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Proposed law against unfair public contracts

(© Roland Maier /

PETALING JAYA, 19 February 2009: A constitutional and corporate lawyer has called for the enactment of an Unfair Public Contracts Act that will allow for lopsided concession agreements to be reviewed.

Tommy Thomas said having such a law would make it compulsory for contracts which are against the public’s interest to be reviewed or set aside.

“I propose the passing by Parliament of [such an Act] which would give power to an independent person called the Public Contracts Commissioner to demand that all contracts of a public nature be made available [for review] … and to certify that they are unfair.

“Upon such certification, the [commissioner] will have power to set aside or re-negotiate the contracts,” Thomas said last night at a DAP-organised public forum Can we have our highways back?.

Thomas said the commissioner would be empowered to give compensation to the concession holder, but the Act would spell out guidelines limiting the compensation with regard to past profitability.

He added that the commissioner’s decision could be challenged in court by concession holders.

Thomas said such an Act would be constitutional.

He said it would be equivalent to the Land Acquisition Act 1960, which empowers the government to acquire any private land for public purpose, provided that adequate compensation is paid.

He argued that if private ownership of land was not sacrosanct, then it would be impossible to argue that highways and water assets for example cannot be acquired by the state.

“In either case, public interest overrides private rights,” he said.

Thomas said such an Act would provide a solution to the unfair concession agreements that have been signed between the government and companies, for example those involving our roads, power plants, hospitals and ports.

“In Malaysia, the privatisation exercises were never conducted in an open, accountable and transparent manner through public tenders,” he said, noting that the actual contracts were even shrouded behind the Official Secrets Act.

“The recent declassification of highway toll concession agreements confirmed what was known in the public domain for over 20 years; that is, their terribly unfair terms, with the concession holders making obscene profits running to billions of ringgit,” he said.

Buy-back cost reasonable

Tony Pua
DAP Member of Parliament Tony Pua, who was involved in studying the declassified toll agreements with other DAP colleagues, said some of the contracts allowed the government to buy back the tolled highways at reasonable cost.

He said, for example, there was a buy-back clause in the concession agreement for Lebuhraya Damansara-Puchong.

Pua noted that it was far cheaper for the government to buy back the highway than to continue compensating the concessionaire.

“The government just needs to exercise the clause,” he said.

Teh Chi-Chang, who is economic advisor to the DAP secretary-general, said even though toll hikes may be delayed, the government still has to compensate concessionaires every time a hike is delayed.

“But concessionaires are compensated with tax payersʼ money,” he noted.

He said if toll rates were not increased as provided for in the agreements, the government could also extend the concession agreement as a form of compensation. “But, either way, tax payers are affected.”

Teh said it was unsustainable to keep compensating or raising toll rates.

Citing the contract for the North-South Highway, known as PLUS, he said a return trip between Kuala Lumpur and Penang now cost RM86.60, but by 2029, it would cost RM185.

Teh, a former equity research analyst from Citi, said it was possible for the government to take back PLUS from the concessionaire to make the highway toll-free by 2020.

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