When it was reported that Pembinaan PFI Sdn Bhd had racked up debts of almost RM50 billion in 2018, this issue had the makings of a major scandal.
Pembinaan PFI, a government-linked company, was reportedly created to implement a policy called the Private Finance Initiative (PFI), introduced to allow private companies winning public contracts to bear the costs of carrying out these projects in the first place.
However, two pension funds, the Employees Provident Fund (EPF) and the Retired Fund Incorporated (KWAP), have been used to secure loans totaling RM30 billion to implement PFI projects.
Collateral for these loans was a large number of government plots of land which had been leased by a government agency, the Commissioner of Federal Lands, to Pembinaan PFI for only RM10 – although later increased to RM5.7 billion, which were then sublet to the government. for a whopping RM29bn!
These PFI projects were implemented through off-budget government loans and awarded without open bidding to companies that did not cover any costs on their own.
Pembinaan PFI awarded these contracts to government-related companies and well-connected individuals and companies who were later found to be those who were not PFI-type projects.
Pembinaan PFI and the Commissioner of Federal Lands were tools used by the government to secretly funnel contracts to well-connected people without public disclosure, even though they were paid with funds from two pension-based agencies.
Explain this scandal
Projects implemented through Pembinaan PFI provide important insights into the structure of the state, i.e. how it was built to facilitate abuse of power through public policy highly publicized, PFI.
This extremely complex structure encompasses the control of the bureaucratic and financial branches of the state, as well as the surveillance agencies.
Even after reports of government misconduct were published through Pembinaan PFI, it was unclear how this abuse of power was executed.
Abusing the machinery of government
Within this state structure, with the introduction of PFI, government leaders (politicians and bureaucrats) decided to link together a set of key public institutions to implement projects under the name of politics.
EPF and KWAP have been used to obtain loans amounting to RM30 billion – with government land plots used as collateral – to finance public projects allocated in a non-transparent manner to well-connected individuals and related businesses to the government.
The leasing of a large number of plots of land at Pembinaan PFI by an obscure but important government-linked company, Federal Lands Commissioner – for a mere sum of RM10, although later increased to RM5.7 billion – who then sublet them to the government for RM29bn, was a gross abuse of power.
The government was paying Pembinaan PFI high rental fees for plots of land it previously used free of charge.
Allowing the subservience of institutions and bureaucrats to politicians
The institutions implicated in the PFI scandal – Pembinaan PFI EPF and KWAP – are ultimately controlled by the Ministry of Finance (MoF).
Pembinaan PFI is owned by two statutory bodies, MoF Inc and the Federal Lands Commissioner.
Since the public knows little about MoF Inc and the Federal Lands Commissioner, or the volume of assets they each own, politicians have been able to abuse them at will.
Those responsible for keeping this well-assembled clientelist machinery running smoothly are ultimately bureaucrats, under the dictates of cabinet politicians, but primarily the Ministry of Finance.
Interestingly, no politician has been listed as a director of Pembinaan PFI. No EPF member sits on the board of Pembinaan PFI, despite the pension-based institution being the main source of funding for this obscure government-linked company.
What is of concern is that serious abuses of fiduciary duty have been committed by bureaucrats who have served as directors of Pembinaan PFI. However, there was a clear submission of the bureaucrats to the politicians in power.
Patronage, beneficiaries and hidden financing
Beneficiaries of Pembinaan PFI projects have been determined by cabinet members.
The Public Accounts Committee revealed that 864 projects had been launched by 16 ministries through Pembinaan PFI. Since all ministries are able to implement projects through Pembinaan PFI, cabinet ministers can use this government-linked company for the practice of clientelism.
However, the ultimate decision-making power rests with the Minister of Finance. Umno members have clearly benefited from Pembinaan PFI projects.
Other beneficiaries were well-connected companies, such as Bina Puri, which was owned by an MCA member, prominent government-linked companies like Sime Darby, and individuals who have always been aware of government patronages such as Syed Mokhtar Al -Bukhary and the Shamsudin. Abdul Kadir family.
Other controversial government practices, long in the public interest, feature in this scandal.
The off-budget system, frequently criticized for its persistent abuses, was used to hide from the public how Pembinaan PFI projects were funded.
The use of direct negotiations when awarding contracts, where there is no transparency, is another long-criticized government practice. Little is known about these projects because they are awarded through the procurement process, which falls under the Official Secrets Act (OSA).
However, as this C4 report indicates, when contracts are awarded through direct negotiations, the government does not obtain the best private concessionaires. This has resulted in projects that are not completed satisfactorily, which then require more money to rectify, leading to budget overruns.
All PFI-type projects must be implemented by the Public-Private Partnership Unit (Ukas), a public body within the Prime Minister’s Department.
Ukas ensures that the private companies winning projects based on the PFI first bear the cost of their implementation.
However, EPF and KWAP funds were used by Pembinaan PFI, a government-linked secret society. Although called Pembinaan PFI, the projects awarded by this government-linked company do not fall within the lines dictated by the PFI policy.
What the Malaysian public does not know is that projects controlled by Ukas are true PFI type projects, while those awarded by Pembinaan PFI are not.
What is also concerning is that this scandal highlights the role of the Commissioner of Dominion Lands. This single public institution owns a substantial volume of land, while the practice of leasing these properties has been employed by the government since the 1950s.
This scandal reveals how government land has been secretly exposed to numerous abuses, including being used as collateral to obtain loans from pension funds, while the government pays Pembinaan PFI high rental fees for plots of land which he previously used free of charge.
Abuse of pension funds!
This Pembinaan PFI controversy raises another question: how can pension funds be used to fund government projects secretly funneled to well-connected people and businesses?
Even though the financial risk is guaranteed by the government and the guarantee is provided by the Commissioner of Dominion Lands, payment for Pembinaan PFI projects will ultimately be paid for with taxpayers’ money.
Powerless control institutions
The powerlessness of oversight institutions is patently evident in this scandal.
The Public Accounts Committee investigated the matter and issued a report making it clear that the PFI policy had not been properly implemented.
The government has ignored this PAC report as the implementation of the Pembinaan PFI projects still proceeds inappropriately.
The Auditor General has repeatedly pointed out the problems with the IFP-based projects, including that the Pembinaan IFP has accumulated a huge amount of debt.
The Malaysian Anti-Corruption Commission (MACC) opened an investigation into Pembinaan PFI in 2018 after questioning MP Ong Kian Ming, who had spoken out on the matter.
Four years later, MACC has not released any information on its investigation of Pembinaan PFI, also suggesting the limited ability of its officers to undertake the investigation of complex cases.
This scandal highlights many abuses of power to practice selective clientelism.
The dominance of the executive branch of government over public institutions and oversight bodies is clearly noticeable, indicating that there are insufficient checks and balances in the governance system.
Indeed, although the PAC revealed serious transgressions during the implementation of the PFI, parliamentarians did not actively debate this report – which is why no change took place.
Why is this a concern for Malaysians?
The sophisticated way in which public policy has been used to covertly channel funds for projects awarded to well-connected people is an issue we need to be aware of to hold the government to account.
Stop taking EPF and KWAP funds for government infrastructure projects and putting pensioners’ money at risk.
What is even more baffling is how this policy can be further diverted to fund party membership through off-budget spending in preparation for the upcoming general election, which will be held soon.
Since the government has decided to go ahead with the construction of the Mass Rapid Transit Circle Line (MRT3) project in the Klang Valley, worth nearly RM40 billion, using the PFI as possible funding mechanism, the issues raised in this report should immediately command our attention and attention.
The discourse on hybrid financing, including the issuance of sukuk bonds, further complicates this issue.
Will this PFI project be regulated by Ukas or implemented by Pembinaan PFI? Will there be transparency on how this PFI project is funded and how subcontractors are appointed?
These are some important questions that this report highlights. – Center C4