Before ex-premier Dr Mahathir Mohamad retired, the Employees Provident Fund (EPF) was ordered to subscribe about RM3.36 billion (60 percent) of the Intisna Bond issued by Malakoff Berhad for its Tanjung Bin Projects.

This portfolio is a very high risk exercise and most foreign institutional fund managers do not participate in it for obvious reasons:

1. SKS Power has been granted a licence to construct, operate and own a 2,100 megawatt coal-fired power plant in Tanjung Bin. The RM7.8 billion price tag is an exorbitant mark up; it is at least 500 percent more expensive than the market price.

For example, the Genting group recently bought a 2,400 megawatt capacity Paiton power plant in Surabaya. It is already generating revenue, having secured power purchase agreements and been proven operational by the management team, all at RM1.5 billion.

2. The operation and management operator of the plant, Rangkai Positif Sdn Bhd, is a new set-up with no prior track record. It is very risky to entrust the multibillion power plants to a new company that has no prior track record, and has to depend on the third party for support. It is an obvious exercise of cronyism and nepotism.

3. Tenaga Fuel Service Sdn Bhd will supply coal exclusively to SKS Power, but has no control on the supply source of coal and its freight charges. The supply source is subject to many other external factors such as currency risk, political risk and country policy risk, that will determine its future coal price. Fr example, the freight charges for Panamax escalated from US 8,000 per day to US 30,000 recently. It will have immediate impact on Tanjung Bin's power production costs.

4. The repayment of the Intisna note is based on cash flow and it lacks of tangible collateral, thus exposing the bond subscriber to maximum risks.

5. The Intisna bond issuers for the Tanjung Bin power plant acted like a project promoter; passing all investment risks to bond investors. There is a strong tendency that new bonds will be re-issued once these come to maturity.

6. EPF is a pension fund. It should not be exposed to such a high risk portfolio investments, which lack sufficient tangible collateral.

EPF has no reason to waste contributors' money by subscribing to Malakoff's Intisna bond, which has high probability of defaults. The Malakoff Tanjung Bin project is highly irregular and overpriced. And the Intisna bond does not have any tangible asset backing.

In the 1980s, Michael Miliken, the 'junk bond king', bankrupted many pension funds in the United States. We do not want to see millions of Malaysian pensioners suffer the fate. EPF's investment in Malakoff's Intisna Bond needs to be stopped immediately, before another scandal surfaces.

Misleading and misinformation of the Malakoff's Intisna Bond will hurt the faith of Muslims in the Islamic banking system. Prime Minister Abdullah Ahmad Badawi's administration needs to be more prudent to protect the good faith of the Islamic financial system. He also has a constitutional obligation to protect the interest of 10 million EPF contributors.

The first tranch of payment is due in January. Abdullah needs to stop EPF before this becomes a scandal and political liability to his administration.