BN: Firm given Penang Tunnel project ‘undercapitalised’

BN: Firm given Penang Tunnel project ‘undercapitalised’

KUALA LUMPUR: The Penang government has to show evidence that it did not break procurement guidelines when it awarded the proposed undersea tunnel project to an “undercapitalised” company, said Barisan Nasional Strategic Communications team.

Its deputy director Datuk Eric See-To said of concern was that the Penang Tunnel special purpose vehicle (SPV) company which was awarded the project was a relatively new company with low cash balances and paid-up capital in relation to the mega project.

He said the SPV company only had a paid-up capital of RM100,000 when it was awarded the undersea tunnel project in March 2013.

See-To said the Works Ministry guidelines made it compulsory for contract bidders to show financial strength of at least three percent of the contract value when conducting a financial evaluation for a Request for Proposal (RFP).

 Otherwise, the Works Ministry would automatically disqualify the bidder.

See-To noted that the Penang Tunnel and three related road projects cost RM6.3bil and three percent of this cost would add up to RM190.2mil.

“This means that the paid-up capital of the SPV of RM100,000 at the time of the project was awarded, was close to 190 times below the Works Ministry minimum three percent requirement.

“Thus, serious concerns are now raised if the company had the financial capability or had met the financial strength test to undertake the mega-project at the point of project award in March 2013,” he said in a statement.

He said this also contradicted a statement issued by the Penang government on March 4, 2013, which claimed that the SPV had a collective paid-up capital of RM4.6bil.

“More worrying is that at its financial year end of August 2013, the SPV company only had cash balances of RM64,672 and negative net worth of RM7.96mil.

“The SPV audited statement also showed that their auditors had raised an emphasis of matter that there is material uncertainty which may cast significant doubt that the company can continue to operate as a going concern,” See-To said.

He said that auditors of the mega project had continued to show concern over the SPV’s finances in August 2014, as the company only has cash balances of RM672,130 while showing a negative net worth.

Subsequently, See-To pointed out that the parent company, which owns 99 percent of the SPV company, only had a paid up capital of RM300,000, a cash balance of RM199,532 and negative reserves.

“Their auditors also raised a similar Emphasis of Matter showing concerns on its financial viability on August 2012 –just seven months before the SPV company was awarded the project in March 2013.”

For the subsequent financial years of 2013 and 2014, the parent company continued to register losses and had cash balances of RM251,000 and RM676,000 the respective years, he said.

“As at August 31, 2013, the SPV had net shareholders equity of negative RM7.9mil while the parent company had positive RM1.9mil.

“Added together, the share-holders equity of both the SPV and the parent company had equity negative RM6mil as at Aug 31, 2013 – five months after the project was awarded by the Penang government.”

See-To said the Penang government should release details of the RFP evaluation meetings and related papers which led to the decision to award the project to SPV in March 2013.

“The Penang Government needs to prove that it did not break procurement guidelines when awarding the mega-project to the relatively new SPV and parent companies which auditors had expressed significant doubts on, had low cash balances and low paid-up capital in relation to the project size,” he said.

Source:The Star