RECENTLY, there has been a slate of reports by various investment banking research houses criticising proposed plans to buy back the highways from concessionaires — a proposal that has been criticised by the concessionaires themselves.
The DAP has suggested that the government buy back all shares of PLUS Expressways Bhd that it does not already own, and take over its existing asset-backed liabilities for the approximate amount of RM15 billion. This amount and more would be recovered from motorists using the North-South Highway by maintaining the existing toll rates for six years. Should PLUS be acquired this year, by 2016, toll collection would no longer be required on PLUS-owned highways.
We have also proposed that highways such as the Lebuhraya Damansara-Puchong (LDP), with reasonable expropriation clauses, be acquired from the concessionaires as per the terms in the concession agreements. It is estimated that the cost of buying back the LDP would only cost approximately RM1.4 billion, including liabilities to be assumed by the government.
Critics have panned the above proposals for the following reasons:
The funds needed for the acquisition of highways could be better utilised for other projects.
The acquisition of these highways, which are largely in Peninsular Malaysia, would anger East Malaysians who do not benefit from the funds used for buy-back.
The arguments above would only apply if the government were not already spending more in compensation to these highway companies. Toll compensation to PLUS amounted to RM655 million, RM698 million and RM731 million for 2006, 2007 and 2008 respectively. PLUS has 30 more years before the concession expires. Without even taking into consideration the direct toll collection from motorists, the government’s compensation amount over the next 30 years would exceed RM68 billion should the current toll rates be maintained. This is after taking into account the fact that PLUS is entitled to increase toll tariffs by 10% every three years.
Similarly with the LDP, assuming that toll rates are capped at RM1.60 and no traffic increase, it would cost an estimated RM1.54 billion in compensation alone between now and the end of the concession in 2029. For both highways, it is clearly more economical for the government to buy back these highways, allowing for more funds to be used for other projects, including those in East Malaysia.
There is no economic impact from money spent to buy back the highways, compared to spending them on “stimulus” projects.
This would also prove to be a fallacy. The acquisition of these highways would lead to an increase in billions of disposable income for millions of Malaysians as a result of toll savings. Such an increase would certainly mean a boost in domestic consumption, which would benefit us at a time when foreign investment contribution to our economy is falling rapidly. Extra funds in the pockets of millions of Malaysians would therefore have greater stimulus impact than billions of ringgit in the pockets of a few, via the extraordinary profits made by these highway concessionaires.
The government would have problems raising the funds to execute the highway buy-backs.
The buy-backs would result in a higher budget deficit.
Unlike government borrowing for normal development and operational expenditure, the funding for these highway buy-backs are tied directly to the cash flow of the highways. For example, the RM15 billion required to buy back PLUS would be repaid over six years via the free cashflow generated by maintaining toll at existing rates over the period. It would be easy for the government to raise such funds with the security of the very stable cash flows. The nature of the borrowings would also mean that it would have no impact on the budget deficit.
The government would have to bear the burden of maintenance, especially after the highways become toll free.
True. However, the cost of this maintenance has often been exaggerated. For instance, the maintenance cost of the North South Expressway amounts to RM200 million, while that of the LDP is RM10 million per annum. These amounts are only a tiny proportion of the compensation that the government is already paying to the highway concessionaires annually. Furthermore, by conducting open tenders towards the maintenance of these highways, we can expect the maintenance to cost even less.
Therefore, the DAP would like to reiterate our position to the works and finance ministries, as well as the Economic Planning Unit to buy back PLUS Expressways via the stock market, as well as other highways by exercising the expropriation clauses within these agreements. The above proposals are the best options to ensure that government funding is most effectively utilised and the people best protected.
Member of Parliament for Petaling Jaya Utara
and DAP national publicity secretary
6 July 2009