AT a time when the government seems to spend most of its time finding new ways to take more money from us and give it away to favoured businessmen and cronies, large-scale public projects or rescue of ailing businesses owned by those favoured few have been proposed with the assurance that funding will not involve public money.

Mimicking the 1MDB model, these projects will be helmed by a newly formed entity wholly owned by the government, with minimal paid-up capital and funding.

Financing the project or acquisition of assets will be through issuance of bonds, generally sukuk if issued locally.

As these projects have no existing business or fundamentals with cashflow only projected to come in years later, bond purchasers will obviously be looking for something on top of the security of future cashflow and the assets.

In comes the government, which will provide a guarantee that, should the project fail or is unable to repay the interests and principal due, it will cover the shortfall.

Yes, no public funds will be used except for the initial paid-up capital for the entity. The guarantee by the government is “merely” just that, only realisable if the project is unable to repay the bond holders.

If all goes well – and that is a big if – the government will gloat about how such projects benefited the country and the rakyat.

In this manner, the government escapes scrutiny and can always justify that no public funds are used.

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

The assumption is that each of mobile network operators (MNO) will be scrambling to lease 5G spectrums from DNB and it was presumed that the leases would be sufficient to meet bond obligations.

However, the sum required from the bond market to fund building the infrastructure hinges on co-operation from the MNOs.

If two or three MNOs – collectively providing services to almost 70% of mobile phone users – delayed, then DNB would have problems raising the projected sum.

Under such circumstances, the government would have to meet the shortfall in funding and service the bond holders.

Obviously, if all the MNOs were to co-operate, then no public funds will be used. Similarly for Amanat Lebuhraya Rakyat (ALR), the company formed to buy four highway concessions.

Again, the government insists no public funds are involved and ALR will be raising capital from the bond market.

ALR is a newly formed entity with zero business. Again, bond holders obviously will be looking at the government for a guarantee as the five shareholders do to do so.

The government is obviously forecasting that the existing cashflow generated from the concessions should be sufficient to repay the bond holders in the long run, hence no need to dip into public coffers.

Obviously, the concession period will be extended, which if not, would leave ALR short.

The above business model followed the continuous failure by the government in rescuing entities like Malaysia Airlines, Proton and Perwaja.

Every one of them resulted in substantial losses and economic efficiency, and are undoubtedly wasting a vast amount of public resources.

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

They have therefore failed to maximise net benefits, while operating costs are significantly inflated. Of course, special interest politics played a role in the failure of each.

Thus, to claim that Petronas “rescuing” Sapura Energy is not an assault on the country’s finances, is clearly a lie.

Petronas – together with Khazanah Nasional – is an entity managing the country’s resources on behalf of the rakyat.

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

The government should, as a policy, not be doing business. As clearly shown, it all ends in failure.

The government should restrict itself to legislation, regulations and maintaining law and order, ie governance.

Production of goods and services should be left to the businesses.

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

Rule of any business: the value equation should be equal to or higher than the wages to be paid and the charge on the capital employed.

If this is not satisfied in any public sector entity, it should be closed or such business be sold off.

Instead of using public funds to advance the public good, the government has used it to bankroll “lobbyists”, who advocate against taxpayers’ interests.

Then the rakyat is made to bear the cost of politicians returning favours to their political benefactors.

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

Every sen counts. – May 20, 2022.

* FLK reads The Malaysian Insight.

* This is the opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insight. Article may be edited for brevity and clarity.