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oil royaltiesAnil Netto dives into the Auditor General’s Report, and discovers that ‘goodwill’ has its price: RM4 billion over four years, to be exact.

A year after the east coast state of Terengganu fell into the hands of the opposition Parti Islam SeMalaysia (PAS) in the 1999 general election, the Federal Government cut off the flow of oil royalties to the state government. This resulted in a severe budgetary crunch for the Terengganu state government.

Instead of the Petronas royalties (amounting to 5 per cent of oil extraction and sales) going to the state government, they were now channelled to a federally administered Special Fund Financing Programme (the Fund), which was established in December 2000. The royalties were renamed “goodwill money” (wang ihsan) while the new Fund was supposed to directly finance development programmes for the people of Terengganu, largely bypassing the state government.

By July 2002, the scope of the Fund was expanded to include Kelantan, Perlis, Kedah, Pahang and Negri Sembilan.

Where the money went

From 2001 to 2005, some RM4.0 billion was allocated from the Fund for various programmes.

Of interest here is that more than RM750 million has gone through the direct discretion of the Prime Minister’s Department.

Allocations from the Special Fund (2001-2005) RM’000 

Education Ministry


Entrepreneurial and Cooperative


Development Ministry


Rural Development Ministry


Agriculture Ministry


International Trade and Industry Ministry


Tourism Ministry


Works Ministry


Information Ministry


Youth and Sports Ministry


Energy, Water and Communications


Natural Resources and Environment Ministry


National Housing Corp (Syarikat Perumahan Negara Bhd)





Implementation Coordination Unit (UPP), PM’s Dept


– National Unity and Community


Development Ministry*


– Housing and Local Government Ministry*


– Health Ministry*


– Agriculture Ministry*












Negeri Sembilan





Grand total


 Source: Auditor General’s Report 2005

* Funds channelled via the Implementation Coordination Unit (UPP) of the PM’s Dept

The missing Accounts Committee

Basically, the Treasury is supposed to make allocations out of the Fund to various ministries (and via these ministries to federal agencies), financial institutions, and federal and state-level offices.

According to the Auditor General’s Report 2005, in line with a directive, the Treasury was supposed to create an Accounts Committee, chaired by the Treasury’s Chief Secretary, to administer the Fund. The Committee was supposed to comprise representatives from the Prime Minister’s Department (including the Economic Planning Unit), the Treasury, and the Finance Ministry.

But the Auditor General (AG) said such a Committee had not been set up – surely a serious concern.

Instead, a “Central-level Committee”, which appears less high-powered, was formed. This Committee, which includes representatives from ministries and implementation agencies, meets twice a year to discuss and approve allocations. It is not clear who exactly is in this Committee. Unfortunately, the Committee had not touched on what to do with the excess money in the Fund, totalling RM2.5 billion in December 2005, noted the AG. This money, he said, should have been invested in a fixed deposit account to secure maximum returns.

This Central-level Committee is supposed to evaluate projects and recommend to the Cabinet financial allocations for the various states.  But the AG said he found that allocations for the various states were not decided during the Committee’s meetings. Instead, the “allocations were based on the approval of the Finance Minister and they were forwarded straight to the relevant state Menteris Besar”. The Finance Minister is of course the Prime Minister.

Vague projects

According to the AG’s Report, allocations made via the various ministries are meant to finance agriculture equipment, fisheries, animal husbandry, entrepreneurial activities, trading, educational assistance, management of educational institutions, computers for schools, kampong road and bridge projects, water supply, tourism facilities such as jetties, Orang Asli community development, rural economy, housing, information (‘penerangan’) programmes, and housing loans for the poor. Clearly, a very wide scope.

On the other hand, state-level allocations are meant for programmes such as assistance to bright students, single mothers, senior citizens, the disabled, university/college students, non-governmental and sports organisations, trade assistance programmes, “program kesejahteraan rakyat” (whatever that is), housing repairs for the kampong poor, Hari Raya aid, bicycles for poor students, ‘latihan ketatanegaraan’ (civics training), and study loans.

It seems unclear to me on what basis many of these projects such as the civics courses and ‘information’ programmes are decided upon. And who decides who receives financial assistance and who doesn’t? And which geographical areas (constituencies?) are given preference?

In the case of opposition-held states, the allocations are made to federal or state-level development offices while, in other states, the funds are channelled to state finance offices.

Terengganu, Negri Sembilan and Perlis have set up special action committees and councils to propose and approve Fund-related projects. In Kelantan, the administration of the fund comes under the Kelantan Federal Development Department. But in Pahang and Kedah, the administration of the Fund comes under the respective Menteris Besar.

Terengganu alone has received RM763 million via the Implementation Coordination Unit (UPP) of the Prime Minister’s Department since 2001. One of the main annual activities for Terengganu is the distribution of Raya money. Every eligible resident receives RM300 as a donation before Hari Raya and Chinese New Year – though the report doesn’t spell out the criteria for eligibility.

As at Sept 2005, an allocation of RM10 million made in August 2003 to help the chronically ill in Terengganu had not yet been spent, said the AG, because from feedback, “there were no applications”. It is not clear if people were even aware of the existence of such an allocation. Or maybe they were too chronically ill to apply?! Similarly an allocation of RM4.7 million to assist farmers and those in the livestock business made in May 2004 had not been spent by December 2004 “because there were no claims from anyone who needed such help”.

In Kelantan, projects only required the approval of the director of the Kelantan Federal Development Department. But after the March 2004 elections, in which the opposition retained the state by the slimmest of margins, that mandate was withdrawn and a new regulation was issued. Approvals would now have to come from the director of the UPP in the PM’s Department.

Kedah has received RM40 million since 2003. As mentioned, the administration of the Fund in the state comes under the Menteri Besar. The AG found several irregularities in the way such funds were used which he said did not conform to UPP guidelines (see box below).

On the whole, the AG said that the people had benefited from the Fund, though this finding was not backed up by empirical evidence. Nonetheless, he conceded, that at the state level “expenditure that should not have been financed from the Special Fund allocation had occurred and this had more or less jeopardised the objective of the programme”.

He also found that not all ministries, departments and agencies had submitted their quarterly expenditure statements as required (though he said their monitoring work was adequate). This meant the Treasury’s records related to the Fund were incomplete. More seriously, there was no evidence to show that the Treasury had taken follow-up action. He also stressed that all allocations should be approved by the Central-level Committee.

Reading between the lines, it seems to me, there is a lot of arbitrary discretion being exercised in how the fund is administered – most  likely to serve the interests of the ruling party while benefiting some people.

The best solution, I feel, is to return the royalties to the state governments. High-powered independent audit committees with opposition representation, reporting to the respective state assemblies, should be set up to ensure that such funds are used on projects that really empower the rural poor. This will dispel the perception that this ‘goodwill money’ is being used as a patronage tool to boost political ‘goodwill’ for the Barisan Nasional.

Imprudent ‘goodwill’ spending 

The Auditor General cited various cases of questionable spending of ‘goodwill money’ in his report: 

Weaving a sorry tale

Four computerised songket weaving machines, each about RM90,000, were purchased through a local firm based on a prototype that was the result of joint research and development by the University of Malaya and the Malaysian Handicraft Development Agency (Perbadanan Kemajuan Handikraf Malaysia).

Auditors found all four machines  unused because they required manual intervention even though they were supposed to be computerised. The machines were now merely bahan pameran or exhibits, as the AG referred to them, somewhat sarcastically.

‘Cracko’ houses

By September 2005, RM157 million had been allocated to  Syarikat Perumahan Negara Berhad (the National Housing Corporation) to finance the People’s Housing Loan Scheme. By that time, 857 ‘Rumah Mesra Rakyat’ houses had been built. Involved in the project were Class F contractors who had received the support and approval of certain elected representatives.

A Sept-Oct 2005 audit visit of 20 houses, each valued at RM40,000, in Terengganu, Kedah and Perlis revealed that 13 of them had various defects, ranging from roof-leaks, cracks on the wall and floor, and damaged toilets.

Puteri Umno gets a slice

A sum of RM110,000 was paid to sponsor the Sungai Petani Puteri UMNO’s Tuition Centre programme based on a project proposal paper, said the AG. But he merely observed that such payments should have been based on actual monthly claims from the tutors instead of only a project paper. That is missing the point: the larger question is why should public funds be used to finance a project clearly run by a political party?

Equipment for ntv7?

The Kedah state development office paid RM701,000 for various items: lapel pins, caps, billboards, to mark the visit of the PM and his deputy to the state; carpets and ‘timber blinds’ for the Menteri Besar’s office; filming equipment for the ntv7 crew. According to feedback, the AG noted, payment was made based on a directive from the MB.

And filming equipment? The larger question that must also be asked is why should public funds be used to pay for equipment for the crew from a private television company?

Some renovation!

RM4.5 million was spent to renovate the Negri Sembilan’s government guest-house for  use as the official residence of the Menteri Besar. The AG noted, somewhat matter-of-factly, that the expenditure was not in line with the objective of the Fund.

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