Want To Buy An Iconic Building? The Private Finance Initiative Scam

 

Private Finance Initiative or PFI has a long history. It has many different variations. It has a history with the United States Navy where some clever financiers realised that after the Second World War not a single US Navy ship has been sunk in combat. Post WW2 US Navy ships have been lost at sea but not due to combat reasons. And not a single US aircraft carrier has been sunk since World War 2. 

So the Wall Street boys came up with a PFI scheme for the US Navy. They would privately finance the construction of some US Navy ships. They offered the US Navy very attractive (and transparent) interest rates, usually not too far from the US Government's own borrowing costs. (Well the US Navy is also the government). And they gave sufficient term financing. 

Why was this attractive to the US Navy? Because it freed up  the US Government's Budget allocations. Instead of paying US$3 billion all at one go the amount could now be stretched over say 10 years. 

I believe what the Wall Street financiers did was to issue special purpose Bonds to raise the required funds. Since the Bond was ultimately tied to the US Navy it was a very good risk. 

The whole thing worked because the US Navy has not lost a single ship in combat since WW2. If a war breaks out and the ships get sunk this scheme may not work or must change drastically.

Then you have the ripoff type of PFI.  For example in a far away country called Euthanasia, the government could lease/rent out its own buildings to some crony PFI financiers. But the government is still occupying the building. So the government would lease back the same buildings from the crony financiers. Huh? What type of financing is that?

The excuse given is the lessor (the crony) will also take care of the maintenance of the building - cut the grass, paint the building, clean the toilets, pick up trash, take out the garbage, hire the security guards etc.

This is nothing more than sly politicians with connections or connections with sly politicians at the other end ripping off taxpayers money. 

Imagine renting out your house to someone for RM2000 per month. But you are still living there. So you rent back the  house from him for RM3,000 per month. Why? Because the other fellow will cut the grass, fix the leaking pipe, repair any roof leaks etc. 

The difference is it does not free up the government Budget (in the far away country called Euthanasia). Instead it may cost the taxpayer even more money. It is just a scheme by the corrupt politicians and cronies to siphon out taxpayers funds.

AND (this is important) - there is NO value added. No extra productivity is gained or savings made to the taxpayer. You do not even need an SPM certificate to maintain a building. The Indon janitors, Bangla gardeners and Nepali security guards are hardly literate.

So does anyone want to buy an iconic building? Class A Tenancy guaranteed.

The views expressed are those of the writer and do not necessarily reflect those of MMKtT.