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.
Wednesday, February 29, 2012
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.
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.
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.
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
Source: http://www.malaysiakini.com/news/190260
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
Source: http://www.malaysiakini.com/news/190260
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: http://www.malaysiakini.com/news/190242 © 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.
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.
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.
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.
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?
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.
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.
“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.
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.
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.
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