There's Another 1MDB In The Making Malaysians Need To Know About Called Pembinaan PFI
Pembinaan PFI is a little-known government entity with a RM20 billion loan and RM27.9 billion liability in a "mind-boggling" transaction that sees it renting its own property to itself.
By Mei Mei Chu — 16 Mar 2015, 07:11 PM
The Malaysian Ringgit is currently at a six-year low as the external debt tripled to a whopping RM740 billion
Malaysia's external debt has swelled to RM740.7bil in the third quarter of last year from RM196bil in the final quarter of 2013, the Dewan Rakyat was told.
thestar.com.my
All fingers are pointing at government-owned 1MDB that had amassed a debt of RM42 billion. Putrajaya had admitted to injecting RM950 million into 1MDB as standby credit to service its debt.
Putrajaya today confirmed injecting RM950 million into 1Malaysia Development Bhd (1MDB) as standby credit for the government-owned strategic investor that has to service its RM42 billion debt.
Standby credit is an arrangement with the lender where a fixed amount of credit is made available to the borrower as and when it is required, for a given period.
Business Times said in its report yesterday that the Finance Ministry had provided the nearly RM1 billion loan to help 1MDB, which has debts of more than RM42 billion, an annual debt servicing of RM2.31 billion, and negative cash flow of RM2.25 billion in its financial year ended March.
themalaysianinsider.com
Now, another obscure company owned by the Ministry of Finance called Pembinaan PFI is also gaining fears that it is another troubled 1MDB in the making
PFI is an acronym for ‘private finance initiative’, a concept which drives public infrastructure developments via privately sourced capital. This concept was announced in the 9th Malaysia Plan (9MP), which allocates national budgets for all economic sectors for the 2006-2010 period, to finance selected development projects.
malaysiakini.comPembinaan PFI racked up RM27.9 billion in liabilities in 2012. The 2013 Auditor-General's Report revealed that Pembinaan PFI Sdn Bhd had the third largest liabilities among all government-owned entities.
According to the Auditor-General’s report in 2013, Pembinaan PFI Sdn Bhd had the third highest liabilities among all government-owned entities at the end of 2012. Its total liabilities were RM27.9 billion, behind national oil giant Petronas and sovereign fund Khazanah Nasional.
themalaymailonline.com
"But unlike Petronas and Khazanah, Pembinaan PFI does not have any operational income as shown by the same auditor-general’s report.
"Its RM1.94 million revenue in 2012 was derived from interest income. This means that Pembinaan PFI cannot service its liabilities without help from somewhere else, namely the federal government.”
themalaysianinsider.com
DAP's Ong Kian Ming estimates that the debt could have doubled to over RM47.4 billion by now
The Serdang MP claimed that just last year the company took on an Islamic Bai Muajjal loan with the Employee Provident Fund with a RM19.5 billion ceiling, potentially bumping up PFI’s liabilities to over RM47 billion.
themalaymailonline.com
However, the Serdang MP cannot confirm the numbers for sure. Pembinaan PFI's spending is not filed in any of the federal government budget accounts.
The spending of Pembinaan PFI did not appear anywhere in any of the federal government budget accounts, which meant all expenditure were “off-budget” items, he said in a statement today. The company's debts were also listed as part of the federal government’s contingent liabilities.
themalaysianinsider.com
Pembinaan PFI Sdn Bhd was established in 2006 as a special purpose vehicle for the government to contract private contractors to build public infrastructures
A PFI is essentially a concessional procurement method — the public sector contracts a private contractor to build and operate public infrastructure such as roads and hospitals via privately sourced capital and according to public sector specifications.
In exchange the contractor, who also invests in routine maintenance over the concession lifespan, then receives payments from the government throughout the concession period, which normally range from 25 to 30 years.
kinibiz.com
Pembinaan PFI's lease agreement between the government, Federal Lands Commissioners (FLC), and EPF, from which it received a RM20 billion loan, is raising eyebrows. This is how it works:
Firstly, The Federal Lands Commissions (FLC) is a registered proprietor of land owned by the Federal Government; Pembinaan PFI is owned by the Ministry of Finance; EPF is a government agency under the Ministry of Finance.
FLC leases 186 parcels of government land to Pembinaan PFI on behalf of the government. The land parcels are registered under FLC's name.
In return, Pembinaan PFI would pay RM20 billion to the government for the lease of the land parcels. This RM20 billion came from EPF as seed funding.
The government then gets Pembinaan PFI to sublease the 186 land parcels back to the FLC. FLC would need to pay a rental amounting to RM29.18 billion over 15 years, with payment scheduled twice a year from 2013 to 2027.
This rental payment would be used to repay the loan from EPF on a twice-yearly basis.
According to Kinibiz, this Principle Agreement was signed in 2007.
Essentially, this means the government has taken the RM20 billion loan from EPF and repaying it in a roundabout manner through Pembinaan PFI and FLC
To summarise, the net effect of the entire transaction is that the government ends up with RM20 billion in cash from Pembinaan PFI, which the company first obtained from the EPF as seed funding.
In exchange, the government would get the FLC to repay a total of RM29.18 billion over 15 years in the form of rental by subleasing back the land parcels in question from Pembinaan PFI.
This creates a revenue stream for Pembinaan PFI to repay the initial EPF funding, which in reality is paid back by the government in a roundabout manner.
kinibiz.com
1. This business transaction where the government rents land it already owns to itself has been described as "mind-boggling"
"In other words, the government is sub-leasing land which it itself owns by paying rental. It's like me leasing an apartment which I already own to my wife and then sub-leasing it from her by paying her rental," says Ong Kian Ming.
themalaysianinsider.com
The net effect of the lease-sublease arrangement is one government agency pays another government agency rent — the funds comes from the government and goes back to the government. In turn, the government gets RM20 billion from the EPF to use for financing PFI projects.
This defeats the concept of PFI in the first place as the funding does not come from the private sector but through the government by taking a loan from the EPF. This assumes of course that the RM20 billion raised will go back to funding PFI projects.
kinibiz.com
2. The 186 land parcels that the FLC is now paying Pembinaan PFI RM29 billion in rent for was initially used for free. Why is FLC paying for rent now, and to whom?
Last August, the Federal Lands Commissioner (FLC) paid RM1.13 billion in rent for using some 186 land parcels across Malaysia. Come next February, it would have to pay another RM1.12 billion, continuing a biannual rent-payment cycle that would only end in 2027 after more than RM29 billion is paid.
But the FLC had been using the same land parcels without any sort of rent before 2013. So why is it paying rent now and to whom?
kinibiz.com
Schedule of payments from the Federal Land Commission to Pembinaan PFI Sdn Bhd
Image via Ong Kian Ming3. Pembinaan PFI can increase the rental rates, which means the government could end up paying more than the agreed RM29 billion
The mechanics of the lease-sublease exercise gives some leeway for Pembinaan PFI to increase the amount of rental that the FLC needs to pay.
In any case, this means that the government may end up paying more than the agreed amount if Pembinaan PFI ever revises the rental rates payable by the government through the FLC.
kinibiz.com
4. The lack of transparency raises suspicions that the deal structure is being used to 'hide' government spending
“One cannot help but raise the possibility that the lack of transparency on the part of Pembinaan PFI was to ‘hide’ government spending from the actual budget,” Ong Kian Ming said.
"Without accountability on how Pembinaan PFI is spending its borrowings and without transparency on how it is servicing its debts and without vigilance from the Minister of Finance, Pembinaan PFI could easily turn into another 1MDB,” he reiterated.
Despite all these questions, the government is confident that Pembinaan PFI projets are viable in the long run
The government is confident that the private finance initiative (PFI) projects of Pembinaan PFI Sdn Bhd, a company owned by the Finance Ministry, are viable in the long run.
Treasury secretary-general Tan Sri Dr Mohd Irwan Serigar Abdullah said the government debt level is still below 55% of the country's gross domestic product, dismissing questions of any "bailout".
"All PFI projects are viable and can survive on their own as they are evaluated both technically and financially. They're moving fast, for example Line 1 of the (Klang Valley) MRT project will be completed in 2016 and will be operational so there's no such thing as a bailout. It's within the government financing programme."