12 March 2015

As 1MDB goes under the microscope, DAP has highlighted another company Pembinaan PFI that has accumulated huge debts in recent years -

Is Pembinaan PFI going to be next 1MDB, asks DAP

Published: 11 March 2015 10:00 AM

Serdang MP Dr Ong Kian Ming says Pembinaan PFI’s debt might have reached RM47.4 billion at the end of 2014. – The Malaysian Insider file pic, March 11, 2015.As the government-owned strategic investment fund 1Malaysia Development Berhad goes under the microscope, DAP has highlighted another company that has accumulated huge debts in recent years.

Serdang MP Dr Ong Kian Ming said a little known company owned by the Finance Ministry, Pembinaan PFI Sdn Bhd, recorded RM27.9 billion in debts at the end of 2012 but the amount could have reached RM47.4 billion at the end of 2014.

The spending of Pembinaan PFI did not appear anywhere in any of the federal government budget accounts, which meant all expenditure were “off-budget” items, he said in a statement today.

The company's debts were also listed as part of the federal government’s contingent liabilities.

"One cannot help but raise the possibility that the lack of transparency on the part of Pembinaan PFI is to ‘hide’ government spending from the actual budget.

"Without accountability on how Pembinaan PFI is spending its borrowings, transparency on how it is servicing its debts, and vigilance from the Finance Minister and Prime Minister Datuk Seri Najib Razak, the company can easily turn into another 1MDB," he said.

Pembinaan PFI is 99.9% owned by Finance Ministry Incorporated. The Federal Land Commission (FLC) holds one share in Pembinaan PFI.

According to the auditor-general’s report in 2013 (series 3), Pembinaan PFI had the third highest liabilities among all government-owned entities at the end of 2012.

Its total liabilities were RM27.9 billion, behind two well-known companies with huge assets, revenues and profits namely Petronas (RM152 billion) and Khazanah Nasional (RM69 billion).

"But unlike Petronas and Khazanah, Pembinaan PFI does not have any operational income as shown by the same auditor-general’s report.

"Its RM1.94 million revenue in 2012 was derived from interest income. This means that Pembinaan PFI cannot service its liabilities without help from somewhere else, namely the federal government.”

The DAP MP said although Pembinaan PFI is listed in the A-G's report as having the third most assets among all government-owned companies, its assets consisting of land leased from FLC.

This, Ong said, was part of a complicated deal, where Pembinaan PFI then sub-leased the land back to the FLC in exchange for rent totalling RM29 billion, which was to be paid over 25 years.

"In other words, unlike Petronas and Khazanah, which actually have their own assets, Pembinaan PFI doesn’t really have any real assets of its own.

"Pembinaan PFI’s liabilities would almost certainly have gone up in 2013. Unfortunately, three months into 2015, Pembinaan PFI still has not filed its company accounts for 2013 at the time of writing.”

Ong also highlighted that Pembinaan PFI also took out a Bai Muajjal Islamic loan facility with the Employees Provident Fund (EPF) on August 22, 2014 with a maximum amount of RM19.5 billion.

The terms of this facility were not disclosed in Pembinaan PFI’s submission to the Companies Commission of Malaysia (CCM), he said.

"This means the total liabilities of Pembinaan PFI can potentially increase to RM47.4 billion at the end of last year, if you add the RM27.9 billion at the end of 2012 and the RM19.5 billion Bai Muajjal Islamic loan facility with EPF in August 2014."

Ong said he had sent in questions on the latest loan figures for Pembinaan PFI and the reason for the late submission of its company accounts to the current Parliament session.

"In the interest of transparency, Najib as finance minister must ensure transparency in the spending, borrowings and debt repayment involving Pembinaan PFI to avoid another 1MDB scandal.”

1MDB, which recorded RM42 billion in debts, is now being investigated by the National Audit Department following a series of exposes by whistleblower site Sarawak Report and criticism from BN leaders, including former prime minister Tun Dr Mahathir Mohamad, as well as opposition MPs.

- See more at: http://www.themalaysianinsider.com/malaysia/article/is-pembinaan-pfi-goint-to-be-next-1mdb-asks-dap#sthash.panajIZu.dpuf

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 3rdlargest 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