By Khairie Hisyam
There is a mysterious vehicle that has spent double-digit billions and there is an air of mystery, alongside a strange propensity to walk uphill, surrounding what should have been a straightforward initiative through Pembinaan PFI Sdn Bhd. The emerging picture, however, raises the question if Putrajaya’s private finance initiative is simply an excuse to reward the select few.
As far as government initiatives go, Pembinaan PFI Sdn Bhd, a company wholly owned by the Ministry of Finance, reeks terribly. A long list of questions remain unanswered on what should be a clear-cut undertaking by Putrajaya to move some projects to the private finance initiative (PFI) sector.
The concept, underpinned by Pembinaan PFI as a special purpose vehicle, is simple enough. Eight years ago Putrajaya announced that it will begin awarding concessions for public projects to smaller bumiputera contractors, who build and operate the infrastructure from said projects in exchange for regular payments throughout the concession period.
In a strange departure from established PFI practices, however, Pembinaan PFI was also intended to provide funding to the concession-winners. Accordingly the company was armed with RM20 billion in seed funding via a loan from the Employees Provident Fund (EPF), with another round of funding later.
Naturally there are questions aplenty on a subject very much lacking in answers. There are four main question marks that paint an alarming picture.
Why provide funding?
Firstly, if Putrajaya intended to embark on a PFI drive, why provide funding at all?
Recall that the purpose of the PFI concept is generally to free the public sector from the burden of providing upfront resources for a public project — both financing and manpower. Since the PFI concessionaire finds its own funding and executes the project accordingly, the government bears substantially less risk.
Therefore, does providing funding to PFI concession-holders not defeat the purpose of the exercise?
Getting financing from the government means a bed of roses for any private contractor awarded a public project under the PFI initiative. Not only does the contractor have an iron-clad concession agreement that locks in a margin of profit over a number of years, the contractor is also guaranteed funding to execute the project.
Why give private contractors such an easy time for what is essentially guaranteed profits?
If Putrajaya is going to foot the upfront bill of these PFI projects anyway, it might as well have done them itself. At least this way there would not be any need to allow private contractors a guaranteed margin of profits.
Nor would there be any need to deal with the risk of contractors marking up their construction costs or maintenance costs (or both) to milk more out of the concessions.
Where did the jobs go to?
With this strange paradox in how Putrajaya executed its PFI drive, let’s revisit the stated intention of Pembinaan PFI to provide construction work for smaller bumiputera players.
When KiniBiz asked around in the private construction sector, many did not have a clue on what Pembinaan PFI is. Some heard the name “Pembinaan” and immediately thought of Pembinaan BLT Sdn Bhd, another PFI driver that is smaller and localised to the police force.
Worse, while many private non-Malay contractors said they have received jobs from Pembinaan BLT before, none are aware of any jobs coming from Pembinaan PFI. Even the Malaysian Malay Contractors Association (or its Malay acronym PKMM) has denied any construction jobs being awarded to any of its members nationwide.
So here lies the second area of concern. If the construction jobs did not go to any of these private contractors, where did they go to? Was there an open tender process to call for bids from qualified bumiputera contractors so that they too can get a slice of the pie?
It is a strange thing to ponder that a smaller PFI entity such as Pembinaan BLT, who had only completed some RM6 billion in infrastructure projects, is so well-known among private contractors yet Pembinaan PFI, with its double-digit billions in funding, is virtually unknown.
A simple website cannot cost too much, relative to the funds at Pembinaan PFI’s disposal, to list the projects the company had awarded and completed thus far.
Certainly Pembinaan BLT appears able to afford a functional website that does this and more despite starting out with an eighth of Pembinaan PFI’s funds. What is keeping Pembinaan PFI from doing the same?
Is a loan not a debt?
The third big question mark is why Pembinaan PFI’s debts, coming to double-digit billions, is not in the government’s list of contingent liabilities. Put simply, a contingent liability is a liability which may or may not be incurred in future depending on how things turn out.
Fact: Pembinaan PFI is wholly owned by the government through the Finance Ministry.
Fact: Pembinaan PFI’s debts come to a total of RM27.8 billion, based on its latest filing to the Companies Commission Malaysia (CCM).
Fact: Pembinaan PFI’s debts are not listed as the government’s contingent liabilities for either 2012 or 2013.
This is a strange situation as, being owner of Pembinaan PFI, the eventual responsibility for the debt would fall onto the Finance Ministry and by extension the government.
Including Pembinaan PFI into the list would put it near the top of the list with some RM27.8 billion in debt, no small amount compared to some of the other government-linked companies listed.
If the likes of Khazanah Nasional Bhd or Johor Corporation or 1Malaysia Development Bhd, which at least has real profit-generation capabilities, make it into the government’s list of contingent liabilities, why doesn’t Pembinaan PFI, which does not look like it can generate any profits at all?
That brings us into the fourth big question mark…
Why take the more difficult path?
As part of its strange brand of PFI undertaking, Putrajaya opted for a strange lease-sublease arrangement set-up to create an artificial revenue stream for Pembinaan PFI.
This revenue stream in turn allows it to service its seed loan from the EPF. Sources say the loan from the EPF was an Islamic facility which requires assets backing, which explains the need for government land to be involved in the transaction.
However, what is not explained is the need to borrow in the first place — since the PFI concept calls for private contractors to find their own financing as per the concession agreement, why does Pembinaan PFI need to have such a large seed funding immediately?
While the immediate answer to the need to borrow points to Pembinaan PFI providing funding to contractors in the first place, the bigger question is why Putrajaya seemingly chose a roundabout manner to accomplish something that it could do directly.
Let’s consider the net effect of things. Through the strange lease-sublease deal, Putrajaya is effectively paying Pembinaan PFI — its own unit — from another government-controlled entity so that Pembinaan PFI has rental income. This income is used to repay the loan to EPF while the EPF funding is forwarded to the government.
Given the left-pocket, right-pocket transaction, what really happens is that Putrajaya is the one paying back the loan from EPF.
Given the way its PFI drive operates, what really happens is that Putrajaya is the one funding public projects.
Given the entire transaction, what really happens is that Putrajaya took an indirect loan from the EPF and spent it on various projects while repaying the loan in a similarly indirect way.
Why not take the simpler way and take out a loan from the EPF directly, allocating for repayments in annual federal budgets? Why go through so much trouble to hide behind technicalities?
According the third series of the Auditor-General’s Report 2013, some RM23 billion had been spent up to Dec 31 last year for this purpose, strangely without much information being made available to the public.
In a political environment flush with politicians thumping their chests over every little achievement (real or otherwise), why does such a massive undertaking — boasting double-digit billions — remain under wraps?
Sweetheart deals
The most alarming effect of Putrajaya’s mysterious PFI drive is this: selected private contractors are awarded locked-in profits through PFI concessions without having to bear a large portion of the risk associated with PFI undertakings.
In pondering Pembinaan PFI one cannot help but think of the rise of independent power producers (IPPs) in the 1990s, where many a connected businessman gained obscene profits in the name of government privatisation.
Yet in the case of PFI, the proverbial connected businessman does not even have to source for his own funding anymore, unlike the IPPs which still needed to raise funds from the private sector. All he needs to do is win a PFI project somehow (again, was there public tender?) and financing is guaranteed — with financing anyone can get the required expertise and it would simply be a matter of going through the motions and delivering the project.
What then is the benchmark of qualification to win a PFI project? Does pre-existing track record come into play for these supposedly smaller bumiputera players? Or is it acceptable if the winning contractor uses the financing to “buy” track record, or worse sub-contract the project out to other contractors who did not win the project?
Such sweetheart deals raise questions of who exactly these PFI contractors are and why the Finance Ministry is so secretive on what Pembinaan PFI had been doing with its billions over the years.
Is Pembinaan PFI a handout machine for the favoured after all?
Given the strange silence from Putrajaya on Pembinaan PFI, the emerging picture paints an increasingly worrying picture for the public. And Putrajaya owes the Malaysian public nothing less than full disclosure if it wishes to retain any shred of integrity as far as Pembinaan PFI is concerned.
GRRRRR!!!
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