Opposition-controlled Selangor's plan to restructure RM6.3 billion (S$2.1 billion) in assets belonging to Malaysia's richest state under a company directly controlled by its chief minister sparked fears this week of another 1Malaysia Development Berhad (1MDB) in the making.
Menteri Besar Azmin Ali, who is also deputy president of Parti Keadilan Rakyat (PKR), has been accused by the ruling Barisan Nasional (BN) of trying to create an "invisible" company that holds state assets, such as a 2,000ha land bank and companies running logistics and water services, without the need for scrutiny by the legislative assembly.
Tan Sri Abdul Khalid Ibrahim, who was ironically ousted as chief minister by his own PKR last year after accusations of lack of transparency, had said last Tuesday that the company, Darul Ehsan Investment Group (DEIG), was similar to 1MDB. The main concerns, critics say, centre on a lack governance.
DEIG, despite being wholly state-owned, does not have to open its books to Parliament, but instead files financial statements with the Companies Commission.
1MDB racked up debts of RM42 billion before Middle East investors recently lowered its debt load.
Mr Azmin wants to shift RM6.3 billion of assets owned by the state into DEIG so that debt does not come into the equation. But some critics fear a lack of oversight could lead to deals that cause Selangor to face high debt levels in the future.
Mr Azmin argues that parent state company Menteri Besar Selangor (Incorporated), or MBI, is limited by state law to only engage in operational activities and "has never contributed any dividend to the state" despite having close to RM30 billion in assets.
He wants to transform DEIG into Selangor's investment arm, he said, likening it to Malaysia's sovereign wealth fund Khazanah Nasional, which pays out about RM1 billion annually in dividend to the Treasury from profits accrued from about RM110 billion in net assets.
But Democratic Action Party's (DAP) Damansara Utama assemblywoman, Ms Yeo Bee Yin, argued last Wednesday that there was no mechanism to ensure DEIG does not offer lopsided deals and "no independent directors, especially those with experience in the financial market, have been appointed".
DEIG's board is the same as MBI's - the Menteri Besar himself, MBI's chief executive and chief operating officers (both appointed soon after Mr Azmin took office in September last year) and two non-executive directors from the civil service, namely the state secretary and financial officer.
The spectre of 1MDB's huge liabilities - it paid out RM2.5 billion in debt-financing alone in its last reported financial year - has worried Mr Azmin's own party colleague, Mr Wong Chen, enough for him to publish a report on the matter.
"As DEIG was formed under MBI, it is also not required to table its accounts to state assemblymen. This raises a red flag when it comes to transparency, especially since it circumvents MBI's restriction on commercial loans," wrote the Kelana Jaya MP, whose constituency is in Selangor.
Mr Azmin has promised to ensure DEIG is subjected to scrutiny by the select committees on public accounts and government-linked companies and would not borrow. His allies have insisted on specific legislation to govern this.
While the controversy has pushed back Mr Azmin's plans for DEIG, the parties that form the state government have called it a triumph for "transparency and accountability" through proper checks and balances.
DAP's national publicity chief, Mr Tony Pua - who is also a Selangor-based MP - said yesterday: "We have raised our concerns to prevent a 1MDB from happening, in complete contrast to BN elected representatives who only speak to cover up the massive scandals after they happened."