Convoluted, secretive PFI: A scandal no less than 1MDB with use of public funds on the sly

Authors of the “PFI: The Search for Accountability” report released early August of 2022, Dr Terrence Gomez (left) and Pushpan Murugiah.

KUALA LUMPUR, Sept 12 – The “PFI: The Search for Accountability” report released in early August this year by the Center to Combat Corruption and Cronyism (C4 Center) unveiled another scandal not any less in corruption magnitude than some of the big financial scandals that have plagued Malaysia in the last few decades.

However, it is yet to garner any serious attention from the government or the reaction of an oversight agency that a report of such nature warrants.

The report disclosed how the Private Finance Initiative (PFI) public policy, which was meant to see the participation of private entities and their funds for public development projects, had been a front to facilitate the use of funds totalling to RM30 billion from two public institutions, namely the Employees Provident Fund (EPF) and Retirement Fund Incorporated or Kumpulan Wang Persaraan (KWAP), for the projects.

The Private Finance Initiative (PFI) policy, which was established to facilitate the implementation of projects to be financed by private entities, has instead been used in the borrowings of billions of ringgit from two public institutions, namely the Employees Provident Fund (EPF) and Kumpulan Wang Persaraan (KWAP) through a complex scheme using government land as collateral to finance these projects. Graphics courtesy of C4.
Graphics courtesy of C4.

According to the report, Pembinaan PFI, a dormant government-linked company (GLC) under the
Ministry of Finance Inc (MoF Inc), and the Federal Lands Commissioner (FLC), which also has shares in Pembinaan PFI, were tools for the government to channel more than 800 of the so-called PFI projects to GLCs, well-connected individuals and companies via 16 ministries.

These were not PFIs and these projects were also awarded without any open tenders but through direct negotiations, the report said, adding that there was already another body under the Prime Minister’s Department, which was supposed to be the sole entity responsible for PFIs – Unit Kerjasama Awam Swasta (UKAS) or Public-Private Partnership Unit.

Is timing one reason for the lack of action thus far towards the report? The RM9 billion Littoral Combatant Ship (LCS) scandal did break out that week, while former Prime Minister Datuk Seri Najib Tun Razak’s case was also being heard at the Federal Court the same week. Najib had been on the final appeal against his guilty verdict for corruption and power abuse from the Hight Court in 2020. He lost the case and recorded history as the country’s first former prime minister to start serving a 12-year jail sentence in the Kajang Prison.

The authors of the report, Dr. Edmund Terence Gomez and Pushpan Murugiah think that: “It could be the way the government handles such disclosures, which is to wait till the issue tides over.”

Pushpan Murugiah

Ingrained subservience to executive powers even from oversight bodies could be another reason why there is yet to be a probe on the revelation of inappropriate borrowings amounting to RM30 billion from two public institutions via a complicated scheme involving the use of government land as collateral, they opined.

Or it could be due to the entire complexity of the PFI scheme. “Even the MACC officers who had been given the report, could not fully comprehend the workings of the scheme,” the authors said in a recent interview with Weekly Echo.

“We are talking about a shadow economy… that is extremely complex. It is in the dark, you can hardly see the shadows and very few people know it. Even when you come out of it, the tangled web that has been created to allow the systems to work is so complicated that it is hard to comprehend it,” Terence said

While the major financial scandals in Malaysia may have been separate events, these common factors have made them possible:

  • Unbridled powers vested on the executive arm that open up doors to power abuse of government systems, appointments of key figures in public administration.
  • Lack of specific regulations that limits the intervention of ministers in procurement processes.
  • Lack of transparency in the government procurement processes that enables the provision of direct contracts by politicians heading ministries, agencies.
  • Subservience to the executive powers, enabling their intervention in public procurement processes
  • Non compliance to existing rules and regulations that can ensure the viability and integrity of government projects, right from the tendering process, to their commissioning, monitoring and successful completion
  • Lack of independence in the Oversight bodies that prevents investigations into selected cases

Terence said the conviction of former prime minister Datuk Seri Najib Tun Razak in the SRC International corruption case was a defining moment and an affirmation of the power of the existing systems to fight corruption but added that more needs to be done in terms of devolution of executive powers, protection of whistleblowers and the establishment of a Parliamentary Services Act.

He said while the MACC was aware of the PFI and the Public Accounts Committee had also written to the executive arm on the PFI, no actions have been taken so far.

This seems to indicate some amount of subservience, Terence said, adding that solid independence of the oversight bodies will be important to speed up investigations into the PFI and many other cases, such as the Littoral Combatant Ship scandal.

Pushpan, an investigative researcher with C4, said putting in place clear regulations towards the powers of a minister in the procurement process were among other reforms recommended. There should be rules to prevent any arbitrary decisions by ministers in the processes including Letters of Awards for projects, he said.

All these reforms are equally important, as they tend to work together for better governance, he said.

Terence also said that Prime Minister Datuk Seri Ismail Sabri was in a unique position to bring about the reforms greatly needed in the country now.

He could leave a legacy behind as the “unexpected prime minister who brought around major reforms in the country”.