State of Penang Loan Enactment 2017 passed at state legislature

GEORGE TOWN: The Penang government will now be able to obtain loans from banks after the State of Penang Loan (Bank and Other Financial Source) Enactment 2017 was passed at the state legislature today.
Chief Minister Lim Guan Eng however said any loans taken needed the permission of the federal government and that the federal administration would never allow state governments to borrow from commercial banks.
He said this new law was an “enabling legislation” to allow the state to take loans from the Export Import Bank of China (EXIM) for use in the RM27 billion Penang Transport Master Plan (PTMP) project.
He said this was a follow up move to a MoU between his administration and EXIM on Dec 16, 2014, to allow his administration to obtain loans from the bank for specific purposes.
He said EXIM being interested in becoming a lender to the state government showed the financial management and standing was in good shape.
He likened the interest expressed by EXIM as a form of recognition where the state was seen to have a triple-A rating.
Lim also added borrowing from a national financial institution would incur lower interest costs compared to borrowing from commercial banks.
“You can save millions even if the interest is just one percent,” he said in a press conference after the Enactment was passed.
Under the law, any loans taken should not exceed five years and the State Legislative Assembly should be notified as soon as possible when a loan is taken.
The loan is to be charged upon the State Consolidated Fund and that the purpose was for financing investment, implementation of physical, economic and social development for Penang.
Elaborating, Lim said SRS Consortium, the Project Deliver Partner (PDP) for the PTMP, could use the strong financial credibility of the state to obtain lower interest rates from commercial banks to carry out projects.
He said this when asked why the state should be concerned about lower interest on loans from commercial banks since the state is not allowed to borrow from such institutions.
“This (PTMP) is a state project, the Penang government has got the financial reputation, a gilt edge advantage to reduce borrowing interest,” he said.
During the debate when the bill was tabled, Lee Khai Loon (PKR – Machang Bubok), Cheah Kah Peng (PKR – Kebun Bunga), Lydia Ong (DAP – Berapit) and Teh Yee Cheu (DAP – Tanjung Bungah) expressed their concerns over the financial risk of borrowing large amounts without the ability to pay.
They also urged for the bill to be amended so that any loan taken must be approved by the legislature first for better check and balance.
This was countered by Deputy Chief Minister II P. Ramasamy and Penang Local Government, Traffic Management and Flood Mitigation Committee chairman Chow Kon Yeow who pointed out checks were already contained in the law as the loan period is only for five years and approval must come from the federal government.