This article first appeared in The Edge Malaysia Weekly on February 10, 2020 - February 16, 2020
IT has been the defence’s contention that the speedy approval of government guarantees (GGs) to SRC International Sdn Bhd was justified as former prime minister Datuk Seri Najib Razak maintained that the company was of national importance, given its role in Malaysia’s energy security.
At that point a RM2 company, SRC was granted two GGs for two loans of RM2 billion each from Kumpulan Wang Persaraan (Diperbadankan) or KWAP in 2011 and 2012. It was previously revealed in court that the first guarantee was granted before SRC had formally appointed its directors on Aug 17, 2011, exactly six days before the five-member board of directors met for the first time on Aug 23.
Responding to Attorney-General Tan Sri Tommy Thomas’ questions over how this transpired, Najib said the decision to apply for loans from KWAP, which was made in June and July 2011, must have been forwarded by Datuk Shahrol Azral Ibrahim Halmi, who was the CEO of 1Malaysia Development Bhd (1MDB) at the material time.
In December last year, Najib said he had instructed Treasury officials to expedite the working paper for the Cabinet on the second government guarantee as he said that the Economic Planning Unit had supported the investments that were to be made by SRC.
The second loan was disbursed in an unusually speedy manner as it was in the nation’s interest that SRC had adequate working capital, Najib maintained.
However, when former Treasury secretary-general Tan Sri Mohd Irwan Serigar Abdullah was called to the stand as the third defence witness last week, he testified that a GG cannot be “simply” granted just because national interest is involved.
Going over the process in which a GG is applied for and approved, he explained that any application requires the approval of the Cabinet, before the finance minister is able to issue a GG order to the relevant authority.
“For example, when [national public transport company Prasarana Malaysia Bhd] wanted to go to the market to raise funds for a project, we looked at the railway project and at whether it can service the interest and loan and so on,” Irwan said.
Defence counsel Farhan Read asked Irwan if the consideration for granting a GG would be different in the event the project is of key national interest and whether newly established companies may also be granted a guarantee.
Irwan replied that any entity seeking a GG must be able to demonstrate that it can service its debt. “It depends on the request and justifications given by the entity. You cannot simply say ‘yes, it involves national interest’ and grant a GG.”
Farhan again asked whether a newly established company like SRC would be precluded from getting a guarantee, even though Irwan said he had never come across such a case.
However, he said that if a company has a project that has been approved by the government, which is able to generate income to service its commitments, the government may consider granting a guarantee. “It would be a very exceptional case and [the government] must be very sure income can be generated.”
Farhan then brought up Petroliam Nasional Bhd (Petronas), which he said had been the recipient of a GG in its early days, and asked if the witness is familiar with how the national oil company started out.
“When I was in Petronas, they had a huge amount of money reserved. They didn’t need any GG. In the early days of Petronas, I don’t know. That was in the 1970s, I wouldn’t know,” replied Irwan, who had previously served as a director on the board of Petronas.
Asked about projects such as the Minister of Finance Inc-owned concessionaire of the second Penang bridge — Jambatan Kedua Bhd — and the Bakun dam, he said both projects demonstrated their ability to generate income from toll charges and electricity generation respectively.
Irwan said the process of getting a GG — from the application to the granting — could take one to three months, depending on the urgency, and that he did not know of any application that was approved in less than a month. On average, he said, the process takes about a month.
A previous witness had testified that the memorandum for the first GG was tabled to the Cabinet on Aug 17, 2011, and that the GG was subsequently approved by the Cabinet a mere nine days later, on Aug 26.
On the preparation of the memorandum accompanying the request for a GG, Ministry of Finance official Afidah Azwa Abdul Aziz said her superior had informed her that the memorandum needed to be expedited as it was “a directive from the top”.
The 41st prosecution witness said the memorandum was completed within a few hours on Aug 15, 2011, in the presence of SRC CEO Nik Faisal Nik Ariff Kamil and 1MDB officer Zahid Taib, who directed what was to be included in the memo.
In the case of the second GG, it was approved by the Cabinet even before SRC applied for the second RM2 billion loan from KWAP. The memorandum was tabled on Feb 8, 2012, while SRC applied for the loan on March 13. The loan was disbursed to SRC on March 28.
Save by subscribing to us for your print and/or digital copy.
P/S: The Edge is also available on Apple's App Store and Android's Google Play.