No public money will be used – who are you kidding?

At a time when the government seems to be spending most of its time finding new ways to take more money from us and give it to favored businessmen and cronies, large-scale public projects or the bailouts of ailing businesses owned by a privileged few have been offered with the assurance that funding will not involve public money.

Mimicking the 1MDB model, these projects will be led by a new, fully government-owned entity with minimal paid-up capital and funding.

The financing of the project or the acquisition of assets will be through the issuance of bonds, generally sukuk if they are issued locally.

As these projects have no existing business or fundamentals with cash flows expected to arrive only years later, bond buyers will obviously be looking for something in addition to the security of future cash flows and assets.

Along comes the government, which will provide a guarantee that if the project fails or is unable to repay the interest and principal due, it will cover the shortfall.

Yes, no public funds will be used except for the initial capital paid for the entity. The government guarantee is “just” just that, achievable only if the project is unable to repay the bondholders.

If all goes well – and it’s a big if – the government will rejoice at how such projects have benefited the country and the rakyat.

In this way, the government escapes all control and can always justify that no public funds are used.

Digital National Berhad (DNB) was deployed using the same business model as 1MDB – low capital and huge borrowings – on the pretext that this model is to correct a market failure, i.e. a socially desirable service is not offered privately because it is not profitable or requires huge financial capital which may not be available in private markets.

The assumption is that each of the Mobile Network Operators (MNOs) will scramble to lease 5G spectrum from DNB and it was assumed that the leases would be sufficient to meet bond obligations.

However, the amount required from the bond market to finance the construction of the infrastructure depends on the cooperation of MNOs.

If two or three mobile network operators – collectively providing services to almost 70% of mobile phone users – were to delay, then DNB would have problems increasing the projected sum.

In such circumstances, the government should fill the funding gap and serve the bondholders.

Obviously, if all MNOs cooperate, no public funds will be used. The same goes for Amanat Lebuhraya Rakyat (ALR), the company set up to buy four motorway concessions.

Again, the government insists that no public funds are involved and that ALR will raise capital in the bond market.

ALR is a newly formed entity with zero activity. Again, bondholders will obviously look to the government for a guarantee, as do the five shareholders for this.

The government obviously anticipates that the existing cash flow generated by concessions should be sufficient to repay long-term bondholders, so no need to dip into public coffers.

Obviously, the concession period will be extended, which would otherwise leave ALR short.

The business model above followed the government’s continued failure to rescue entities like Malaysia Airlines, Proton and Perwaja.

Each of them has resulted in substantial losses and economic efficiency, and undoubtedly wastes a large amount of public resources.

None of them is guided by economic principles. Investments are not based on cost-benefit analysis or precise forecasts.

They have therefore failed to maximize net benefits, while operating costs are significantly inflated. Of course, the politics of special interests played a part in everyone’s failure.

So, claiming that Petronas “saves” Sapura Energy is not an attack on the country’s finances is clearly a lie.

Petronas – along with Khazanah Nasional – is an entity that manages the country’s resources on behalf of the rakyat.

Thus, it is subject to the same transparency measures as any other public body or state-funded entity.

The government should, as a policy, not do business. As we can clearly see, everything ends in failure.

Government should limit itself to legislation, regulation and the maintenance of public order, that is, governance.

The production of goods and services must be left to companies.

If the government is doing business, it is clear that these businesses or services are not as efficient as those undertaken by the private sector.

Rule of any company: the value equation must be equal to or greater than the wages to be paid and the charge on the capital employed.

If this is not satisfied in a public sector entity, it must be closed or that business must be sold.

Instead of using public funds to advance the public good, the government has used them to fund “lobbyists”, who defend the interests of taxpayers.

Then the rakyat is obligated to bear the cost of politicians rendering favors to their political benefactors.

Even though political leaders are charged to work for the betterment of their constituents, not to derive personal benefit from official actions, this is often violated and ignored.

Every sense counts. – May 20, 2022.

*FLK reads The Malaysian Insight.

* This is the opinion of the author or publication and does not necessarily represent the views of The Malaysian Insight.

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