Penang passes law for state to take loans from banks
Chief minister says it is primarily to allow the state government to borrow money from the Export-Import Bank of China (Exim Bank of China) to finance the Penang Transport Master Plan.
GEORGE TOWN: The Penang government passed a law this evening to allow it to borrow money from a bank or financial institution to pay for new public infrastructure and other projects.
It is called the Loan (Bank and Other Financial Source) Enactment 2017.
However, as per the Federal Constitution, the loans must be approved by the federal government. Federal law also specifies all states must repay their loans in five years.
Under the enactment, all loans by the Penang government will be charged to the state’s Consolidated Fund.
The enactment also has retrospective effect, which allows the government to apply for loans even for projects before the enactment comes into force.
The enactment was seconded by Deputy Chief Minister I Mohd Rashid Hasnon (PKR-Pantai Jerejak) and was unanimously passed after a two-hour debate involving 11 assembly members.
The bill’s proposer, Chief Minister Lim Guan Eng (DAP-Air Putih), said the enactment was primarily to allow the state government to borrow money from the Export-Import Bank of China (Exim Bank of China) to finance the Penang Transport Master Plan (PTMP).
He said the enactment was also to allow other investments deemed to be in the interests of the people of Penang.
Lim did not reveal how much will be borrowed from the Exim Bank of China for the PTMP.
“The state government had signed a memorandum of understanding with China Exim Bank on Dec 16, 2014, which allows us to take up a loan at any time for purposes agreed upon.
“The enactment is brought to the house today upon the recommendation of the prime minister in a letter dated May 31, 2016.
“The PM said if the Penang government wants to take a loan from China Exim Bank, it has to fulfil several requirements… and the requirements have been fulfilled by the way of this enabling legislation.”
Penang is planning to reclaim three islands to the south to fund its RM47 billion PTMP, which includes tram lines, roads, highways and other modes of transport.
Lim said the PM had required all loan applications by the Penang government to go through the National Finance Council as the federal government has final say on allowing any state government to apply for loans.
Lim said the PM had also said in the letter that the loan tenure cannot exceed five years.
“This is the first time the PM has replied to me. I have asked him about Penang government, PTMP, the expansion of the airport … he never answered me before.
“But on this issue, he replied to me, because it involves the Exim Bank of China,” Lim said.
‘Can pay back’
Lim said Penang would be a good paymaster for all money lent to the state, judging from its debt standing among all the states. He said Penang’s debts to date are RM64.49 million, the lowest in the country. It was RM64.72 million last year.
Currently, the state with the highest debt is Pahang at RM3.1 billion, followed by Sabah (RM2.8 billion) and Kedah (RM2.7 billion).
“Exim Bank of China is not a commercial bank. It does not give loans to anyone. By giving us a loan, it is a vote of confidence in Penang.
“This is not a regular loan, this is a loan from PRC (Peoples’ Republic of China). And it can be considered as a One Belt One Road initiative by the Chinese government.
“And, of course, when it is loaned to us, it is hoped the interest is lower than commercial rates.”
‘Enactment a blank cheque to executive’
Pakatan reps put extra scrutiny into Section 3 (2) of the enactment, where the Penang government must notify the state assembly if the federal government has given its nod to go ahead with the loan.
Norlela Ariffin (PKR-Penanti) said notification to the state assembly was not good enough.
She said it was best an oversight body was created to monitor loan applications to ensure it does not financially burden the state.
Norlela said the body, when created, can also set a ceiling of how much the state can borrow in five years.
“The words ‘approved by the committee’ must also appear in the enactment. This way we can ensure the loan does not burden us all,” she said during the debate on the bill.
Cheah Kah Peng (PKR-Kebun Bunga) supported Norlela’s call, saying the current “notifying” clause gives the executive branch absolute power to decide on loan matters.
“If the assembly is merely notified by the executive on loans, in my opinion, this won’t be a democracy.
“It is also surprising to see that no one else has asked the pertinent question — how much are we going to ask for in loans?
“This law presented here is vague … I am afraid in future, if a bad government uses this act, they could put people’s interests at stake.
“Then, we will have to kowtow to international banks when they come knocking on our doors asking about our defaults.”
Teh Yee Cheu (DAP-Tanjung Bungah) said the enactment effectively gave the state executive branch a “blank cheque”.
He said the executive must allow all loan applications to be monitored by the legislature, that is the assembly members must examine all loan applications beforehand.
“If there is no check and balance before approval, then what’s the use (of having an assembly)?
“We need to strengthen the separation of powers. We need this (enactment) to be amended and approved by the assembly,” Teh said.
Executive fights back
State executive councillor and Deputy CM II P Ramasamy (DAP-Prai) said it was ridiculous for others to fault the executive and make it sound like it is incapable of making decisions.
“The talk on check and balance … is unnecessary. If they (legislature) want to do everything, then we can get rid of the executive council.
“I do not agree that the powers of the legislative branch have diminished.”
State executive councillor Chow Kon Yeow (DAP-Padang Kota) said ultimately the federal government will have the last say as far as loans are concerned.
The chief minister said the executive branch could borrow money it deemed fit for the state, without involving the state assembly.
“By right the executive can decide on its own, no need to inform the Dewan (assembly), but we inform Dewan beforehand,” Lim said.
“Pahang also has this (loan enactment), but they do not inform the assembly if they are borrowing money.”
Lim said Exim Bank of China’s offer to give loans to Penang was based on Penang’s “AAA rating”.
“AAA rating means you have solid finances and ability to pay back for sure.”
Opposition leader Jahara Hamid (BN-Telok Ayer Tawar) said Lim’s “AAA” rating explanation was “fun”.
“AAA rating is not your capacity of paying back, it depends on your assets. It is also an assessment of your creditworthiness. It also depends on what kind of collateral you have on offer,” Jahara said.
Lim then said the collateral would be in the form of the reclaimed islands south of Penang, as per the earlier plan.
“The collateral is the same as proposed by Gamuda, but they got a loan from a commercial bank on the (to be reclaimed) land, and the interest rates are high.
“Exim Bank of China will give us lower rates. They do not have an interest in having foreign properties. They just want to offer loans based on their country’s policies.
“In business, solvency is important. You can have billions in assets but you can be bankrupt tomorrow … only business people will understand what this is,” Lim said.
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Gamuda is part of a consortium that won the tender for the PTMP.