Tengku Zafrul: PN Did Not Withdraw Guarantee for Penang LRT loan

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Perikatan Nasional did not withdraw the US$500 million (RM2.04 billion) government guarantee for Penang’s light rail transit (LRT) project, said Finance Minister Tengku Zafrul Tengku Abdul Aziz.

He said the issue of “withdrawing” the guarantee did not arise as no approval was given in the first place.

Explaining the issue, Tengku Zafrul told the Dewan Rakyat the government received a letter from the Asian Development Bank (ADB) on January 25 last year, suggesting three financing options.

The first, said Tengku Zafrul, was through a direct loan to Penang, guaranteed by the federal government, direct loan to Malaysia with re-lending to Penang, or direct loan to a special purpose vehicle with guarantee from the federal government.

“Further discussions were held among ADB, the federal government and Penang on July 17, 2019 and it was decided that ADB should carry out due diligence.

“On July 18, 2019, former finance minister Lim Guan Eng issued a letter to say the government did not object to due diligence.

Kamal Ariffin

“This letter does not compel the federal government to do anything,” he said.

However, Tengku Zafrul said on July 19 last year, the cabinet decided Penang could not borrow money that involves a government guarantee without approval from Putrajaya.

“As such, the government did not receive the due diligence from ADB and the issue of a guarantee for ADB did not arise as the subject has never been approved by the cabinet,” said Tengku Zafrul during the committee stage winding up speech for the Finance Ministry’s budget today.

He said the ministry decided not to proceed with the guarantee as it is a financing matter and not about cancelling the project.

“All development projects have to be submitted to the Economic Planning Unit for consideration,” said Tengku Zafrul.

It was reported last week that Putrajaya decided not to proceed to grant a government guarantee for a US$500 million loan application by Penang to partly finance its RM9.5 billion LRT project.

Tengku Zafrul told Parliament in a written reply the decision was in line with the revised revenue and income projections for the country, as well as the government’s focus to restore the economy, following the Covid-19 pandemic.

Should the loan go through, Tengku Zafrul said it will increase the federal government’s commitment on operational and development expenditure, as well as other off-budget projects borne by the government, such as the Mass Rapid Transit Line 1 and 2 (RM71 billion), LRT3 (RM17.7 billion), the Pan Borneo Sarawak Highway (RM13 billion) and the East Coast Rail Link (RM48.85 billion).

Earlier, DAP secretary-general Lim Guan Eng questioned and demanded answers from Tengku Zafrul as to why a US$500 million (RM2 billion) loan guarantee requested by Penang from the federal government was recently cancelled.

Lim explained how the government was only requested to act as a guarantor for the Penang state government against a loan obtained from the Asian Development Bank (ADB), a requirement of ADB, for the Penang Light Transit Rail (LRT) project.

Lim then accused the government of practising vengeful politics by blocking aid to states led by Pakatan Harapan.

“This instance of revenge politics is very obvious because if taken from the financial aspect, there is no reason why the government guarantee to the bank loan cannot be approved.

Firdaus Latif

“Why did Tengku Zafrul, when he was CIMB Bank Berhad’s chief executive officer approve a RM1.5 billion direct loan to the Penang Development Corporation (PDC) in 2018, but as the Finance Minister refuses to approve a RM2 billion guarantee to the Penang state government?” Lim said in a statement.

He said Pakatan Harapan, when it was in power, did not withhold funds to opposition states.

“When PH was in power, states governed by PAS or Barisan Nasional were given financial assistance when they were unable to meet their operating expenses, including payment of civil servants’ salaries.

“Failure by the federal government to honour this loan guarantee without any financial justification is tantamount to political vengeance against the people of Penang,” Lim said.

The government under PH approved RM100 million in emergency funds to PAS-led Kelantan, used to meet its operating expenses, including payment of civil servants’ salaries, he said.

“In other words, Kelantan was practically bankrupt and could only pay its civil servants in 2018 and 2019 with federal government assistance.”

He also said he ensured the PH government kept its promise to Kelantan by paying out RM400 million to the east coast state and RM200 million to Pahang.

“This was never done by the previous BN government. Unfortunately, the Kelantan government chose to purchase Mercedes-Benz for its exco members instead of helping the poor.”

Lim also explained how a guarantee from the government for the RM2 billion would not even translate to funds coming out from the national coffers as the Penang state government is able to service its own loans.

He said the RM2 billion loan for the LRT project is “small” compared to what Penang received from its yearly RM7 billion tax payments to Putrajaya.

The state used to receive 3% in allocations from its annual tax payment to the federal government

Penang has also performed well financially since 2008 by having the lowest debt among all states.

Where other states owed Putrajaya in excess of RM3 billion, Lim said Penang’s debt was just RM58 million.

“Why is the federal government willing to tolerate RM3 billion in unpaid debts from ‘politically friendly’ states as compared to Penang’s existing debts of RM58 million or even with the RM2 billion loan guarantee?”

Lim added how the LRT project is desperately needed by the state to alleviate traffic congestion and spur further development towards it becoming a modern state.

“We hope Finance Minister Tengku Zafrul can reconsider the decision to cancel the guarantee to ADB, based on the financial performance and the state’s ability to pay for the loan,” he added.