• Investment Initiatives Announced in the Budget should be treated with caution

    Media Statement by Dr. Ong Kian Ming, MP for Serdang, on the 25th of October, 2015

    Investment Initiatives Announced in the Budget should be treated with caution

    In Prime Minister Najib’s budget speech on Friday, he announced a large number of investment initiatives under the “First Priority: Strengthening Economic Resilience” section. These investments total up to Rm137 billion. Those who are hearing these initiatives for the first time may be impressed by the investment which the government is putting into infrastructure and development expenditure. But in actual fact, only 3.1% or RM4.2 billion of what was announced actually appears in the 2016 budget. The rest of the RM132.9 billion or 96.9% are actually off budget items which are financed by Special Purpose Vehicles (SPVs), GLCs, Public Private Partnerships (PPPs) and the private sector.

    Table 1 below lists all the investment related expenditures under Najib’s “First Priority” section of the budget.

    Investment spending under SPVs accounts for RM82.5 billion or 60.2%. This would include the MRT Lines 1 and 2, the LRT Extension and LRT3 as well as the BRT projects along the Federal Highway and in Kota Kinabalu. The GLC investment spending accounts for RM44.5 billion or 32.4%. This would include Khazanah’s RM6.7 billion in investments in 9 impact areas and Petronas’ investment in the RAPID complex in Pengerang, Johor, valued at RM18 billion in the budget speech. The RM5 billion Malaysia Vision Valley project, as far as I know, will be a largely private sector driven project.[1] And the Jalan Tun Razak Traffic Dispersal Project of RM900 million was announced as a Public Private Partnership (PPP) project. Of the remaining RM4.2 billion in government projects, not much of it are actually brand new initiatives. For example, the allocation for the rural electrification projects and the rural water supply projects worth Rm1.5 billion have been in existence as part of the Rural Basic Infrastructure National Key Results Area (NKRA) under the Government Transformation Program’s (GTP).

    Why should the fact that almost 97% of the announced investment initiatives are off-budget items be of concern?

    Firstly, some of these projects may never take off or attract the amount of investment announced by PM Najib. For example, the RM11 billion Cyberjaya City Center project comes under Cyberview Sdn Bhd which is a government owned company.[2] According to the 2013 Attorney General report (3rd series), Cyberview also has unpaid arrears to the government totalling RM571 million at the end of 2013. If it is not able to service the interest payments due to the government, it is hard to see how it can finance even some of the RM11 billion required for this project to take off. One can point to the Nexus Karambunai integrated eco-resort initiative that was announced by Najib in the 2011 that was supposed to cost RM3 billion but still has not taken off four years later in 2015. The same healthy scepticism can apply to projects such as the RM7 billion KL Aeropolis which comes under Malaysian Airports as well as the RM5 billion Malaysia Vision Valley project.

    Secondly, some of the investment initiatives may not have direct benefits for the rakyat. For example, Khazanah, through its listed entity IHH Healthcare Berhad, will invest approximately RM670 million between 2015 and 2017 in building new hospitals and expanding existing hospitals in Media Iskandar, KL, Klang, Melaka and Kota Kinabalu.[3] But since all of these hospitals are private fee paying institutions, the only beneficiaries will be those who can afford private health care and IHH’s own bottom line. Whether this will translate into more dividends paid by Khazanah to the government still remains to be seen.

    Thirdly, any Public Private Partnership (PPP) project which is announced by the federal government should be greeted with great caution. PPPs in Malaysia have a record of being totally not transparent and lopsided in favour of the private sector. The toll concessionaires and the first generation Independent Power Producer (IPP) contracts are notable examples. So when PM Najib announces a traffic dispersal project for Jalan Tun Razak, which is very necessary given the serious congestion which occurs during peak hours along this main thoroughfare in KL, and that it will be funded via a PPP, one should immediately ask which concessionaire would get this project and how much toll motorists would have to pay.

    In addition, because these PPPs are negotiated by EPU without any of their details made public, it is very likely that they would end up costing the government (and sometimes the end user) more in the long run than if the government paid for these projects by issuing bonds. For example, a private sector contractor, Zecon Bhd, was given the contract to build and lease the new Children’s Hospital next to UKM for 30 years. The government would have to pay a yearly rental to the operator for the hospital and since the private sector is asking for internal rate of returns (IRRs) in excess of 10%, the government may very well end up paying more in the 30 years than if it were to have built the hospital itself.[4] (Of course, since the terms of the PPP are not publicly disclosed, we don’t know if this is indeed the case).

    Fourthly, future generations will ultimately have to pay for the cost of these mega infrastructure projects. The LRT and MRT projects are being funded by bonds which are issued by Special Purpose Vehicles (SPVs) such as DanaInfra which are 100% Ministry of Finance owned companies. It is almost certain that the LRT and MRT operators will not be able to generate enough cashflow to services these multi-billion ringgit loans. When this happens, the government has to step in to pay for the interest on these loans. Our future generations have to pay for this debt although this is something which is not acknowledged by the government.

    Fifthly and lastly, the government has not announced any new measures to ensure that its own development expenditure will be spent optimally with minimum leakages. For example, the Malaysian Communications and Multimedia Commission (MCMC) collects more than Rm1 billion every year from the telco companies to improve internet and mobile telephony services to underserved communities. This is the fund from which the Rm1.2 billion to increase rural broadband penetration will be tapped. But this is also the fund which was used to purchase more than 1 million netbooks for teachers and students since 2010. The usage and distribution of these netbooks have been full of shortcomings and criticized by many parties.[5] There is little assurance that this RM1.2 billion set aside to achieve its intended target of increasing rural broadband penetration if the government proceeds with business as usual practices.

    In short, before you celebrate the more than Rm100 billion investment initiatives announced by PM Najib, think of whether these investments will be realized, how much leakages will there be and who will have to pay for them eventually.

    Dr. Ong Kian Ming
    Member of Parliament for Serdang

    [1] http://www.ptlm.com.my/index.php/component/k2/11-insider/malaysian-vision-valley-mvv-400ha-central-park-green-lung-planned-to-be-like-the-ones-in-london-new-

    [2] http://cyberview.com.my/property/property-development-property/upcoming/cyberjaya-city-centre-project/

    [3] http://www.thestar.com.my/Business/Business-News/2015/09/14/Khazanah-to-invest-in-projects-to-boost-economy/?style=biz

    [4] http://www.thesundaily.my/news/1268430

    [5] http://www.themalaysianinsider.com/malaysia/article/mcmc-denies-handing-out-busted-netbooks-blames-students-for-faults

  • “Hidden” Budget Items to look out for

    Media Statement by Dr. Ong Kian Ming, MP for Serdang, on the 22nd of October, 2015

    “Hidden” Budget Items to look out for

    To the man on the street, he would be looking out for how the budget affects his pocket directly, whether it is through the income tax rate, the GST rate or how much BR1M is being paid out and at what income levels. This is only natural. However, for policy makers, lawmakers and analysts, the budget is a more holistic document that has larger implications on the economy beyond the direct impact to one’s pocketbook. Here are some of the things I will be looking out for in today’s budget and budget related documents which will be tabled in parliament.

    1) Where will the expenditure cuts and increases be?

    During every budget session, the Ministry of Finance provides a thick book entitled “Anggaran Perbelanjaan Persekutuan” or Estimated Federal Expenditure which provides a breakdown of the estimated operating and development expenditure for the items under each ministry for the current fiscal year and for the upcoming fiscal year.[1] Except for budget junkies, most members of the public would not have seen the contents of this book before. But it is an important book in that it tells us exactly where the expenditure cuts and increases will take place.

    For example, total government expenditure was expected to increase from RM264 billion in 2014 to RM274 billion in 2015. But this increase in expenditure is not distributed evenly. The Prime Minister’s Department saw its estimated budget increase from RM16.5b in 2014 to RM19b in 2015, an increase of RM2.5b while the Ministry of Transportation saw its estimated budget decrease from RM5.2b in 2014 to RM4.6b, a decrease of 0.6b.

    This document tells us where the government spending priorities lie moving forward and points to possible areas of less than transparency discretionary spending. For example, most of the RM2.5b increase in the budget of the Prime Minister’s Department was in development expenditure which includes RM1.5b for PR1MA housing, RM1.9b for spending on the 5 development corridors and a shocking RM1.6b for “special projects” (details not listed). At the same time, the operating expenditure for the public universities was cut by an estimated RM1.1b from RM8.5b in 2014 to RM7.4b in 2015.

    There are many interesting items which are revealed in this document, ranging from the small – RM20m in 2015 for the ANGKASA space program, to the large – an estimated RM2.2b in 2015 for various paddy related subsidies.

    As they say, the devil is in the details, and the details which are listed in this document have real economic and social implications which warrant closer scrutiny.

    2) Changes in Off Budget Items

    During each budget session, the Ministry of Finance and the Accountant General’s Department of Malaysia publishes a document entitled “Federal Government Financial Statements” or “Penyata Kewangan Kerajaan Persekutuan.” It provides details of the actual government expenditure for the previous budgetary year. It also provides a list of outstanding government loans, a list of government investments and a list of government guaranteed loans by GLCs and government owned companies.

    Why are these lists important? Firstly, the list of outstanding government loans tells us exactly how much some of these companies owe to the federal government. For example, it tells us that, as of 2013, the Port Klang Authority (PKA) still owed the government RM3.7b as a result of a ‘bail out’ soft loan provided by the government to save PKA from the PKFZ scandal. It also tells us that the Indah Water Konsortium (IWK) and the National Feedlot Corporation (NFC) owed the federal government RM2b and RM225m respectively as of 2013. While these loans are listed as government assets, the fact that many of them are given to companies that are not in a position to service these loans means a high probability that the government has to write some of them off as bad debts. Which means that ultimately, the taxpayer would have to foot the bill.

    Secondly, the list of government investments tells us the exact shareholdings of the government in various listed and non-public listed companies. This list tells us which companies the government has effective control over. And, with a bit of digging, it may also reveal to us some of the ways in which the government ‘hides’ its debts. For example, two of the companies featured in this list – Pembinaan BLT Sdn Bhd and Pembinaan PFI Sdn Bhd – are actually special purpose vehicles set up to finance various development projects which do not appear in the official development expenditure budget. Pembinaan PFI’s debts, for example, stood at RM26.5b as of Financial Year 2014 and it has no independently generated revenue which means that the interest payments on its debts will have to come from federal government sources. Will there be any more Pembinaan PFI’s and BLT’s in this list? We will see after today’s budget announcement when the government’s financial statement for 2014 is released.

    Thirdly, the list of government guarantees shows us how much the government has to spend to ‘bail out’ companies on this list if they ever declare bankruptcy. RM5.8b of 1MDB’s debts are government guaranteed as of 2013, as are RM29.2b of PTPTN’s debts. Total government guarantees (otherwise known as “contingent liabilities”) stood at RM157.5b as of 2013. If these guarantees were added to government debt, then our debt to GDP ratio would exceed the 55% government limit.

    Of course, some of the companies featured in this list such as TNB and Khazanah are of sound financial standing and would probably not require a government bailout in the near future. But at the same time, the government’s exposure to companies such as 1MDB is much more than the listed RM5.8b of government guarantees. How much more has the government’s exposure increased?

    We will know after perusing the latest financial statements of the federal government.

    3) Auditor General’s Report on the Financial Status and Management of the Federal Government

    The Auditor General also releases its yearly report on the financial status and management of the federal government and the individual ministries during the year end budget parliamentary session.

    It is not a very well-perused document but it contains important information such as the quality of financial management by the individual ministries, the companies which have problems servicing their government loans and the expenditure status of certain trust accounts. It was in this document where I discovered that Pembinaan PFI had spent close to RM30b in development expenditure related projects and it was also here that I found out that companies such as Cyberview Sdn Bhd had accumulated RM571m in payment arrears to the federal government.

    So while attention is being paid to some of the headline grabbing items in the budget, I will be carefully scrutinizing some of these ‘hidden’ items in the budget and budget related documents that may contain other interesting and perhaps even more important information pertaining to the financial situation of our country.

    Dr. Ong Kian Ming
    Member of Parliament for Serdang

    [1] http://www1.treasury.gov.my/index.php?option=com_content&view=category&id=447&Itemid=2473&lang=en

  • Strongly Urge US Secretary of State, John Kerry, to raise the possible presence of North Korean forced labor in Malaysia in his discussion with his Malaysian counterpart, Anifah Aman

    Media Statement by Dr. Ong Kian Ming, MP for Serdang, on the 2nd of August, 2015

    Strongly urge US Secretary of State, John Kerry, to raise the possible presence of North Korean forced labor in Malaysia in his discussion with his Malaysian counterpart, Anifah Aman

    I read with interest a recent newspaper report stating that the US Secretary of State John Kerry will press Malaysia to improve its efforts to combat human trafficking in his upcoming visit to Kuala Lumpur.[1] Recently, Malaysia was upgraded from its previous Tier 3 status under the US State Department Trafficking in Persons (TIP) Report 2014 to its current updated Tier 2 Watch List status in the 2015 TIP report.

    Earlier last month, a group of 19 Senators, led by Senator Robert Menendez of New Jersey, wrote a letter to Secretary John Kerry expressing their concern of a premature upgrading of Malaysia’s status in the TIP report.[2] Their concerns were validated when Malaysia’s status was indeed validated in the 2015 TIP report. It should also be noted that Senator Menendez was the author of an amendment to the Trade Promotion Authority (TPA) legislation – or better known as ‘fast track’ – that would have disallowed the US from making any trade deals with a country with a Tier 3 status on the TIP report. This obviously would have affected Malaysia’s inclusion in the Trans Pacific Partnership (TPP) Agreement.

    I strongly urge Secretary Kerry to bring up an issue that was ignored in the Malaysian section of the 2015 TIP report which concerns the possible presence of North Korean forced labor in Malaysia.

    The issue of forced labor involving North Korean workers was highlighted in the country reports for Russia, China and Mongolia in the 2015 TIP report. But no mention was made of the possible presence of North Korean forced labor in Malaysia, even though reports by the Asian Institute for Policy Studies[3] and the Database Center for North Korean Human Rights[4] had reported that there were approximately 300 North Koreans working in Malaysia.

    The presence of North Koreans working in Malaysia was reported in the local press in November 2014 when a deadly mine explosion in Sri Aman, Kuching, claimed the lives of 3 miners (out of whom 1 was North Korean) and injured a further 29 (out of whom 7 were North Korean). It was further reported that a majority of the 119 workers at the mine were from North Korea.[5] A visit by two local journalists indicated that the mine was not only hard to find but that it did not seem to be run and managed professionally.[6] I note that this accident occurred before the March 2015 cut off date for the TIP 2015 evaluation.

    The presence of North Korean workers in Sarawak was confirmed by the then Deputy Minister for Home Affairs, Wan Junaidi, shortly after the coal mining accident was reported.[7] It was also confirmed to me in a parliamentary reply dated on the 17th of June, 2015, that 3 companies involved in construction and 1 in mining had received approval from the Human Resources Department in Sarawak to employ a total of 348 North Korean workers, out of which 287 permits had been used at the time of the parliamentary reply.

    The use of North Korean forced labor abroad has been well documented. I hope that the exclusion of the possible presence of North Korean forced labor in Malaysia in the latest TIP 2015 report was not because of political expediency to allow Malaysia to enter into the TPP agreement at the end of this year.  If this was the case, then it would call into question the accuracy of the TIP report and the commitment on the part of the US State Department to combat trafficking of persons in Malaysia and around the world.

    Dr. Ong Kian Ming
    Member of Parliament for Serdang

    (Please find original and translation of the parliamentary reply attached)

    [1] http://www.themalaysianinsider.com/malaysia/article/kerry-to-press-malaysia-on-human-trafficking-not-scandal

    [2] http://www.menendez.senate.gov/imo/media/doc/071515%20Letter%20to%20Kerry%20re%20Malaysia%20TIP%20Upgrade.pdf

    [3] http://en.asaninst.org/wp-content/themes/twentythirteen/action/dl.php?id=30324

    [4] http://nkdb.org/en/library/Books_list.php

    [5] http://www.thestar.com.my/News/Nation/2014/11/23/Sarawak-mine-blast/

    [6] http://www.thestar.com.my/News/Nation/2014/11/23/Mine-has-no-signage-and-is-difficult-to-find/

    [7] http://www.theguardian.com/world/2014/nov/24/-sp-north-korea-malaysia-mine-labour

  • Are we heading towards an energy crisis in 2018 with the delay of Project 4A?

    Media Statement by Dr. Ong Kian Ming, MP for Serdang, on the 22nd of June, 2015

    Are we heading towards an energy crisis in 2018 with the delay of Project 4A?

    It was reported in last weekend’s The Edge Weekly that SIPP Energy was seeking a new partner for Project 4A, after the Energy Commission rejected the proposed tariff submission by the SIPP Energy-TNB consortium which had been awarded this contract via direct negotiation. Without any obvious willing partners for SIPP Energy and with the likely delay of the Project 3B power plants due to 1MDB’s inability to raise the necessary finances to build these plants, it is possible that our country will face a serious energy shortage by 2018.

    Recall that on May 31, 2014, the Energy Commission awarded Project 4A, via direct negotiation, to a consortium led by SIPP Energy (51%) with YTL Power and TNB to build a new 1000MW-1400MW combined cycle gas turbine (CCGT) power plant in Johor which is supposed to be operational in June 2018. According to the EC as well as the Ministry for Energy, Green Technology and Water, the fast tracking of this project without a competitive tender was justified because of the impending energy shortage which the country will face by 2018 as reserve margins continue to fall.[1] This project was criticized from the beginning not just because of the lack of an open tender but also the fact that SIPP Energy has no prior track record in the building of power plants. YTL pulled out of this deal on the 19th of June, 2015 leaving SIPP Energy and TNB as the two remaining partners.

    It was reported that the SIPP-Energy and TNB consortium submitted a bid of RM39 sen / kWH for the proposed CCGT power plant, which is 12% higher than the RM34 sen / kWH for the 1071MW TNB CCGT power plant in Prai, Penang that recently began operations.[2] Recall that the 1071MW TNB CCGT power plant contract was awarded via open tender which is an important reason for the lower tariff is offered by TNB.

    With the latest failed tariff bid by SIPP Energy and TNB, the Edge Weekly reports that SIPP Energy may sell of its 51% stake in Project 4A for as much as RM300 million. This cost, presumably, will be factored into the new proposed tariff rate for Project 4A likely making the proposed tariff higher than if Project 4A was awarded via open tender.

    The manner in which the Energy Commission and the Ministry of Energy, Green Technology and Water have handled Project 4A is disgraceful. What was supposed to have been a fast-track project to build a CCGT power plant that would be up and running by the 1st of June, 2018 (before 1MDB’s Project 3B which is due in Nov 2018 for the first 1000MW and Nov 2019 for the second 1000MW) will now almost certainly be delayed since it would take some time before SIPP finds another partner or sells its stake to another party which would then have to put in a new revised tariff to the Energy Commission.

    With our actual operating reserve touching a mere 9% at the peak demand period in June 2014, it is a distinct possibility that we would be facing an electricity crisis by 2018.[3] The original decision to award Project 4A via direct negotiation is now coming back to haunt the Energy Commission and the Ministry of Energy, Green Technology and Water. The EC should have opened up the bidding for Project 4A for a competitive tender so that the most experienced party with the lowest price would have received this contract. Instead, what we are left with is yet another delay in the construction of a much needed power plant that may push our country towards an electricity crisis in 3 years’ time or less. The EC and the Ministry must to be held to account for its actions.

    Dr. Ong Kian Ming
    Member of Parliament for Serdang

    [1] http://www.thestar.com.my/Business/Business-News/2014/07/25/TNB-SIPP-Energy-sign-agreement-for-power-plant-project-in-Johor/?style=biz

    [2] http://www.tnb.com.my/tnb/application/uploads/newsclips/c40e44dc9475b32ee4778167cb94c7c8.pdf

    [3] http://www.thestar.com.my/Business/Business-News/2015/04/11/Its-the-rakyat-who-will-pay-for-power-plant-delays/?style=biz

  • The Minister of Energy, Green Technology and Water, Datuk Seri Maximus Ongkili, must compel the full disclosure of Tenaga’s takeover of Project 3B from 1MDB

    Media Statement by Dr. Ong Kian Ming, MP for Serdang, on the 20th of June, 2015

    The Minister of Energy, Green Technology and Water, Datuk Seri Maximus Ongkili, must compel the full disclosure of Tenaga’s takeover of Project 3B from 1MDB

    During last Thursday’s debate to amend the Electricity Supply Act (1990), I asked Minister of Energy, Green Technology and Water, Datuk Seri Maximus Ongkili, on the latest update on Project 3B, a 2000MW coal fired power plant project which was awarded to 1MDB (70%) and Mitsui (30%). The Energy Commission was supposed to announce the decision sometime in February but no updates had been forthcoming until the Minister’s statement on Thursday.

    In his reply, the Minister confirmed that the cabinet had indeed given the approval for TNB to take over Project 3B from 1MDB. He also confirmed that there would be a “small revision” to the power tariff given that the project was already six months late and the exchange rate has changed since the project was first awarded to 1MDB.[1] The Minister did not disclose the terms of purchase of Project 3B by TNB from 1MDB, citing that it was on a “willing-buyer-willing-seller” basis.

    The Minister’s reply is totally unacceptable for the following reasons:

    Firstly, since 1MDB is a 100% Ministry of Finance owned company and has been the subject of national and international headlines and since TNB is a Government Linked Company (GLC) which is one of the largest listed entities on the KL Stock Exchange, there is public interest at stake in terms of the terms which TNB offered to 1MDB in exchange for Project 3B.

    The haphazard fashion in which the Minister made this announcement – the government had not even notified TNB of its decision – created massive uncertainty in the stock market and caused TNB’s share price to drop by 50 sen from RM13.10 toRM12.60 on the day of the announcement, because of fears that TNB was being asked to “bail-out” 1MDB. Only after TNB CEO, Azman Mohd, came out with a statement reassuring the public that TNB would not pay a premium for 1MDB’s 70% stake in Project 3B did the share price of TNB recover to RM12.86 the next day.[2]

    For the sake of transparency and in order to reassure the markets, the Minister must disclose or ask TNB to disclose the terms of the agreement between TNB and 1MDB over the sale of Project 3B.

    Secondly, the Minister cannot wash his hands of the TNB-1MDB Project 3B agreement using the “willing-buyer-willing-seller” excuse since the Project 3B license is under the Energy Commission. The Energy Commission has the right to fine 1MDB for not being able to start Project 3B on time and it has the right to transfer the license to TNB. In fact, one of the reasons for the amendments to the Electricity Supply Act (Section 9B in particular) is to increase the power of the Energy Commission over those who have been awarded the license to generate electricity.

    Those in the electricity generation business i.e. the license holders must know if the Energy Commission is willing to impose harsh fines on those who fail to live up to the terms in the licensing agreement. Without these details being made public, other license holders may think it can ‘get away’ with delays and shortcuts in the fulfilment of the licensing agreement.

    Hence, for these two reasons, the Minister must compel the full disclosure of the TNB’s takeover of 1MDB’s stake in Project 3B as well as the fines imposed on 1MBD as a result of its inability to deliver on Project 3B.

    Dr. Ong Kian Ming
    Member of Parliament for Serdang

    [1] http://www.themalaysianinsider.com/malaysia/article/tnb-buys-1mdbs-stake-in-project-3b-plant-minister-confirms#sthash.RtrlbeNU.dpbs

    [2] http://www.themalaymailonline.com/malaysia/article/1mdb-power-project-stake-buy-is-not-a-bailout-says-tnb

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