PKA’s obligations to KDSB are to pay KDSB on timely basis if KDSB discharges quid pro quo its obligations of designing, constructing and completing for PKA the construction of infrastructure/buildings in PKFZ per their Turnkey Project.

KDSB secured funding of its obligations to PKA via financing from the Bondholders.

Bondholders agreed to fund KDSB against assurance by the government (via Transport Ministers’ letters of support subsequently ratified and elevated to status of firm guarantees by the Ministry of Finance) that provided KDSB executed or has executed its obligations to PKA on timely basis, PKA – a govt agency for which the government is reponsible – will perform its obligations to KDSB by ensuring the stream of revenue from PKA to KDSB in order that KDSB would not renege on its financial obligations to its financier/bondholders, and that the bondholders could then rely upon as triple ‘A’s govt’s backed revenue stream as security for KDSB’s repayment of monies together with interests due to the bondholders.

The promised source of revenue stream is PKA, and ultimately the government drawn from public coffers. Its a revenue stream available to KDSB provided it performs its turnkey obligations. Its a revenue stream that bondholders financing KDSB could tap for repayment under letters of support/guarantees – if KDSB performed its turnkey obligations to PKA. Its also a revenue stream that the Inland Revenue could tap by direct garnishment at source from PKA – if KDSB performed its turnkey obligations to PKA, got payment from PKA, and after deducting costs including interest payments to bondholders, made profit.

Here amid the charges and countercharges between PKA & KDSB, the general position is that:-

1. KDSB has executed and performed timely its obligations to complete infrastructure/building in PKFZ for PKA.

2. If KDSB asked from PKA for cost overruns that were uncontrolled or exorbitant, it was only because PKA, by Turnkey contract, agreed to pay these cost overruns to KDSB.

3. If KDSB performed its obligations, its PKA’s turn to honour its promise of immediately releasing the promised revenue stream for the contracted sum and cost overruns. Delay means PKA, the first cause in financial jam up, has to pay interest, damages etc.

4. The cost escalated from initial cost of RM1 point something billion to an estimated RM4.947 billion up to 2017 due principally to interest & compound interest incurred by PKA’s delayed payment and discharge of its financial obligations to KDSB and by extension ultimately to bondholders relying on PKA’Govt’s promise to pay timely. Govt in 2007 gave PKA a soft loan facility of RM4.382 billion for a period of 20 years to fund its debt to KDSB. Amortising the repayment of this soft loan over 20 years, the cost to PKA by interest payments would accrue to another RM7.453 billion by 2036 tallying at RM12.453 billion by 2051 (if nothing were done by PKA to successfully commercialise PZFZ by then).

From the above it is clear that the first cause of all problems is delay by PKA to pay KDSB. It fails to pay because of poor cash flow and poor cash flow is because since 2007 it could not sell/let sufficient of PKFZ’s factories, warehouses and light industrial units whether to foreign or local purchasers/lessees/tenants – for whatever reasons whether due to economic conditions local or worldwide in this industry or due to poor marketing or promotion campaign, incompetent personnel or worse still dishonest personnel pilfering, or the fact that the whole grandiloquent project, considering all factors, was a non-starter, looking good at concept stage, but unfeasible at stage of implementation and commercialization. PKA’s financial woes are compounded by late/compound interest payments due to KDSB.

This means:

(a) If KDSB were in position to vary costs and demand from PKA costs overruns, and milk it, it was only because PKA agreed to them by agreement!

(b) If KDSB’s financiers/bond holders are in the position to demand and secure KDSB’s repayment to them, it is only because PKA held out to these financiers/bond holders that they all could rely on PKA’s revenue stream to keep its turnkey contractor KDSB in funds to discharge KDSB’s financial liabilities to them.

(c) If KDSB’s financiers/bond holders are in the position to so on rely on PKA’s promise, it is because of Government of Malaysia’s promise via Minister of Transport’s letters of support that PKA’s solvency to meet its financial obligations to KDSB and by extension to its financiers/bond holders were “supported” by the Government of Malaysia for its agency PKA;

(d) If there were doubt about legality or bindingness of these irregular “letters of support” issued by MOT without MOF’s initial approval, all vestige of doubt in these respects were removed when govt via MOF gave soft loan and ratified status of these support letters to that of firm legal guarantees;

(e) If govt had to convert letters of support from moral to legal bindingness of guarantees it is because when dealing with the financial, private debt securities markets (financiers, banks, bond holders), the govt’s credibility relating to support, whether moral or legal for its agency like PKA (ii) and (ii) financial, private debt securities markets must be unswerving and unflinching for reasons of maintaining its own sovereign ratings or else some of the consequences mentioned by BigJoe in #3 will befall with devastating consequences to the economy of the country as a whole.

In the circumstances, It would not be exactly correct for Tony Pua to argue:-

(i) “PKA’s obligation is not towards KDSB’s bondholders” and that “government should hold back payments to KDSB until the court case is finalised” if imperatives of govt’s credibility to markets in (e) of the preceding posting above holds true; and

(ii) “PKA can withhold payment to KDSB bondholders on the basis that KDSB had failed to complete its work” because, firstly, there is no suggestion that, by 2007, KDSB has failed to complete its work. It was PKA that failed to (pay timely) KDSB and its bondholders because PKFZ did not generate the requisite revenues to support PKA’s financial obligations owing to doubtful viability of the project at first instance. If KDSB has not completed balance of project, it would be so entitled to because of PKA’s failure to pay KDSB, as first cause, that in turn constricted KDSB’s revenue sources to complete the rest of project for PKA; and

(iii) “So if PKA says ‘I do not owe money to KDSB’, it is not compelled to pay the taxes owing to IRB” if imperatives of govt’s credibility to markets in (e) of the preceding posting above holds true just like in the case of (i).

The salient points of this scandal are:

Firstly, the greater portion of the blame should fall on PKA and the government for conceiving, and pushing ahead with a costly project already proven not feasible/viable. We tend to shift blame to KDSB and bondholders – and not, as it rightly should be to PKA and its backer the govt – simply because the latter is custodian of our public funds to be dissipated if KDSB, its bondholders and IRB get their respective cuts!

Secondly much of escalation of PKFZ costs to over RM12 billion is due to interest payments because the govt keep on supporting a project, which until now is not viable or feasible, and hoping to recoup everything long run by 2051! It could cut loss now, make payments through PKA, KDSB, to redeem all bonds before their maturity dates. This course is not taken: for what reason – to save face ?

Thirdly, the other mitigating factor is that those parts of payments by PKA to IRB as well as interest/compound interest payable by PKA on government loans to government (contributing to this RM12 billion) are all (I would imagine) monies from Govt’s/public offers’ left pocket to right pockets.

“…unless ONE can prove” in last para

In a nutshell the criteria for (locus standi) or legal standing to sue govt as set out in the 1988 case between Kit Siang and Govt of Malaysia is that of a direct connction/nexus on part of the suing party being immediately directly and adversely affected in pecuniary sense and not in some fragmented diffused societal and general sense of being affected individually as well as in conjunction with other fellow citizens, in terms of use or misuse of tax payers monies that he contributes also along and in conjunction with other fellow citizens, which otherwise could be used for other public good beneficial for all.

I also think its probably the case in many other societies and judicial system. So in a nutshell tax payers are always ‘scr@wed’ when they, by majority vote, vote in the wrong guys and government…

In a nut shell tax payers ‘scr@w’ themselves by voting wrong those who abuse them, and in that sense they seserve the government they get and vote.

Also in a nutshell in democracy the minority that vote the right guys will get scr@wed by the majority who persist in voting the wrong guys.

Therefore in a nutshell Democracy of one man one vote where majority will prevails is in the case of majority exercising voting rights unintelligently a system of Mob Rule in denigration of Democracy than (ironcally) promoting it.

And therefore in also a nutshell we are engaged in discussion in this blog for public dissemination to spread the right message so that more people will learn how to think correctly – and not vote wrongly!

On the question of “merits” of bond holders entitlement (vis-à-vis taxpayers), don’t forget that (discounting leakage from corrupt practices) bulk of bondholders monies given to KDSB are per general understanding with MOT and all parties supposed to be channeled by KDSB to build infrastructure and industrial and factory lots in PKFZ owned by PKA in turn owned by govt.

The Monies of bondholders have gone to these assets now held by PKA/Govt : why shouldn’t bondholders be paid? Surely PKA & Govt cannot get these assets acquired via bond holders money “free” – Never mind if asset value has devalued due to lack of demand, I guess Govt is amortising by soft loans to PKA in hope that some time in the future demand could arise to commercialise them.

When harping on RM12 billion loss, don’t forget that:

Firstly much of RM12 billion are interest, and interest on interest due to either financing from lender govt or the investors (bond holders) that include EPF up to 2051.

So if bondholders like EPF don’t get paid by Govt when their monies are used to construct and acquire assets of PKA/Govt in PKFZ, is there fair to bondholders including EPF who is supposedly custodian also of rakyats savings – not to mention confidence in the private debt securities/financial market when dealing with govt agencies?

Secondly as long as govt meddles with business confidence of these markets must be protected.

Of course everytime government does business it is likely to lose and scr*w public monies – because it does not follow business parameters but pilfering principles – which is why our Lim Kam Put says govt not doing anything is the best.

That is however another arena of debate from the question of how to move on relating to PKFZ.

If you say Govt duty is to people, yes then govt should not do business and fritter public money. However if you allow it to do business through its agencies like PKA or other GLCs then you cannot say govt owes no duty to pay bondholders or the markets whose money raised in reliance of govt assurances, moral or legal, have been substantially utilised by turnley contractor KDSB to create asset value for govt – in PKFZ’s cse it’s the infrastructure, light industrial lots and factory warehouses constructed by turnkey KDSB on govt’s/PKA’s land in PKFZ.