Is Tenaga National, the nationwide electrical utility of Malaysia, now a bankrupt institution? In the light of recent events the question is not rhetorical.

Bankruptcy is normally the result of a court hearing, followed by a ruling in which the formal declaration is entered into the records. The application for bankruptcy is an action in which the debtor seeks relief from the claims of creditors. The bankruptcy proceeding assigns a receiver, who operates the enterprise under the court's protection while the affairs of the enterprise are wound down.

In the ordinary bankruptcy this proceeding never satisfies the debts of the creditors, who must settle for a fraction of their claims and write off the balance as a loss. Thus all assets of the corporation must be forfeit in partial payment of outstanding obligations.

Bankruptcy proceedings, while a surprise to many, may be anticipated by a chain of events that begin in the decisions of executives who manage the affairs of the enterprise. It is the failure of the executives to properly guide the fortunes of the business that leads inexorably to the bankruptcy proceeding.

There are, roughly speaking, two phases that precede the formal bankruptcy. The first involves the failure in selection of executive leadership, while the second is the actual business conditions that flow from these decisions and lead inexorably to the final and formal declaration.

When the assets of a corporation do not generate sufficient income to meet current liabilities a deficit condition exists which is technically an insolvent position. This sometimes results from temporary downward deflections in the normal business cycle, and as such are foreseeable. Provisions may be made in the form of prudent reserves to ride over these periods without jeopardy to the long range survival of the enterprise.

In a period of prolonged distress, reserves are exhausted, and new capital must be raised from the sale of assets or the issuance of new shares or bonds. For an electrical utility, the assets include generating plants, distribution towers, transformers and the wires to connect them all together.

In addition there are poles to buy and plant in place, which support the web of entry wires to each and every building along the road. Where underground utilities are required the expense can be much higher. Most of these assets are not particularly marketable. But the generating plants are separable, and may be sold off to generate cash, as Tenaga has done to raise money to make interest payments.

An alternative is to issue new shares or bonds, as Tenaga continues to do, though both methods represent dilution of the value of existing shares. [Issuing rights and warrants is not considered responsible corporate activity, and the popularity of this avenue of raising cash casts another deep shadow over the Malaysian stock market. It has nowhere to go but down ... and out].

Tenaga has sold many of its generating facilities, forced to take the cash and buy bread from the baker who bought its oven, or from anyone else interested in building new capacity in order to join the grid. This policy is viewed with scepticism from industry observers, noting that even California's regulated utility giants became bankrupt after a similar experiment.

The prime minister of Malaysia, an elderly man, found this misfortune so hilarious he all but moistened his trousers in glee. Later, somewhat sobered by a slow recall that he himself had parroted the Western policy, he promptly called a halt to further sales of generating plants. He is a flexible fellow, capable of reacting to events, though frequently faltering in judgement. This fondness for hopping feebly from frail foot to frailer foot is frightening for foreign fund managers fighting to stay afloat in the Malaysian crocodile pond.

So now Tenaga policy is reversed, retaining its remaining plants, and they are to burn whatever fuel is handy, which means diesel, coal, natural gas, or as an experiment, palm oil. Palm oil as a fuel oil is something of a novelty. It is a commodity commonly used in cosmetics, comestibles, cleansers and cooking.

In Malysia it is in surplus, due in part to the prime minister's favorite toy, the ringgit peg to the US dollar. The surplus of palm oil has prompted the prime minister's decision to chop it from the wok to the fire. He is confident of his abilities, a man of many parts, most malfunctioning.

In California there are utility districts having their own dams. They are located in a desert region requiring irrigation for agriculture, and have with great foresight, raised money to build dams in the Sierra Nevada mountains to the East, which divide California north to south, in order to provide irrigation water to the San Joachin Valley. These dams were designed to provide hydroelectric power as a bonus.

Both the water and the electricity are marketable items. None of these utility districts are included in the present crisis. In fact, it is the generating capacity of the independent hydroelectric producers which contributes substantial stability to the statewide distribution grid. All have used long term bonds as a means of raising capital, and these instruments carry the highest of ratings. None are close to bankruptcy.

Contrast that with the case of Tenaga National, which depends entirely for its monthly operating money on those who use its product. Its product is electricity, and its customers buy it at an agreed rate per kilowatt hour, as recorded by meters placed onsite. There are the normal problems of poor payers and others who cheat by shunting the meters.

In good times the monthly income covers operating expenses and allows for paying interest on outstanding debt as it comes due. Failure to pay current liabilities is tantamount to a declaration that bankruptcy proceedings are being contemplated, thus creditors put the operation on a credit watch when there is a perceived delay in receiving payment for claims due.

Utilities typically have large debt because the installation of new services requires large amounts of capital for infrastructure development. Much of the income of utilities is used to pay the interest on this large debt.

The capable chairman of Tenaga, Sri Dr Ahmad Tajuddin Ali, was removed last year, replaced by a member of parliament. Though the necessary credentials were put forward, the public has no confidence that the choice of a politician was best for the company, the shareholders or the consumers. Politics means Umno in Malaysia, and Umno means corruption, kinship and crony conspiracy.

The prime minister is Umno, and Umno is the public purse, and the public purse controls Tenaga, and thus it may truly be said that the prime minister is the de facto chairman of Tenaga National. As a politician the prime minister wants to win the state elections in Sarawak.

To do that, he feels Sarawak must have the benefits of money spread about as investment in the financially defunct Bakun Dam. The money for the campaign fund is missing. The question is, where to find it?

The answer is Tenaga National, and the subterfuge is that the money is to pay for the Bakun Dam. Tenaga is being used as a vehicle to fund the Sarawak campaign. In order for Tenaga to do that, it must find the cash. In order to raise the cash, Tenaga must sell at least RM10 billion more bonds. Because Bakun will not amount to much as a source of income, the existing income base on the peninsula must be used to repay the bonds.

By assuming this large obligation, which cannot be put on the books as an offsetting asset (a non-performing dam is much like a non-performing loan), Tenaga becomes technically bankrupt, or very nearly so. That Bakun can generate electricity, but not income is irrelevant, as the judge says. This is politics, not business (law).

After financing the Bakun Dam, Tenaga will owe almost RM40 billion, with very few offsetting assets. The continuing expenses of Bakun, with no compensating income, will be a permanent, continuing drain on future performance. The shares of Tenaga, thanks to the political plotting of the prime minister, are now mired in the mud of the cofferdam. The market takes note, with consequent weakness in the share price.

The increased debt will call for an annual interest payment of over RM3 billion, without considering any retirement of principal. The present income of Tenaga cannot meet this level of interest, even if income increases substantially. Tenaga reported profits of RM1.5 billion for the year ended August, 2000. The assumption of more debt for the Bakun Dam thus puts Tenaga into a position from which expectation of early extrication requires extrasensory energy.

Tenaga cannot hope to survive this experience, even if recent profits, coming on the heels of a string of losses, improve beyond all reasonable projection. The new level of profitability must not only be sustained, it must be tripled and quadrupled. It requires greatly increased electricity rates. Present economic conditions are not conducive.

The impending increase in the price of fuel gas argues against this level of improved performance in question. The increase in electricity rates must be postponed, since it is both unpopular with consumers and is inflationary. Inflation drives up interest rates and borrowing costs, so that price increases tend to be counterproductive.

Tenaga's new chairman, Dr Jamaludin Jarjis, with his keen politician's sense of the ridiculous, quickly rushed to repair the damage, stating that the prime minister's statement regarding Tenaga's participation in the Bakun Dam requires "interpreting." It is not convincing. Everyone knows who controls Tenaga, the electricity rate, the gas fuel costs, and everything else in Malaysia.

It is the prime minister. And the prime minister is a man of politics, not a skilled business executive with managerial acumen. It is not just Tenaga that is in trouble. It is instructive to read carefully the November 16, 2000 report by Ratings Agency Malaysia (RAM), the in-house credit agency of Malaysia, regarding Tenaga's operational prospects. Another interesting press report of Oct 31, 2000, tells of the disaster (and huge losses) Tenaga faces in its Pakistan adventure.

The prime minister has aged in place, and now seems due to harden in his chair. He is resolute that the next election is to be his, even if he must jail all the members of the opposition. To this end he has ordered five new prisons and begun a recruitment drive to increase the police and military contingent.

These are necessary because the prime minister's idea of giving the people an opportunity to decide, as he recently invited them to do in the matter of racially based quotas for entry into Malaysia's public university system, entails delivery of memoranda to ministers via meetings on the doorstep of publicly owned buildings devoted to public business. Public entry is denied.

The prime minister, however, finds any such democratic assembly a threat. He promptly declares such meetings illegal, finding amid the assembled citizens evidence of rockets and bombs, seeing a riot-to-be or other violent attempt to topple him out of his chair. He finds public participation in decisions to be an affront to his leadership. He orders the secret police, disguised as newsmen, to take videos for later filing. Names are recorded. Arrests are planned. This is democracy in Malaysia, courtesy of the prime minister cum dictator.

The people of Malaysia, and more and more the world, do not have confidence or trust, and this in spite of the best efforts of his bought and paid for press gang, who daily pave the printed pages with the best public relations propaganda a servile press can deliver.

But the bankruptcy. That is all in the future, when the mummified figure of the prime minister is on display in Putrajaya, wired erect in his chair. Each birthday the line of worshippers will paddle past to print a palm on the glass and paste an eye on the wastrel of a man who broke the banks, who built the unfinished and abandoned buildings, where tall grass grows while monkeys play.