Funding and rating agencies equally at fault
They never once raised the red flag on Malaysia taking on huge loans
IT is quite simple to break down the issue Malaysia is facing in its relationship with state-owned companies in China and the Export-Import Bank of China (Exim Bank).
It has got nothing to do with trade with China – with the Asian giant being an important trading partner for Malaysia – nor the cordial relations that both countries enjoy. The matter at hand is how state-owned agencies, irrespective of whether in Malaysia or China, should hold to high standards of governance when handling public finances.
It does not matter if China imports US$2 trillion worth of goods over the next five years from Malaysia, or if it plans to invest US$150bil in this country, as advocated by former Prime Minister Datuk Seri Najib Tun Razak. It is meaningless to ordinary Malaysians if China plans to offer 10,000 places for training and studies in various universities if proper handling of public funds is not practised.
So far, what has been uncovered is two projects undertaken by state-owned companies from China being fraught with controversy. At the crux of the matter is the huge sums of advance payments made to stateowned companies in China by Exim Bank.
The amounts paid out to China Communications Construction Company (CCCC) and China Petroleum Pipeline Bureau (CPPB) are way above what normal contractors would have received as advance payments.
CCCC is the main contractor for the East Coast Rail Link project costing RM55bil. The amount drawn down is close to RM20bil, which is 36% of the total amount allocated for the project.
Work done is nothing much to shout about – less than 12%. And most of the work so far in the project expected to be implemented over seven years is largely related to land clearing, putting up batching plants and getting the workers’ quarters ready.
The situation is worse off in the case of CPPB – another state-owned company from China given the mandate to handle two gas pipeline projects.
It has to build a 600-km pipeline from Melaka to Port Dickson and Jitra in Kedah and another 662-km similar facility in Sabah from Kimanis to Sandakan and onwards to Tawau.
Suria Strategic Energy Resources Sdn Bhd, a company owned by the Ministry of Finance (MoF), awarded the project to CPPB for a total sum of RM9.4bil. Work done is only at an average of 13%.
Payments were done through Exim Bank of China. Why did the MoF, under the previous government, allow for large amounts of advance payments to foreign companies? And the payments were disbursed in China.
Are the state-owned companies in China and Exim Bank being used as a conduit for money laundering?
The truth to be said is that even homegrown contractors do not enjoy such terms from the MoF. Many contractors have to put their money upfront as a performance bond and in return get a 5% mobilisation fee to start the project.
The remaining amount of money comes based on the progress of the project. Every billing is checked and counter-checked to the extent that contractors “cultivate” close relationships with government officers to ensure smooth payments.
The projects and the mode of borrowing are all part of Malaysia’s balance sheet. It is in the country’s debt ledger that is supposedly regularly scrutinised by rating agencies and the various global bodies such as the International Monetary Fund (IMF) and World Bank.
In 2016, Malaysian agencies ranging from Bank Negara to the Securities Commission and Pemandu boasted that the regulatory framework in place was aligned to that of international standards. They proudly proclaimed that Malaysia passed the rigorous test set by international bodies with equivalent marks of 92%.
Rating agencies ranging from Standard & Poor’s to Fitch Ratings and Moody’s all gave Malaysia full marks. All they cared about was Malaysia’s federal government debt to the ratio of economic productivity, better known as the debt-to-GDP ratio, coming down to the 50% mark.
The global norm is that anything below 55% means that the government is being prudent.
From the IMF to the World Bank and rating agencies, they never once raised the red flag on Malaysia taking on huge loans through special-purpose vehicles to undertake development projects at inflated prices.
These agencies and their so-called experts never once pointed out the downside of taking on too much debt from financial institutions such as Exim Bank and awarding projects to state-owned companies from China.
Never once did they raise the alarm that this practice was not common.
They were cheerleaders of the policies and practices of the past government.
To a large extent, they are all equally guilty – from the foreign state-owned companies to funding institutions and the various agencies. They cannot claim to be oblivious to what has happened.
The money is already gone and there really is nothing much that the Malaysian people or government can do. That is the reality.