25 years?

2. What is EPF's collection arrangement? Who is the debt collector? May be City Hall  of Kuala Lumpur will undertake this function but then what firm arrangements have been made? To disburse funds by March means, probably all formalities are likely to be overlooked.

Hope your team of Ahli Parlimen will will stand behind citizens like us and wish you good luck in all your endeavors.

Yours sincerely,


KLIA2: Malaysia Airports Has to Raise Additional RM600m

The announcement by Malaysia Airports Holdings Bhd (MAHB) to raise additional RM598 million in via new share placement proves that public interest has been compromised as a result of the cost of KLIA2 ballooning from RM1.7 billion to RM3.9 billion

Tan Sri Bashir Ahmad, Managing Director of MAHB had on 29th November 2011 denied that public funds will be used to fund the drastic increase in cost of KLIA2, the new “low-cost” airport.  He has earlier announced that the cost of the KLIA2 has increased to as much as RM3.9 billion.

The cost of the airport first announced in July 2007 by the Transport Minister then Datuk Seri Ong Tee Keat was RM1.7 billion.  The airport was also supposed to be completed by September 2011 but has since been delayed several times to the now April 2013 deadline.

Despite Tan Sri Bashir’s denial that public funds will not be used, MAHB has announced to Bursa Malaysia on 30th January that it will raise approximately RM598 million from a proposed share placement exercise.  In the info-memo submitted to the stock exchange, MAHB stated that “the gross proceeds to be raised from the Proposed Private Placement will be utilised to part finance the additional capital expenditure to be incurred as a result of the enhancement in specifications for the new low cost carrier at Kuala Lumpur International Airport”

The new equity will be raised via the issuance of 110 million new shares constituting 10% of MAHB share capital.

The action by MAHB to raise additional funds from the market proves that public financial interest has been compromised as a result of the RM2.2 billion increase in cost of KLIA2.

Existing major shareholders of MAHB which act indirectly as trustees to Government and public funds are forced to dilute their shareholding by 10% as a result of the exercise.  Khazanah which owns a majority stake of 54.0% in MAHB before this will have its stake reduced to 49.1%.  Similarly, the Employee Provident Fund (EPF) and Skim Amanah Saham Bumiputera (ASB) will have their 10.3% and 6.8% stakes slashed to 9.4% and 6.2% respectively.

The MAHB info-memo also stated that “assuming that the net earnings of the MAHB Group for the financial year ended 31 December 2011 remains unchanged, the earnings per share (EPS) of the MAHB Group will be reduced proportionately with the increase in the number of MAHB shares”.

The above proposed issuance of new shares to raise funds, is on top of RM3.1 billion in debt MAHB has raised in 2010, of which RM2.5 billion has already been drawn down for the purposes of financing the new KLIA2.

Therefore it is completely ridiculous for Tan Sri Bashir to deny that “public funds will not be used” when it is clear, the Government and public interest in the project held by Khazanah, EPF and ASB have been compromised through a dilution of their stake as well as a reduction in earnings.  This has yet to take into account the fact that RM3.1 billion in debt has been incurred as a result of the cost overruns.  What is of concern to the public is the fact that MAHB’s ability to repay the debt without future bailout by the Government is by no means assured.

We call upon the Ministry of Transport as well as Khazanah, who act as custodians of public funds and interest in MAHB to initiate and inquiry and investigation into the KLIA2 fiasco to ensure that those who have been negligent, intentional or otherwise, are brought to book and prevent future excesses by the guilty culprits.

Thursday, February 02, 2012

EPF Funds Must Not Be Politically Abused for "Social Welfare"

It was reported on the front page of The Sun two days ago on 30th January that “some RM1.5 billion will be channelled from the Employees Provident Fund (EPF) to finance the special funding scheme for the sale of houses in public housing programmes in Kuala Lumpur.”

Federal Territories and Urban Well-being Minister Datuk Raja Nong Chik Raja Zainal Abidin said the funds will be given to the Federal Territories Foundation to help some 20,000 eligible tenants.  He added that "the scheme, announced by Prime Minister Datuk Seri Najib Abdul Razak, will help those who are eligible to buy public housing units but are unable to obtain loans from banks, due to them being retired or not having steady income."

Datuk Raja Nong Chik added that "these loans will be repaid over a period of 15 to 25 years… there will be an interest charged, but it will be much lower than current housing loan interest rates charged by banks."

We support the fact measures by the Government to put in place low-cost and affordable housing schemes to help put a roof over the head of poor Malaysians.  However such programmes must not be financed by the EPF whose mission is to protect the hard-earned retirement income of 11 million working Malaysians, by maximising returns with the lowest possible investment risk.

On EPF’s own website, it says that “the EPF is Malaysia’s national provident fund that aims to provide financial security for its members’ retirement purposes. The fund is committed to preserving and growing the savings of its members in a prudent manner in accordance with best practices in investments and corporate conduct.”

The EPF is not a lender of the last resort for the poor and neither is it a social welfare organisation.  By utilising RM1.5 billion of Malaysian workers’ monies to lend to house-buyers who are unable to secure financing from commercial banks will only jeopardise their retirement funds and is clearly an abuse by the Government.

Datuk Raja Nong Chik tried to allay fears that EPF could be at a losing end if the buyers default on their loans, by giving assurance that “the loan is secure as it is guaranteed against the housing unit itself”.  However, if the housing unit is indeed a credit-worthy collateral, why can’t commercial banks take it as a collateral?  Why is EPF funds being mobilised to give housing loans?

Instead of using the EPF, the Government should make full use of existing institutions such as Bank Rakyat or even Malaysia Building Society Bhd (MBSB) by channel special allocations to them via the social welfare and housing funds approved in the annual Federal Government budget for the purpose of providing soft loans to those in need.

By setting a precedent for EPF to be used “social welfare”, the EPF could in future be further abused to finance political programmes to win votes under the guise of the same.  It is a slippery slope which will jeopardise the future savings of Malaysian EPF members.

We call upon the Government to source its own funds for the housing programme and not direct EPF to fund its social welfare schemes.  We also call upon the Board and Investment Panel of the EPF to thoroughly review the scheme to ensure that it is the workers’ interest which is being prioritised and reject proposals which may harm the financial returns for our workers.

Wednesday, February 01, 2012

Will Pemandu Stop the RM7b West Coast Expressway Contract?

The Prime Minister Dato’ Seri Najib Razak started his premiership with much fanfare over his transformation programmes, starting with the “Government Transformation Programme” (GTP) launched in December 2009.

One of the key “National Key Result Area” (NKRA) contained within the GTP is to fight against corruption.  The GTP admitted that “the perception of corrupt practices has risen in recent years, evidenced by Malaysia’s declining ranking in Transparency International’s (TI) Corruption Perception Index (CPI). In 2009, Malaysia’s ranked dropped 9 places from 47 to 56.”

Najib’s administration has since failed its own transformation objectives with Malaysia falling to its lowest level ever in TI CPI in 2011 at 60th place.  The fall in rankings doesn’t come as a surprise at all scandals being exposed hard and fast over the past two years including the RM12.5 billion Port Klang Free Zone project, RM9 billion naval patrol vessel and RM7.55 billion armoured personnel carrier acquisitions, the RM330 million “cows and condos” fiasco and now a RM7.07 billion West Coast Expressway privatisation concession.

To stop the rot, PEMANDU Chairman Tan Sri Koh Tsu Koon must declare if the latest mega-highway concession has been awarded according to the principles and policies set out by the GTP to meet the Prime Minister’s goals on “transformation”.

The GTP promised that “we will reduce leakages of funds allocated for national development and operational expenditure and ensure transparency in the award of contracts.”

It further added that “it is well established that transparency is crucial for a fair and efficient government procurement process. This is because transparency increases public scrutiny on the procurement process and helps ensure that accountability and well-defined policies, regulations and procedures have been put in place and followed closely.”

However the award of the RM7.07 billion 60-year highway concession to Europlus flies in the face of GTP’s promises, especially with the unexplained increase in cost by 134% from RM3.02 billion and extension of concession period by 27 years from the original 33 signed in 2007.

PEMANDU must demand that the Prime Minister’s Office (PMO) disclose all details including the concession terms in the award to Europlus especially since the award was made via direct negotiation.  It has been more than 5 days since the announcement made by Europlus on Bursa Malaysia and yet the Government has been steadfast in its refusal to shed light on the project.

PEMANDU must ensure that PMO is transparent and accountable by explaining the projected profits of the concessionaire, the future toll burden to be bourne by commuters.  As the agency in-charge of GTP which promised “people first, performance now”, PEMANDU must ensure that lightning will not strike multiple times on the same spot as per previous BN government privatisation agreements.  What’s more, the Government had to extend a RM2.24 billion soft loan and up to 3% in interest subsidy to Europlus commercial loans to undertake the WCE project.

The rakyat has been “taxed” mercilessly with lopsided concession agreements signed with independent power producers, highway operators such as the North South Highway (PLUS) and the Lebuhraya Damansara Puchong (LDP) as well as utility companies such as water suppliers.

Will Tan Sri Koh Tsu Koon have the audacity to demand that the WCE project be suspended pending review to ensure that Malaysia recovers from the pits of the TI CPI or will he chicken-out by shirking his responsibility as the chairman of PEMANDU?