Categorised | Letters to the Editor

Buy-back of privatised highway concessions more cost effective

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.

The LDP (Pic by Azreey, source: Wikimedia commons)

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.

          Tony Pua
          Member of Parliament for Petaling Jaya Utara
          and DAP national publicity secretary

          6 July 2009

          See also: Proposals for a toll-free Malaysia
          MCA: Review highway privatisation

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          7 Responses to “Buy-back of privatised highway concessions more cost effective”

          1. ahoo says:

            Cannot argue with you on the points raised thus far. But would our govt care enough for the people ? After all, most of them under official duty travel free and even with police outriders.

            Furthermore, would the cronies of the govt just hand back this deal? To them it would be killing the goose that laid all those golden eggs for so many people. Maintenance with high mark-up by connected people with no open tender and selected suppliers from within their own group. So will these people just surrender the “cash-cows”?

          2. Joon says:

            So sad, Tony. You need to publish this on the internet. Won’t the newspapers carry such articles? Who are our newspapers working for? Maybe they should change their name to BN Newsletter.

          3. Erina Heights says:

            Hi Tony,

            Just checking. Did the cost calculated include the cost of “under-table money” paid (to be recovered by someone) and those apportioned but yet to be paid to someone?

          4. Good plan but will the government be so stupid to bite the hand that feeds it? I have seen road resurfacing being carried out just for the sake of “maintenance”. The road surface is so good but yet resurfacing? Roads have been resurfaced and resurfaced two to three times per year again and again. E.g. Elite highway from USJ to KLIA. Why has the root cause not been identified and fixed once and for all?

            Road maintenance is big business. One km is being charged millions. So how is my buddy going to survive after the privatisation with open tender? You tell me?

          5. Mohammad Sani says:

            Nationalising of toll highways:

            1. First we have to separate what is a burden to some people and when it is a burden

            a) There are two types of highways users i.e. the daily users and the occasional users (non-daily users). PLUS is not a burden to the motorists because the daily users represent a low percentage of the total traffic (only the NKVE section is applicable). The non-daily user/motorist who uses a 40 gallon per km car would have to spend about 20 sen/km on petrol and about 15 sen/km on toll charges. This expenditure however, is not something he has to spend on a daily basis. He also has a choice of using an alternative route that does not cost him the toll charges. As for the other highways, espacially those that operate in the Klang Valley, the are the burdensome ones. LDP, Besraya, Grand saga, Kesas, Sprint, NPE and DUKE are toll highways operating using the open toll collection system. This system charges a standard rate regardless of distance travelled and in most cases does not offer direct ealternative routes.

            b) I have mentioned above that a low percentage of PLUS motorist are daily users (except for the NKVE) and by this reason PLUS is not the main cause of the burden. Is PLUS a burden to the taxis and buses who are considered daily users? Not likely because their toll charges are much lower than that paid by the private car motorist.

            2. The market capitalization of PLUS is about RM12b. Khazanah owns the majority (directly and indirectly) of the shares in PLUS. For this it had to borrow to buy PLUS/UEM. For example, in 2007 Khazanah issued USD850m in Sukuk Bonds which were backed (interchangeable) by PLUS Expressways shares.

            3. The total price for the takeover of PLUS would therefore be closer to RM28b and not RM15B as what we have read in the blogs and the Malaysian Insider.

            4. To assist the people, we also need to take over the other toll highways that are actually burdening them i.e. non PLUS highways. There are about 28 of them and their cost of takeover should be in the region of RM25b (shares and liabilities) assuming that the shareholders are being reasonable and not demanding very high premiums.

            5. Assuming that the takeover is for all highways, the total take over cost would be
            about RM50b or slightly more.

            6. But I would suspect that the total toll collection less operating costs and maintenance before interest charges is below RM4b p.a. Will this be enough?

            7. This raises the question of whether the government should continue tolling and at what rate?

            8. That being the case, is it worthwhile? Shouldn’t RM50b be better utilized elsewhere given the current economic condition? Spending RM50b as a stimulus package would be far more effective than taking over the toll highways.

            9. Another big question. Will the non-PLUS concessionaires sell out and at what price? Unless attractive premiums are offered, they might as well wait for better share prices before selling out at the current depressed prices.

            10. Yes I agree that all PLUS and other tolls should be lowered and this should be the ultimate objective regardless of who owns or operates the concessionaires.

            11. Yes I agree that toll compensation should be paid to the toll concessionaires because it is the amount due to them for accepting toll rates that are lower than the agreed rates as per the concession agreements.

          6. HW says:

            We all stop using highways with toll….end of debate.

          7. Kunyit says:

            I suggest DAP buy the High Chapparal land for the people of Penang.

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