Malaysia’s Debt (2)

Malaysia’s debt position may not be as bad as the RM1 trillion number.

PPP was initiated to enable the Government to fund projects off balance sheet. Instead of the Government borrowing upfront to finance projects, it gets the private sector to do so. In return, the Government pays the concessionaire an availability charge and a maintenance charge.

The maintenance charge for maintaining the facilities should be considered as a yearly operating cost because if KPIs are not met, the maintenance fee will be adjusted accordingly. It is also subject to negotiation every 5 years (for some concessions).

The availability charge, a fixed obligation over the concession period is to pay the concessionaire for his investment and financing, very much like a finance lease. The financing element includes the principal and interest cost of the “loan”. Hence, the availability charge should not be totaled up but should be present valued to arrive at the debt figure. This will bring the debt figure down. Notwithstanding that, these obligations should be classified as debt.

Qualifier: we have assumed that the PPP obligations were totaled up and not present valued in the RM1 trillion calculation.