• PEMANDU should be open and transparent about how much its staff are being paid and whether they hold directorships in other government agencies / GLCS / publicly listed / private companies

    Media Statement by Dr. Ong Kian Ming, MP for Serdang, on the 31st of October 2013 in Kuala Lumpur

    PEMANDU should be open and transparent about how much its staff are being paid and whether they hold directorships in other government agencies / GLCS / publicly listed / private companies

    In a comment piece in Malaysiakini yesterday[1], Mr Goh Wei Liang, a senior analyst at PEMANDU’s communications team under the Economic Transformation Program (ETP) tried to justify the high pay that the directors at PEMANDU were receiving. In this comment piece, he estimated that the monthly take home pay of a JUSA A civil servant which is equivalent to a PEMANDU director is actually RM29,631.53 comprising of the following components:

    Item Amount (Monthly in RM)
    Salary 17331.46
    Minus Taxes -3533.26
    Entertainment Allowance 4000.00
    Housing Allowance 2000.00
    Fixed Allowance 2500.00
    Higher Management Special Incentive 1250.00
    Maid Allowance 500.00
    Home Maintenance Allowance 166.67
    Meeting Allowance as Board Member* 2500.00
    Fixed Annual Allowance as Board Member** 2916.67
    Total 29.631.53

    (*) Assume member of 5 boards of councils / GLCs, RM500 / meeting per month

    (**) Assume RM7,000 / board, 5 boards councils / GLCs

    Mr. Goh, from PEMANDU, also implies that he thinks that PEMANDU directors are underpaid compared to civil servants since a PEMANDU director with a monthly salary of RM40,000 only takes home RM30,572.92 after taxes (compared to a JUSA A officer’s take home pay of RM29,631.53) and does not have the job security and lifetime pension of a civil servant or a gratuity, first class return tickets from KL to London or paid holidays.

    Mr Goh also makes the following two recommendations to the Chief Secretary to the Government: (i) A revision of the remuneration packages to be productivity and results drives (ii) Downsize the civil service by maintaining efficient and productive staff only

    In trying to argue that PEMANDU directors are underpaid, Mr Goh assumes that PEMANDU directors do not hold other positions elsewhere including as directors at GLCs and other government agencies. This is patently untrue.

    Mohamad Emir Mavani Abdullah, who is currently the group President and CEO of Felda Globa Ventures (FGV) and whom I’ve accused of having a PhD from a degree mill[2] was the PEMANDU Director in charge of the Financial Services and Oil & Gas NKEAs in 2012 when FELDA was about to be listed. In the FELDA listing prospectus[3], where he was named as a Director in PEMANDU as well as in FGV, he was also listed as the CEO of the newly established Malaysia Petroleum Resource Corporation (MPRC) in the Prime Minister’s Department as well as serving on the board of the Malaysian Nuclear Power Corporation. In addition, he was also listed as being a director in 7 other companies – Mega-Wan International Sdn Bhd, Sterling Advisory Services Sdn Bhd, Sanjung Impian Sdn Bhd, QPIC-Botree Technologies Sdn Bhd, EIM Systems Sdn Bhd, E&H Consulting Sdn Bhd and FAHC. Mohamed Emir also received 150,000 shares of FGV during the listing process.[4]

    I presume that Mohamed Emir would have received a salary as the CEO of the MPRC as well as director fees as a director in the Malaysian Nuclear Power Corporation and in FELDA Global Ventures (before it was listed). I also presume that he would have received director fees in the 7 other companies mentioned above. It seems that PEMANDU directors, unlike civil servants, can sit on boards of private companies. This would have taken his monthly and annual salary way above the RM40,000 monthly director that a top PEMANDU director is paid.

    In the interest of transparency, I call upon Dato’ Idris Jala as CEO of PEMANDU to reveal the pay structure of PEMANDU directors inclusive of bonuses and allowances as well as the salary structure of all the contract staff in PEMANDU. This is even more necessary after Dato’ Idris was quoted to have said that the huge increase in the Prime Minister’s Department to RM16.45 billion was ‘justified’.[5]

    In addition, I also call upon Dato’ Idris Jala to disclose whether any other directors in PEMANDU, prior and current, are also directors in other government agencies, GLCs, publicly listed companies or private companies. The directors of the respective National Key Economic Areas (NKEAs) hold tremendous influence in shaping the policy landscape in these areas. It is in the public’s interest to know if there are possible conflicts of interest which may arise as a result of holding multiple directorships in both the public as well as the private sector.

    Finally, I call upon Dato’ Idris Jala to explain if he agrees with the view of his staff, Goh Weng Liang, that public sector pay should be reviewed and linked to productivity and that the public sector should be downsized so that only the efficient staff is retained. Is this one of the strategies under the Public Finance Strategic Reform Initiatives (SRIs) to reduce the government budget deficit?

    Dr. Ong Kian Ming

    Member of Parliament for Serdang

  • The Prime Minister should walk the talk by cutting expenditure in the Prime Minister’s Department and by not creating new, expensive agencies

    Media Statement by Dr. Ong Kian Ming, MP for Serdang, on the 29th of October 2013

    The Prime Minister should walk the talk by cutting expenditure in the Prime Minister’s Department and by not creating new, expensive agencies

    Dato’ Seri Najib, Prime Minister and Finance Minister, announced in the recent budget the setting up of a new Green Foundation (Yayasan Hijau) and the Malaysian Global Innovation and Creativity Center (MAGIC). At the same time, the expenditure allocated to the Prime Minister’s department has increased from R14.6 billion in 2013 to a projected RM16.5 billion in 2014, an increase of 13%.

    Part of the reason why government expenditure has increased significantly over the past 4 years under the current Prime Minister and Finance Minister is the employment of many contract staff on very high wages, especially in the Prime Minister’s Department.

    In a parliamentary reply I received on the 1st of October, I was informed that the yearly salary, allowance and the bonus of the CEO of Agensi Inovasi Malaysia (AIM) was RM830,500 which works out to approximately a monthly salary of RM69,000. The CEO of the Land Transport Commission or SPAD was paid a yearly salary of RM480,000 (RM40,000 a month), a yearly allowance of RM162,000 and a bonus of RM60,000 which gives a yearly salary totalling RM622,000. The CEO of TalentCorp receives a monthly salary of RM30,000 and a monthly car allowance of RM5,000 which works out to a yearly salary of RM420,000.

    All these CEOs are paid monthly salaries which are higher than the monthly salary of the highest paid civil servant which is the Chief Secretary (Ketua Setiausaha Negara) which has a maximum monthly salary of RM23,577.

    And these are only some of the agencies which are under the Prime Minister’s Department. Others would include the Iskandar Regional Development Authority (IRDA), the East Coast Economic Region Development Council (ECERDC), the Northern Corridor Implementation Authority (NCIA), the Malaysian Industry Government Group for High Technology (MIGHT), the Unit Peneraju Agenda Bumiputera (TERAJU) and the Performance Management and Delivery Unit (PEMANDU). Not only are the CEOs of these agencies paid salaries which are higher than their civil servant equivalents[1], the staff in these agencies, many of whom are contract staff and not government servants, are also paid higher than equivalent salaries.

    For example, a Director at PEMANDU, which is equivalent to a JUSA A/B civil servant has a maximum salary of RM49,000 a month, an Associate Director at PEMANDU, which is equivalent to a JUSA C civil servant has a maximum salary of RM31,600 a month and a Senior Manager which is equivalent to a Grade 54 civil servant has a maximum salary of RM21,000 a month.

    All of these positions add greatly to government expenditures especially in the Prime Minister’s Office. This is one of the reasons why the total expenditure for the Prime Minister’s office is projected to rise by 13% while the overall budget is projected to increase by only 5.6% from Rm250 billion in 2013 to RM264 billion in 2014.

    If the Prime Minister is serious about asking ordinary Malaysians to change their lifestyles to adapt to rising prices as subsidies are withdrawn and the GST is introduced, he should also walk and talk by reducing expenditure in his own department. He should also stop creating new agencies such as Yayasan Hijau whose functions are already present in existing agencies such as the Malaysian Green Tech Corporation, the Sustainable Energy Development Authority (SEDA) and also MAGIC whose functions are already present in existing agencies such as AIM and Cradle and the Malaysian Productivity Council and the many the arms and government agencies which have responsibilities overseeing ‘innovation’ initiatives.

    Dr. Ong Kian Ming

    Member of Parliament for Serdang



    [1] The exception here is Senator Idris Jala who is the CEO of PEMANDU but is paid the same salary as a Minister given that he is a Minister in the Prime Minister’s Department.

  • Shocking growth in deficit of Non-Financial Public Enterprises (NFPEs) is a ticking fiscal time bomb for Malaysia

    Media Statement by Dr. Ong Kian Ming, MP for Serdang, on the 25th of October, 2013 in Kuala Lumpur

    Shocking growth in deficit of Non-Financial Public Enterprises (NFPEs) is a ticking fiscal time bomb for Malaysia

    The Barisan Nasional government will surely play up the fact that it is a prudent government that is managing its finances well resulting as demonstrated by the reduction in the projected budget deficit to RM37billion or 3.5% of GDP in 2014. But this ignores an extremely worrying problem of a huge increase in the deficit position of the companies which are owned or controlled by the government and statutory bodies – or Non-Financial Public Enterprises (NFPEs). For 2013, the projected deficit is RM93 billion or a massive 9.4% of the GDP. This represents a six-fold increase from the R15.6 billion deficit recorded in 2012.

    The NFPEs refer to thirty “government-owned and / or government controlled companies and agencies owned by the government” whereby “ownership and control refer to Government or a public sector agency controlling more than 50 percent of total equity”. They would include companies such as Petronas, Tenaga, Telekom, Axiata, Malaysia Airlines, UEM Group as well as more recent additions such as 1MDB, Prasarana and MRT Co. The financial position of these companies affect the fiscal position of the government directly and indirectly. These companies contributes directly to government coffers by paying corporate taxes (and the Petroleum tax for Petronas) as well as dividends. They (or via special purpose vehicles related to them) also issue bonds which carry an explicit as well as an implicit government guarantee i.e. the government has to pay for these bonds if these companies run into financial trouble (think PKFZ).

    Table 1: Financial Position of the Non-Financial Public Enterprises (NFPEs)

    RM Million 2009 2010 2011 2012 2013
    Revenue 323,393 368,233 351,196 420,109 404,488
    Current Expenditure 275,232 302,676 298,461 351,623 371,205
    Current Surplus 48,161 65,557 52,735 68,486 33,282
    Development Expenditure 55,706 49,348 49,472 84,042 126,234
    Overall Balance -7,545 16,209 3,263 -15,556 -92,952
    % of GDP -1.1 2.3 0.4 -1.7 -9.4

    Source: Economic Report 2013/2014, Economic Report 2012/2013, Economic Report 2011/2012

    What is shocking about the figures in Table 1 is that the deficit position of the NFPEs, which had been in surplus for 2010 and 2011, is projected to reach RM93 billion in 2013! This huge growth in the deficit has been driven by a massive spending spree in development expenditure which increased by 70% from RM49.5 billion in 2011 to RM84.0 billion in 2012 and is projected to increase by another 50% to RM126.2 billion in 2013. The NFPEs, in 2013, spent three times as much on development expenditure compared to the federal government.

    It will be many years before some of this development expenditure that is being spent can start generating revenue e.g. the MRT project. Some projects may never generate enough revenue to cover operating costs – Prasarana which runs the LRT as well as the RAPID bus systems in KL, Penang and Kuantan is still making losses. Some projects may very well turn out to be very expensive white elephants e.g. 1MDB’s Tun Razak Exchange.

    The massive increase in the deficit position of these NFPEs also means that the government’s exposure to these development expenditures have increased. If some of these projects do no bear fruit, the corporate taxes and dividends paid to the government by these NFPEs will decreased. In some cases, the government may be forced to step in to bail out these companies.

    What is even more worrying is that the statistics and information pertaining to the development expenditure and financial standing of some of these NFPEs are not publicly available. In a paper presented at the MyStats 2012 forum, the Chief Economist of Maybank Investment Bank, Suhaimi Illias highlighted the ‘black box’ nature of development expenditure in NFPEs and GLCs:

    “Despite the significance of NFPEs and GLCs/GLICs in the Malaysian economy, end-users in the private sector has somewhat limited access to their capital expenditure data, other than the information available from major entities like PETRONAS and the large public-listed NFPEs/GLCs (e.g. Telekom Malaysia, Tenaga, Malaysia Airlines) that are used as proxies to impute public sector investment, in addition to the Federal Government’s development spending.

    Even then, this NFPEs’ development spending number reflects only the biggest 30 NFPEs with minimum annual sales of MYR100m.”[1]

    The government cannot continue to ignore the potential impact of the deficit position of the NFPEs. What is needed now is for the disclosure of the full accounts of all the NFPEs which are not publicly listed including Petronas, 1MDB, Prasarana and MRT Co so that there is full transparency on the development expenditure of these companies. What is needed now is for a full evaluation on the government’s ability to absorb potential losses arising from their exposure to these NFPEs, perhaps in the form of a Stress Test that has been conducted by organizations such as the IMF for the banking system in the country.[2] Without concrete actions taken, the continued growth of the deficit position of the NFPEs is a ticking time bomb that may explode unexpectedly with disastrous consequences for the government’s fiscal position and the country’s economy.

    Dr. Ong Kian Ming

    Member of Parliament for Serdang

  • Why does this Government find it so hard to reduce government expenditure? (And why do economists allow the government to get away with it)

    Why does this Government find it so hard to reduce government expenditure?

    (And why do economists allow the government to get away with it)

    Every year, during the budget session, the Barisan Nasional Finance Minister announces a certain government expenditure figure and the following year, without fail, the Minister comes back and reports an actual expenditure that is significantly higher. For example, the projected expenditure for the 2012 budget was RM230.8 billion but the actual expenditure was closer to RM249.5 billion, a difference of RM18.7 billion, a not exactly insignificant amount. (See Table 1)

    Table 1: Difference between Actual and Projected Expenditure (2009 to 2012)

    (RM million) 2009 2010 2011 2012
    Projected Expenditure 205,899 189,499 211,987 230,833
    Actual Expenditure 206,063 202,929 227,928 249,544
    Difference (Actual – Projected) 164 13,430 15,941 18,711

    Source: Economic Reports 2008 / 2009 to 2011 / 2012

    How does this government get away with this time and time again? Why do the professional economists not call them out for this profligacy?

    The fact that the government seems incapable not just of hitting its budget projections but far exceeding it is directly related to perceived need to introduce the regressive Goods and Services Tax (GST) during the upcoming budget 2014 speech and to be fully implemented in 2015. The government tries to massage the so called need for the GST by saying that it will be a broad based tax that will be more effective in raising taxes and at the same time reduce leakages by bringing in the informal sector. At the same time, the government will put in a strategy that will reduce expenditure of subsidies. These supposedly sound arguments mask the fact that the government refuses to share in the pain which the people will feel when the GST is introduced along with the removal of subsidies.

    Here, I want to outline a few plausible reasons as to why this government finds it almost impossible to reduce government expenditures and by doing so, avoid the need to introduce an unpopular tax.

    Firstly, no minister would voluntarily ask for the budget of his or her ministry to be reduced. This is normal since a smaller budget means less power and influence, even putting aside issues of graft and bribery. Only if the Prime Minister and / or the Finance Minister plays the role of chief ‘whip’ to demand that each minister sacrifices a portion of his budget can there be an across the board reduction in government expenditure.

    In the case of Malaysia, the Prime Minister who is also the Finance Minister would find it hard to justify asking everyone else to cut their expenditure when he himself is not willing and able to cut expenditure in the Prime Minister’s office (PMO), which is arguably the most bloated of all the Ministries, given its rapid expansion under Abdullah Badawi and the continued expansion under Najib. Remember, agencies such as Pemandu and Agensi Innovasi Malaysia (AIM) which employ many expensive contract staff are under the PMO. Remember too, that the budget of the PMO has doubled from RM7.1b in 2008 to a projected RM14.6b in 2013, slightly more than a two-fold increase. During this time, the projected federal expenditure has only increased by about half, from RM168.8 billion in 2008 to RM248.6 billion in 2013. Given Najib’s non-confrontational character, it would be difficult for him to ask for other Ministers to sacrifice without doing the same for his own Ministry.

    Secondly, the ‘pain’ that would be felt by each Minister in the context of Malaysia may be more than just a loss in influence and power but also a loss in economic gain through the awarding of expensive and bloated contracts to cronies. For example, more than 60% of the estimated RM800 million cost to run the National Service Program (Program Latihan Khidmat Negara or PLKN) is spent on camp trainers and supplies for these camps. Any minister who may benefit from these contracts would be out of his mind to ask for this program to be reduced or abolished.

    Thirdly, the government has been very fortunate in that actual revenue collections have also exceeded projected revenue on the consistent basis. With the exception of 2009, when there was a global economic crisis, actual revenue has always exceeded projected revenue by at least RM10b over the past 5 years (Table 2 below). What this means is that the government has never been under real pressure to tighten their belts. If let’s say, the dividends from Petronas were to fall by RM20 billion because of a global collapse in oil prices or some major hiccups with their oil fields in politically unstable places like Sudan and Iraq, the government would be forced to carry out significant belt-tightening.

    Table 2: Difference between Projected and Actual Revenue (2008 to 2012)

    (RM million) 2008 2009 2010 2011 2012
    Projected Revenue 147,093 176,220 148,446 165,825 186,906
    Actual Revenue 161,558 162,100 159,653 185,419 207,246
    Difference (Actual – Projected) 14,465 -14,120 11,207 19,594 20,340

    Source: Economic Reports 2007 / 2008 to 2011 / 2012

    Fourthly, the government has managed to ‘hide’ much of the growth in government expenditure by shielding them in off-budget items. This usually means that setting up of a special purpose vehicle such as Dana Infra to issue bonds to fund infrastructure projects like the MRT project that is placed under a government incorporated company such as MRT Co. None of the MRT spending spending appears officially on the government budget. These contingent liabilities – bonds which are government guaranteed but not in the official budget – totalled some RM150 billion at the end of 2012 and will only rise as the cost of projects such as the LRT extension, the MRT project and the much delayed KLIA2 project continues to rise. If these costs were properly reflected in the budget, it would be much harder for the government to justify the continued rise in operating expenditures.

    The question then becomes, why do the economists, who are supposed to ‘warn’ people of the dangers of government profligacy, allow the government to get away with this? I propose a few plausible answers.

    Firstly, most economists are concerned about rising government debt and the continuing deficit but their proposed solutions usually involve (i) reduction of subsidies especially the oil subsidy and now, increasingly, (ii) the introduction of the GST. Not many local economists would call for significant cuts in other parts of the government’s operating expenditure and certainly not specific programs in specific ministries.

    The subsidies are a much ‘safer’ area to touch on since it involves a big chunk of change (over RM20 billion a year in the past 4 years) and is easily calculable. The GST is also put forward as an easy fix because of the supposed benefits on paper which I’ve outlined earlier.

    Very few local economists would trawl through the Auditor General’s report to estimate the potential cost savings from each of the projects and to recommend that some projects be abolished. This is usually a political judgement and most economists would fear to tread into this arena. Their superiors in their organizations would probably not appreciate it if these economists were to start making calls on which departments to downsize or which programs in the Ministry of Education which should be cut.

    Secondly, using conventional wisdom, the ability of the Malaysian government to continue to service its debts seem sustainable. Debt servicing takes out approximately 10% of government expenditure. The debt to GDP ratio is at a seemingly manageable 52% of GDP. Even if contingent liabilities were added, our debt to GDP ratio would rise to between 65% to 70%, which is significantly less than the levels in development countries such as the UK, Japan and the US, just to name a few.

    If the professional economists are not very worried, why should the average Malaysian worry about government profligacy and wastefulness? Is Pakatan Rakyat making much ado about nothing? I do not think so. We are on a trend in which we can easily slip over the economic precipice in term of our government debt. If Petronas’ overseas revenues get hit hard by unforeseen circumstances, if a few of companies with significant contingent liabilities have to be bailed out at the same time – think 1MDB, MAS, Prasarana and MRT Co, if the 10 year business cycle drags the global economy down again in 2018, we could easily see out budget deficit and debt levels skyrocket. The Irish economy was chugging along nicely and its debt to GDP ratio was as low as 25% in 2008 before it had to bail out its banks and now its debt to GDP ratio stands at 120% just 5 years later in 2013. While we are not in the same position as Ireland, FITCH IBCA has warned of a possible cut in ratings and Forbes columnist, Jesse Colombo, has warned of an impending property and economic bubble in the country. I still remember how government officials and BN politicians were arguing about how Malaysia is ‘different’ from Thailand when the run on the Thai baht started in 1997. We were not spared from the Asian economic crisis then. We will not likely be spared if another crisis hits the region.

    To end, I want to quickly propose how Pakatan is better placed to reduce government expenditure compared to the BN. A new Prime Minister without any attachment to the existing institutions and structures within the PMO would have fewer doubts in cutting the PMO down to size. Pakatan has already made such a promise in the 2012 alternative budget. We have followed up by identifying specific departments such as PEMANDU which would be abolished under a Pakatan government. Our latest 2014 budget spells out more programs and specific targets in terms of operating expenditure reduction. With a Prime Minister leading the charge, there will be more impetus for other Ministers to cut the expenditure of other Ministries. Furthermore, there will be less incentives for Ministers to maintain certain programs for ‘personal’ benefits once a check and balance system which empowers the MACC and which reduces corruption is put in place.

    Of course, this involves hard work and difficult decisions but I am very confident that between Pakatan and the BN, there is no question that Pakatan has less baggage, has promised do to more and is better placed to cut government expenditure by reducing waste, corruption and unnecessary programs. This is a much better alternative to introducing the GST which hurts the poor while the government does nothing to tighten its own belt.

    Dr. Ong Kian Ming, MP for Serdang

  • The implementation of the Feed-in Tariff by SEDA that was focused on large companies has been a massive failure. Focus instead should be given to individual quotas.

    Media Statement by Dr. Ong Kian Ming, MP for Serdang, in Kuala Lumpur on the 26th of September 2013.

    The implementation of the Feed-in Tariff by SEDA that was focused on large companies has been a massive failure. Focus instead should be given to individual quotas.

    According to the SEDA 2011 Annual Report, a total of 380MW of the Feed-in-Tariff quota has been released by SEDA for the year 2012 (190MW) and 2013 (190MW). According to SEDA’s website, only a pitiful 120MW or 31% has been successfully installed as of today (See below).[1] For the year 2013, the figure is 15MW or 8% of the 190MW released.

    Installed Capacity (MW) of Commissioned RE Installations
    Year Biogas Biogas ( Landfill / Sewage ) Biomass Biomass ( Solid Waste ) Small Hydro Solar PV Total
    2012 2.00 3.16 43.40 8.90 15.70 31.53 104.69
    2013 3.38 0.00 0.00 0.00 0.00 11.86 15.24
    Cumulative 5.38 3.16 43.40 8.90 15.70 43.39 119.93

     

    In a parliamentary I received on the 23rd of September, it was stated that 31MW for 11 holders of the FIT quota has had their applications revoked because of non-compliance with the rules and conditions. In the same reply, I was also told that 92 holders of the FIT with a capacity of 190.76MW were given extensions to their commissioning date deadlines. A majority of these extensions – 77% – (71 out of 92) affecting 92% of the quota (175.2MW out of 190.76MW) were for a period of more than two months. This means that more than half of the FIT quota for 2012 and 2013 – 221MW or 58.3% (out of 380MW) – was either delayed or cancelled. And we have not even reached the end of 2013 yet!

    My colleague, Tony Pua, and I recently raised the issue of why some of the quotas that were initially revoked by SEDA were then overruled by the Minister.[2] At the same time, I received information from industry sources that 40 companies which applied for FIT quotas earlier this year have not yet heard from SEDA (either a rejection or approval). This means that their precious capital is tied up and cannot be used for other business activities.

    SEDA released a measly 500kW of quotas of solar for individuals on the 28th of August, 2013, and this quota was taken up without the first hour. SEDA had to postpone the release of another 1000kW to a future date because overwhelming demand from individuals.

    The implementation of the FIT scheme by SEDA has been a massive failure. Instead of focusing on the big companies, who have failed to deliver thus far, SEDA should instead shift its focus to allow a larger % of the FIT quota to individuals. Right now 81% of the quota for Solar Power is allocated to non-individuals (>0.5MW). By giving out more individual FIT quotas, the risk of non-instalment is spread across a larger number of players. More people especially small companies / SMEs who can install the solar panels can also benefit. In the upcoming Pakatan Rakyat Alternative Budget for 2014, more measures to encourage small players to participate in the renewable energy will be introduced.

    Dr. Ong Kian Ming

    Member of Parliament for Serdang

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