• Port of Klang Authority (PKA) Chairman Tan Sri Kong Cho Ha must explain why the PKA decided to withdraw its RM720 million suit against KDSB over the PKFZ scandal

    Media Statement by Dr. Ong Kian Ming, MP for Serdang, on the 24th of November, 2014

    Port of Klang Authority (PKA) Chairman Tan Sri Kong Cho Ha must explain why the PKA decided to withdraw its RM720 million suit against KDSB over the PKFZ scandal

    It was reported today that the Port of Klang Authority (PKA) decided last Friday, on the 21st of November 2014, to drop one of its lawsuits against Kuala Dimensi Sdn Bhd (KDSB) regarding RM720 million in interest payments on the land bought from KDSB to develop the Port Klang Free Zone (PKFZ).[1]

    This shocking decision must be explained publicly by Tan Sri Kong Cho Ha, the newly appointed chairman of PKA, because of the involvement of taxpayer’s funds. PKA incurred a loss of RM201 million for the Financial Year 2013 and has accumulated losses of RM674 million since 2010. If not for the continued assistance of the Federal Government via a long term government loan at a low interest rate of 4% per annum and deferred interest payments until 2018, the ability of PKA to survive as a going concern would be very much in doubt, as stated by the Auditor General’s office in PKA’s 2013 Annual Report.

    If PKA was able to recoup some of the RM720 million in disputed interest payments from KDSB, it would help in decreasing the financial burden of PKA and allow it to pay back some of its long term debt to the government. Indeed, according to the PKA’s 2013 Annual Report, Rm1.82 billion was set aside as a contingent asset which it could claim back if the outstanding civil suits taken up against KDSB were successful. Even if not all of this RM1.82 billion could be claimed back, any portion would be helpful to strengthen the current financial position of PKA.

    The Ministry of Finance must also explain why its representative on the board – Datuk Dr Mohd Isa Hussain – was absent from the board meeting last Friday where the decision to drop the lawsuit was made. All current and future financial assistance and support given to PKA must ultimately come from the Ministry of Finance and to be absent when such an important decision is made is mind-boggling.

    Is this recent decision by the PKA board a pre-cursor to dropping the 2nd lawsuit by PKA against KDSB (and the architect – BTA Architect) to recover RM920 million in disputed charges over the development agreement to build PKFZ? Will PKA’s lawsuit against former PKA General Manager OC Phang for the breach of fiduciary duties also be dropped?

    With the acquittal of Tun Dr Ling Liong Sik and the withdrawal of 3 charges against Tan Sri Chan Kong Choy and now the dropping of the 1st lawsuit against KDSB, will we see a situation where all those involved in the PKFZ scandal are let off leaving only the taxpayer to pick up the bill?

    Dr. Ong Kian Ming
    Member of Parliament for Serdang

    [1]http://www.themalaysianinsider.com/malaysia/article/klang-port-drops-suit-against-developer-in-pkfz-case#sthash.yq2nAlU2.dpuf

  • The bailout of PKFZ will continue until 2036 at least

    Media Statement by Dr. Ong Kian Ming, MP for Serdang, on the 23rd of November 2014

    The bailout of PKFZ will continue until 2036 at least

    In the 2013 Annual Report for the Port Klang Authority (PKA) which was given to Members of Parliament earlier this week, the office of the Auditor General stated the following:

    “As disclosed in Note 15 to the Financial Statements, the long term liabilities of Port Kelang Authority as at 31 December 2013 amounting to RM4.24 billion. Based on the Port Kelang Authority’s current financial position, its ability to settle the long term liabilities are subject to the continuous financial support from the Government.”

    PKA has been bleeding red ink as a result of the massive financial commitments linked to the development of the Port Klang Free Zone (PKFZ). In the four years since 2010, PKA has suffered a total net loss of RM674million. In 2013, the total finance costs paid by PKA amounting to RM203.8m was only slightly less than the total revenue of PKA which was RM217.4m.

    The long term loans of PKA has increased from RM3.5b in 2010 to RM4.24b in 2013. The total loans for PKA, including short term loans, has increased from RM4.06b in 2010 to RM4.41b in 2013. RM3.81b of the RM4.24b of long term loans are from the Government of Malaysia.

    In the 2013 PKA Annual Report it was stated that “on 19th December 2013, the Ministry of Finance has agreed to restructure the balance in Government Loan of LPK (Lembaga Pelabuhan Klang). Interest rate at 4% per annum together with penalty of 2% per annum on the outstanding balance. The grace period is 4 years starting 2014 until 2017. Repayment terms is 19 years starting 2018 until 2036.”

    Even with this grace period and an interest rate of 4%, PKA has to make interest payments worth approximately RM285m per annum for 19 years starting from 2018 until 2036. Its current revenue is only RM217.4m. PKA also has to pay for other expenses such as staff costs and depreciation costs.

    In addition, the ability of PKFZ to generate sufficient revenue to cover these interest payments is very much in question. PKFZ’s revenue for Financial Year 2013 was a mere RM10.1m and its profit a mere RM209,615. The former chairman of PKA, Lee Hwa Beng, in an interview in this week’s the Edge weekly expressed his doubt on whether PKFZ can ever be profitable given the huge investment costs. In this week’s the Edge Weekly, current CEO Chia Kon Leong said that PKFZ’s turnaround plan is contingent on securing one big deal with China based SM International Wholesale (China) Center Sdn Bhd to turn PKFZ into an international wholesale hub. Whether or not this investment can be secured and whether this investment can indeed help push PKA into profitability remains to be seen.

    While we do not want to see PKFZ fail which would result in even more taxpayers money being spent to bail out PKA, it seems likely that the government will have to further restructure its loan to PKA. In other words, the taxpayer has to continue to suffer the consequences of the PKA scandal until at least 2036, if not beyond.

    Dr. Ong Kian Ming
    Member of Parliament for Serdang

  • Is Pembinaan PFI trying to hide its growing debt by the late filing of its 2013 company accounts?

    Media Statement by Dr. Ong Kian Ming, MP for Serdang, on the 19th of November, 2014

    Is Pembinaan PFI trying to hide its growing debt by the late filing of its 2013 company accounts?

    Pembinaan PFI Sdn Bhd is a Ministry of Finance owned company which has racked up liabilities of RM27.9 billion, making it the government owned company with the third highest liabilities after Petronas and Khazanah according to the 2013 Auditor General’s Report.

    PFI’s liabilities also seems to have increased at a worrying rate. For example, at the end of Financial Year 2011, PFI’s liabilities stood at RM19.9b (Appendix 1). At the end of Financial Year 2012, PFI’s liabilities had grown to RM27.9b, an increase of RM8b in just one year (Appendix 2).

    PFI tabled its company accounts for FY2011 on the 29th of June 2012 and for FY2012 on the 28th of June 2013. When I last checked on the 11th of November 2014, PFI had not filed its company accounts for FY 2013 which means that it is almost 5 months late in filing its accounts.

    Is PFI trying to hide another massive growth in its liabilities in FY 2013? Is it following the footsteps of other Ministry of Finance owned companies such as SRC International and 1MDB and its subsidiaries in not filing their company accounts on time?

    I call upon the Ministry of Finance to issue a statement to explain why Pembinaan PFI Sdn Bhd’s company accounts for FY 2013 have not been filed and also to explain why government development expenditure is being channelled via this little known entity.

    Dr. Ong Kian Ming
    Member of Parliament for Serdang

    Appendix 1: Summary of Financial Information for Pembinaan PFI Sdn Bhd for FY 2011

    Appendix 2: Summary of Financial Information for Pembinaan PFI Sdn Bhd for FY 2012

  • Why is our government paying rental of RM29.2 billion on land which it already owns?

    Media Statement by Dr. Ong Kian Ming, MP for Serdang, on the 18th of November 2014

    Why is our government paying rental of RM29.2 billion on land which it already owns?

    The most recent Auditor General’s 2013 Report highlighted the fact that a little known Ministry of Finance owned company, Pembinaan PFI Sdn Bhd, had racked up debts of RM27.9 billion making it the third most indebted government owned company after Petronas and Khazanah.

    Pembinaan PFI’s funding comes from loans from the Employees Provident Fund (EPF). To pay back the EPF for the first RM20b of worth of loans, the government structured a complicated and mind-boggling deal. The Federal Lands Commission (FLC) signed an agreement where it would lease PFI 186 plots of land all over Malaysia. FLC would then sub-lease this land from PFI by paying rental for land which the FLC already owns! (See Appendix 1 for first two pages of the rental agreement)

    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!

    The rental from the FLC to PFI are spread out into 30 payments over 15 years starting from the 15th of February 2013 all the way up to the 13th of August 2027. The total rental payments add up to RM29.2 billion. (See Appendix 2)

    I call upon the Ministry of Finance to explain why it structured this deal where the government has to pay itself rental on land which it already owns. Is the purpose of this agreement to hide government expenditure from the budget so that our deficit would seem as if it is decreasing?

    Dr. Ong Kian Ming
    Member of Parliament for Serdang

    Appendix 1: Sub-Lease Agreement between Pembinaan PFI Sdn Bhd and the Federal Lands Commissioner

    Appendix 2: Schedule of Rental Payments by the Federal Lands Commission (FLC) to Pembinaan PFI Sdn Bhd

  • The government is trying to hide RM30b of spending by Pembinaan PFI Sdn Bhd which was had the 3rd largest liability in 2012 among all government owned companies

    Media Statement by Dr. Ong Kian Ming, MP for Serdang, on the 13th of November, 2014

    The government is trying to hide RM30b of spending by Pembinaan PFI Sdn Bhd which was had the 3rd largest liability in 2012 among all government owned companies

    According to the latest Auditor General Report 2014, Series 3, a little known Ministry of Finance owned company – Pembinaan PFI Sdn Bhd – had racked up liabilities of RM27.8 billion as of 2012 making it, then, the company with the 3rd largest liability among all government owned companies after Petronas and Khazanah (See Figure 1 below).1

    Figure 1: Top Three Government Owned Companies with the largest liabilities as of 2012

    However, unlike Petronas or Khazanah, which were the two most profitable government owned companies in 2012 (See Figure 2 below), Pembinaan PFI Sdn Bhd does not have its own revenue stream and hence, profit generation capabilities.

    Figure 2: Petronas and Khazanah as the top two most profitable government owned companies as of 2012

    According to its company filings, the nature of Pembinaan PFI’s business is to “source for financing to undertake government projects”. According to an extensive report in the Edge, PFI was set up to disburse RM20b worth of spending under the 9th Malaysian Plan which ran from 2006 to 2010.2 In addition, preference for the contracts under PFI would be given to small scale bumiputera contractors.

    Up till today, there has been very little transparency about how exactly this RM20b has been spent and also the terms of the concession agreements between the contractors and the governments for the rental or lease of the buildings constructed under PFI. There is not even a website for Pembinaan PFI! In contrast, for example, Pembinaan BLT Sdn Bhd, which was set up in 2005 as a special purpose vehicle to construct police offices and staff quarters which would then be leased back to the government, not only has a website but lists out all of the buildings which it has completed since 2008.3

    The recent AG’s report also highlighted that a 2nd round of funding worth RM10b had been allocated to PFI out of which RM7.57 billion had been set aside for 16 Ministries / Agencies to undertake 313 projects. As of 31st December, 2013, a total of RM4.9b has been spent from this 2nd tranche of funding. According to the company filings of Pembinaan PFI Sdn Bhd, all of its borrowings come from the Employees Provident Fund (EPF).

    What is more worrying is the fact that the government has tried to hide this spending from the budget. The government set up a convoluted agreement whereby 186 parcels of land owned by the Federal Lands Commissioner was leased to PFI after which the Federal Lands Commissioner was asked to sub-lease this land back from PFI with half yearly payments from 2012 to 2027 totalling RM29.2billion (Appendix 1 below). PFI would then use these payments from the Federal Lands Commissioner to service the interest payments to EPF. This land lease agreement (attached in the email) is important because the land ‘owned’ by PFI is listed as part of its assets. This is why the recent Auditor General’s report also showed PFI has have the 3rd largest asset holdings among all government owned companies, after Petronas and Khazanah (Figure 3 below). In reality, these ‘assets’ are merely land holdings which PFI itself doesn’t really own but were leased from the Federal Lands Commission.

    Figure 3: Top Three Government Owned Companies with the largest assets as of 2012

    I call upon the Finance Ministry to disclose the full list of projects and the cost of each project that was awarded by Pembinaan PFI and to ensure full transparency for future projects. I also call upon the Auditor General to conduct a thorough investigation into Pembinaan PFI including whether government Standard Operating Procedures (SOPs) were followed in the awarding of its contracts.

    Dr. Ong Kian Ming
    Member of Parliament for Serdang

    Attachment A: PFI Forum Article in The Edge, 2006 

    Attachment B: Pembinaan PFI Sdn Bhd Agreement with the Federal Land Commissioner

    Attachment C: Pembinaan PFI Sdn Bhd Company Profile, 11 Nov 2014

    Appendix 1: Schedule of payments from the Federal Land Commission to Pembinaan PFI Sdn Bhd

    1 If the same exercise was done for 2013 accounts, 1MDB would probably occupy the third spot.

    2 http://www.mbam.org.my/mbam/images/MBJ3Q06(pdf)/@PFIforum.pdf

    3http://www.pblt.com.my/ver4/project.html
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