Of private 'scam' public partnership (PPP) and our debt burden

MP SPEAKS | Finance Minister Lim Guan Eng in his statement on Thursday, 24 May 2018 announced that the total federal government debt and liabilities amounted to RM1.09 billion, or 80.3% of our gross domestic product (GDP).

The above sum comprises RM686.8 billion of ‘official federal government debt’ (50.8% of GDP), RM199.1 billion (14.6%) of ‘committed government guarantees’ and RM201.4 billion (14.9%) of lease commitments via the abused ‘public private partnership’ (PPP) projects.

Najib Razak then proudly claimed that we had finally admitted that the ‘official federal government debt’ is indeed RM686.8 billion, and hence there was no hiding of the debts.

The former prime minister was obviously trying to be disingenuous with words.

The very reason why we referred to the ‘official’ federal government debt, is precisely because the ‘official’ figure used by the past Najib administration failed to take into account the true debt obligations by the federal government.

Committed gov't guarantees

For example, government guarantees for Ministry of Finance (MOF) subsidiaries have been abused by the former government to circumvent the ‘official’ classification as federal government debt.

In the end, entities that are not able to service their federal government guaranteed debt would still require the federal government to step in to meet their obligations. Is Najib telling Malaysians that just because the federal government is servicing these debts as a guarantor, they are not federal government debts?

Would not a rose by any other name, smell just as sweet? Or more appropriately, would not a debt in any other name stink just as bad?

In the figures provided by the finance minister, he has specifically highlighted the ‘committed’ government guarantees. These are guarantees that the government has already been called on to service, for example, the RM42.2 billion Danainfra Nasional which was used for the construction of the MRT, or the approximate RM38 billion for 1MDB.

The fact that the Finance Ministry has been secretly servicing some RM7 billion or more of 1MDB’s debts to date, shouldn’t 1MDB’s debt be considered as federal government debt? Or is Najib trying to tell the new Harapan government that we should continue pretending that these are not our debts?

PPP, or more aptly, private 'scam' public partnerships

What is more, over the past week, we have discovered that the previous government has been intentionally and aggressively circumventing even the classification of ‘government guarantees’ by committing the government to lease payments over the next few decades.

To illustrate, the Najib administration wanted to award a contract to certain parties to build a RM500 million polytechnic. However, if the contract is awarded directly, it would have meant an additional RM500 million in borrowings. This would worsen the perception of significantly higher debt, and increase the budget deficit. Even providing a ‘government guarantee’ for a government subsidiary to undertake the project would look bad because our guarantees have already increased by leaps and bounds over the past five years.

Therefore, the Najib administration cleverly abused the ‘public private partnership’ (PPP) mechanism, where a contract is awarded to the private ‘crony’ company where the government doesn’t pay directly for the project construction. Instead, the government would commit to make monthly lease payments to the company amounting to three times the value of the project, or RM1.5 billion in this case, over the next 10 to 20 years. The private company would then take this lucrative contract to the banks as a collateral to secure the necessary financing to carry out the project.

We were shocked when we discovered that the previous government had awarded more than RM63 billion worth of PPP projects, committing the government to RM201 billion of leasing payments over the next decades. Not only are these obligations hidden from the government’s liabilities, the cost to the government to carry out these projects are much higher than if the government just funded these projects with direct borrowings.

Therefore, the new government is committed to being transparent and taking the bull by the horns. We have no intention to maintain the legacy practice of hiding debts and increasing costs in order to deceive markets.

We are committed to a competent, accountable and transparent government, because we firmly believe that despite any short term turbulence we might face, we will only come out of this much, much stronger together in the medium to longer term.

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TONY PUA is Damansara MP and DAP national publicity secretary. - Mkini