For Putrajaya’s PFI, RM23 bil strangely spent in silence

By Khairie Hisyam

A shroud of mystery continues to engulf Putrajaya’s strange private finance initiative undertaking years after it was began with double-digit billions in starting funds. Behind the veil of invisibility however more than RM20 billion had been quietly spent for PFI undertakings. KiniBiz takes a closer look.
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Despite starting out with RM20 billion in seed funding to drive government private finance initiative (PFI) works, Pembinaan PFI Sdn Bhd has remained strangely out of the public eye.

The private construction sector does not seem to know much, if at all, about Pembinaan PFI. A number of construction players KiniBiz spoke to claimed no knowledge of what Pembinaan PFI had been doing.

Some even mistook the company for Pembinaan BLT Sdn Bhd, another Ministry of Finance (MOF) vehicle which was set-up to drive PFI projects for the Royal Malaysia Police Force through the build-lease-transfer (BLT) model.

When contacted, the Malaysian Malay Contractors Association (or its Malay acronym PKMM) seems to be aware of the company and its purpose. However president Mokhtar Samad, in a short text reply to KiniBiz, said that to his knowledge none of PKMM’s members had gotten construction contracts from Pembinaan PFI.

However a recent Auditor-General report reveals that Pembinaan PFI’s seed funding and more had been quietly spent over the years.

A strangely invisible undertaking

A Google search this morning is similarly unfruitful. The top search result is a link to Pembinaan BLT’s official website and scrolling through the other search returns indicate that Pembinaan PFI does not seem to have its own website.

Some older news reports found highlight the formation and purpose of the company but its more recent activities does not seem to have been reported by the media, based on the Google search.

This is a stark contrast to Pembinaan BLT which not only has a functional website but also lists much information on the page, from its incorporation history and purpose to a list of PFI projects that had been undertaken over the years.

The only official mention of Pembinaan PFI on the finance ministry’s website is under the functions of sectors under the government investment companies (GICs) section page, which can be accessed here. Pembinaan PFI is listed under the Infrastructure, Real Estate and General Unit of this section alongside Pembinaan BLT and other GICs.

It is strange that a government initiative of Pembinaan PFI’s size, boasting double-digit billions in starting funds, has nearly non-existent Internet presence in this day and age, contrary to its smaller sister Pembinaan BLT.

Successful PFI projects would naturally be a source of good press for Putrajaya and it raises the question of why Pembinaan PFI appears to be under wraps in a sharp contrast to Pembinaan BLT, which has similar albeit more limited objectives.

As a comparison, Pembinaan BLT was set-up in 2005 with seed funding of RM2.5 billion while Pembinaan PFI was set-up the following year with a starting seed fund that was eight times bigger.

The latest public records available from Companies Commission Malaysia (CCM) show that Pembinaan PFI recorded RM1.88 million in both pre-tax and after-tax profits for the financial year ended Dec 31, 2012 (FY12), though no revenue is recorded (see table).

In comparison the company reported RM1.53 million in pre-tax profits from RM1.56 million revenue in FY11, which translated into after-tax profits of RM1.52 million.

Pembinaan PFI’s total assets for FY12 stood at RM27.88 billion against total liabilities of RM27.86 billion compared to RM19.96 billion in total assets and RM19.93 billion in total liabilities in FY11.

However financial information for the latest full financial year, FY13, is not yet available on CCM.

RM23 billion quietly spent

In the third series of the Auditor-General’s Report 2013, however, some light is shed on Pembinaan PFI’s report. According to the report, the bulk of Pembinaan PFI’s seed funding of RM20 billion had already been spent alongside further expenses from a second round of funding.

“Up to end-2013, some RM20 billion was received from Syarikat Pembinaan PFI Sdn Bhd whereby RM18.56 billion (92.8%) of the amount had been spent,” read the Auditor-General’s Report 2013.

However, the breakdown of the spending for the RM18.56 billion is not known. In mid-September KiniBiz had emailed queries to the Ministry of Finance which, among others, requested a list of all projects funded by Pembinaan PFI since 2006.

When met at a government event in Cyberjaya in mid-September, finance ministry secretary-general Mohd Irwan Serigar acknowledged receipt of KiniBiz queries via email but stated that he “has nothing to say”.

When pressed, Mohd Irwan relented and referred KiniBiz to his special officer as liaison for the queries. However as of publishing time no response had been received from the ministry.

As for the Auditor-General’s report, the audit on PFI initiatives was conducted on the Ministry of Education and the Ministry of Home Affairs, whose PFI expenditure came to RM1.34 billion for 58 projects, or roughly 7% of the total amount already spent from Pembinaan PFI’s original RM20 billion funding.

However the actual amount spent came to RM1.19 billion (see table).

Some 34 of the education ministry’s projects went over-budget by a total of RM137.58 million, which was offset by another 23 projects which spent less than 50% of their allocated budgets. The home ministry’s sole PFI project was over-budget by RM1.36 million.

It is however unclear what these 58 projects, for which RM1.34 billion was allocated from Pembinaan PFI’s seed funds, were. Similarly it is unclear where exactly the remaining RM17.2 billion, apparently already spent for PFI undertakings by the government as of end-2013, went.

This also means there is a balance of RM1.44 billion from the original RM20 billion.

Second round of funding

Another revelation by the Auditor-General’s report is that Pembinaan PFI received a second round of funding, of which RM10 billion was also passed to the government.

It is unclear where the funds came from, although it is likely that it came in the form of a loan from the Employees Provident Fund (EPF) similar to the original seed funding.

Interestingly a recent CCM search shows that Pembinaan PFI has a recent unsatisfied charge by the EPF on Pembinaan PFI, created in August this year, amounting to RM19.5 billion, though this may be related to the original RM20 billion loan.

Public records show that EPF already had unsatisfied charges on Pembinaan PFI amounting to RM20 billion created in 2007, which is consistent with the RM20 billion loan to the company for its seed funding.

In any case, of the RM10 billion forwarded to the government, some RM7.57 billion was allocated to 313 projects across 16 ministries and government departments, according to the Auditor-General’s report. Up to end-December 2013, some RM4.9 billion had been spent, the report added.

However, the audit found that three ministries — the education ministry, the Ministry of Public Works and the housing ministry — allocated RM17.66 million for three projects did not spend the funds despite being issued authorisation letters to do so.

In addition another eight ministries spent less than half the funds allocated to them for 45 projects (see table). Of RM904.2 million approved funding, only RM225.6 million was actually spent, with the health ministry and defence ministry spending only 2% and 1% respectively of the PFI funding they were given.

Another two ministries went over-budget with their collective 18 projects, found the Auditor-General’s report, spending more than twice their allocated budget (see table).

It is unclear however what the projects in the Auditor-General’s audit sample were exactly and the entire list of PFI undertakings by the government remains elusive.

Unanswered questions

The apparent mystery and lack of transparency surrounding Putrajaya’s PFI drive eight years after it was began, with RM23.5 billion spent so far, raises various concerns.

Most pressing however is the strange invisibility of Pembinaan PFI. It is not publicly known who manages the special purpose vehicle, in a stark contrast to its police-focused counterpart Pembinaan BLT.

It does not help that the PFI concept itself had been dogged by controversy since the early 1990s when the United Kingdom adopted the concept, creating among its largest infrastructure sector in the process with total future liabilities — including future repayment commitments over 50 years — coming to RM1.4 trillion as of 2010, said news reports.

In the case of Malaysia’s PFI drive, the question that arises is who the contractors benefitting from the various PFI projects undertaken by the government were.

To recap, Pembinaan PFI was set-up to provide construction work to smaller Bumiputera contractors. However if none of PKMM members had received any projects, where did the projects go to?

Given that RM23.5 billion had been spent, it stretches the imagination to presume that the entire amount was spent without engaging the Malay contractors who are registered with the national association.

In contrast Pembinaan BLT, which is much more visible to the public eye despite its smaller starting funds, had been known to award construction work to the private sector before.

Another question that emerges is why a bigger set-up such as Pembinaan PFI, so similar in terms of purpose and operational method as Pembinaan BLT, is virtually unknown among many private contractors. Were there no open tender exercises to select qualified Bumiputera contractors for PFI projects?

This invisibility in turn raises a more pertinent concern of potential abuse, especially in terms of patronage. Given the lack of information on what projects were undertaken and who the private sector contractors were for Putrajaya’s PFI projects, it raises the question of whether political connections come into play.

Additionally history had also shown that concession projects are especially prone to abuse, notably in terms of marked-up construction costs alongside marked-up maintenance costs that are intended to churn out undue profits for the concessionaires.

Therefore the lack of transparency in Putrajaya’s PFI drive raises grave concerns as it is not known who the contractors are and on what merit they gained their concession contracts.

Until Putrajaya reveals a full list of PFI projects along with the names of the project beneficiaries, the Malaysian public can never rest assured that Pembinaan PFI is indeed a noble endeavour which has not been hijacked by political interests.

Yesterday: Putrajaya’s PFI that isn’t