ECRL : Suspension on grounds of ‘national interest’ is highly unusual.

By Lukman Sherif

(Read TTKM earlier report on ECRL suspension order by MRL here )

Hmmm. Grounds of national interest. Too many conflicting news on ECRL.

I’m not privy to the whole facts so I’m commenting generally on documents of such nature.

We need to honour our contracts. Suspension on grounds of national interest is highly unusual. Termination on grounds on national interest is commonly available in concessions but not suspension.

Every time we give an excuse to apply national interest provision it will only add costs to us. Why? National interest clause is very arbitrary. Macam ni lah. Katalah you’re a supplier and contractor. Dah buat kerja tiba2 the person who employ you wants to terminate sebab tukar government. Tak da kena mengena dengan kontrak. Is this fair? Thus the more we use this clause, the more political risks and costs imposed on us by foreign investors.

You see usually in third world countries, every time there’s a change in government, the new leader negates and dishonor what the previous leaders did. There’s a political cost to this and investors are reluctant to invest unless they are secured. They would want the best security and normally ask a clear guarantee and recourse against the government which then will appear in the books of the government.

So say for example, if the investors want to invest in power plants in these countries, they cannot accept payment obligations by the equivalent TNB unless there’s a government guarantee. In certain countries where there’s even a risk that the government won’t pay, they don’t come in and the country needs to rely on multilateral agencies such as ADB to fund.

Many don’t know this but we have advanced very much in this PPP. My Japanese and American clients were amazed with what we did and have which I thought as normal for us. So again in the power sectors for example, investors are willing to invest and rely on the premise that TNB honours its contracts. They don’t rely on government guarantee by Malaysian government. What this means to Malaysians is that TNB obligations and liabilities reside in TNB and not the government books. The government can take other loans for other development projects. Lenders too don’t consider TNB obligations as government liabilities/debts. A number seems to be confused on this concept recently.

You may then ask what if the contract is unfair or corruptly gain. First we must get this clear. You cannot halfway into the contract and see you’re losing money and claim the contract is unfair. Kalau camtu no contract can be upheld. You must honour the contract even though you lose money especially where you have the opportunity to negotiate at arms length basis in the first place. The sanctity of a contract must be honored. Janji tetap janji. But what if there’s corruption? Then you exercise a clause on termination by corruption. You prove that corruption occurs first. Then terminate. This is already provided for in the many government contracts. But note that this is different from termination on grounds of national interests. The exercise of national interest is arbitrary because it means “ikut suka hati” government of the day. The more we use this clause the more political risks we have. So we need to be judicious.

Please note that if you think ecrl should scale down, you can always omit such scope. For my stand on ecrl, please see previous post. I’m for the project. However I have no issue if it’s renegotiated or action for accountability is pursued.

( Lukman Sherif is a practising lawyer at Zul Rafique & Partners)

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