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Thursday, November 20, 2014

Malaysians may have to pay higher electricity rates to bail out 1MDB

Pandan MP Rafizi Ramli tells the audience at a forum last night that if 1MDB cannot pay its debts, it can pull the economy down with it. – The Malaysian Insider pic by Afif Abd Halim, November 20, 2014.Pandan MP Rafizi Ramli tells the audience at a forum last night that if 1MDB cannot pay its debts, it can pull the economy down with it. – The Malaysian Insider pic by Afif Abd Halim, November 20, 2014.
Malaysians could end up paying more for electricity over the next few years as Putrajaya helps debt-ridden 1Malaysia Development Berhad (1MDB) settle its loans totalling RM42 billion, Pakatan Rakyat lawmakers told a forum last night.
Petaling Jaya Utara MP Tony Pua pointed out that the sovereign wealth fund has been given contracts to build and operate power plants, and sell electricity, to pay off its debts.
Another lawmaker Rafizi Ramli said that if 1MDB cannot pay those debts and if it went down, it could pull the economy down with it as almost RM20 billion of the debts have been guaranteed by Putrajaya.
As it stands now, Pua said, 1MDB is having problems making money and servicing its debts which total RM42 billion. Almost half of that amount has been guaranteed by the government.
"The risk to the economy is huge as it would have a domino effect if 1MDB defaults,” Pua told a packed hall of about 500 people.
“That is why the government is quickly trying to find money to help 1MDB pay off the debts.”
Pua said that one way was through the award of three independent power producer (IPPs) contracts to 1MDB earlier this year.
Some of those contracts, Pua claimed, come with higher than usual electricity tariff that will eventually be passed down to the consumer.
According to previous reports, 1MDB was awarded an RM11 billion coal-fire power plant project early this year in a controversial open tender.
It was then awarded a contract for a 50 MW solar power plant in March and another contract for 2,400 MW gas-fired power plant in August, both of these through direct awards.
“A business daily has reported that 1MDB could be awarded with additional two more IPP contracts next year.
“When I asked the minister on what the tariff rates were for the three contracts, he said they had yet to be set. How can you agree to a contract when the tariff itself has not been set?” said Pua.
A high tariff rate for electricity would then allow 1MDB to make money to help pay off its debts, said Pua.
“So, it’s essentially a public bailout. The public has to help 1MDB make money by paying for higher electricity rates so that it does not default on its debts.”
Rafizi then explained that if 1MDB is unable to pay its debts the government would have to step in.
“But when that happens, the market will ask whether the government can pay this debt in the first place.
“If the market loses confidence in the government to pay its debts, it will trigger a run on the economy. This is why 1MDB has severe repercussions for the country,” said Rafizi.
The fund's financial troubles have been widely reported by local and international media, including its inability to pay its debt instalments and the lack of transparency about its operations.
PR lawmakers have also revealed that it has also been involved in shoddy deals with suspicious companies in Saudi Arabia, Hong Kong and Mongolia ever since it was set up in 2009 that has made it lose money.
Pua had also in the past pointed out that the company has been forced twice to reschedule and restructure an overdue RM6.7 billion loan, incurring heavy costs and penalties.
In a recent case, 1MDB has had to postpone the payment of RM317.3 million for the purchase of land from Tadmax Resources, he said.
“It still cannot pay that amount till today and yet the government boasts that it has billions. There is something not quite right about this.
“The truth is, its loan costs are too high and its earnings are too low,” said Pua.
At the end of the day, said Rafizi, the public has to pressure the government to stop the company from making more shoddy deals and taking on more bad loans.
“Even if Pakatan Rakyat takes over, we would have to restructure the company to help it make money to pay its debts.”
To not do so, said Rafizi, would damage the economy and hurt the man on the street.
“If 1MDB triggers a run on the economy, our creditors will lose confidence in the country. When a government has to re-negotiate its debts, it has to implement real austerity measures.
“Meaning there will be no more money for new schools, no subsidies and pay cuts all around. This is why the public has to be very worried about 1MDB.”
The forum last night was jointly organised by the National Oversight and Whistleblowers ‎Centre (NOW) and The Centre to Combat Corruption and Cronyism (C4). 
C4 chairperson Cynthia Gabriel said invitations were also sent out to Deputy Finance Minister Datuk Ahmad Maslan and former Prime Minister Tun Dr Mahathir Mohamad to attend as panellists. They, however, did not attend.
- TMI

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