Toll contracts under scrutiny

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Toll contracts under scrutiny

Postby admin » Sun Feb 08, 2009 4:13 am

Having long been a subject of contention, Malaysia’s toll concessionaire agreements inadvertently raised various questions when they were disclosed to the public recently. But the main question is will the disclosure lead to a reduction in toll charges?

LIKE many Malaysians, Azrul Ahmad would make use of the festive holidays to go on the balik kampung trail. This Chinese New Year holidays, however, the civil servant opted out of visiting his hometown in Alor Star, Kedah.

“In this economic situation, it is becoming expensive to make the journey. The toll alone costs us RM109.40 while petrol can go up to RM200 for both ways. That does not include the other expenses for the trip.

“So we decided that we should be more thrifty this year and go back to our hometown only for Hari Raya,” he said.

It is fortunate that both his wife’s and his family live in Kedah, he added.

It is to help travellers like Azrul that PLUS Expressways Berhad offered a 20% discount on their North-South Expressway (NSE) for those who travel between 12am and 7am on specified days.

To Azrul, however, the discount is too little, too late.

“It will only save us around RM20 and we have to travel in the middle of the night, so it wasn’t much of a discount. It seems just like a PR exercise,” he argued.

He also grumbled, “If what is reported in the media is true, they are currently making a lot of profit, so you would think that they can afford to give us a better discount.”

Ever since the toll concessionaire agreements were made public last month, many have raised questions about the toll charges, particularly in relation to the profits that the concessionaires are reportedly making.

As MCA legal bureau chief Wong Nai Chee who headed his party’s study team on the agreements reflected, on the outset, the agreements seem to favour the concessionaires.

“I wouldn’t say that there is any impropriety involved, but you cannot blame people for raising that kind of speculation. There is a legitimate expectation from the general public for explanations – especially from those in power before.”

Tony Pua, Petaling Jaya Utara MP and national publicity secretary for the DAP agreed, “We can see that the bulk of the agreements – if not all – have been very, very lopsided; some very much more so than others.”

Pua, who headed the DAP team tasked to scrutinise the agreements, argued that most concessionaires are allowed to rake in excessive profits. Citing the Lebuhraya Damansara Puchong (LDP) as an example, he pointed out that it earns a big profit even after factoring in the maintenance costs of RM10mil a year.

“The LDP cost RM1.33bil to build, but over the 30-year concession period, they stand to make RM18.87bil.”

MCA’s Wong drew attention to the way the agreements were drawn.

“When we read the toll agreements, we discovered that some loans (to build the highways) were given by government, meaning the public was actually financing it.”

Wong brought up the SILK expressway, where the concessionaire obtained a RM300mil loan from the Government, of which RM18mil was interest-free.

“You will never get this type of loan from any financial institution,” he said.

Agreements questioned

Wong is also critical of how calculations –construction costs, toll collections, compensations – are made in the contracts.

“We do not know at the time of negotiation who gave the figure, when it was given, what assessment was done to ensure that the figure was accurate, and who verified the figure,” he said.

Economic Planning Unit (EPU) director-general Tan Sri Dr Sulaiman Mahbob argued that the toll agreements needed to be looked in context of the time they were made.

“Now when we look back we realise the weaknesses in the agreements. However, the demand for the highways then was great and the government had to address the country’s need for these roads.

“There is a trade-off here. We had to make the decision at that time to get the concessionaires’ service to build the expressways or wait 10 years or more for the country to improve its budget before it could provide people with the expressways they needed,” he explained.

For the ordinary man on the street, however, explanation is not the only thing they expect from the Government. The pressing question remains: will toll charges now be reduced?

As announced by Works Minister Datuk Mohd Zin Mohamad last May, after disclosing the agreements, the Government would revisit them with the possibility of reducing toll rates.

“Toll reduction is one of the possibilities after (we conduct) all the studies.... We also want to see what the future value and the current value is. And (the concessionaires) can repackage and refinance to reduce the burden of the people. That is one option,” Mohd Zin had told reporters.

The hope for a review is intensified by the expected increase in toll charges of major highways revealed by the toll contracts.

However, when asked recently, the minister declined to comment. And as past practices showed, the government would have to pay a lot in compensation to the concessionaires if it postpones or cut their scheduled hikes.

For example, Litrak was reimbursed RM75mil after its scheduled hike of RM1.10 for Lebuhraya Damansara Puchong (LDP) was cut to 60 sen in Jan 2007. (The toll rate was raised from RM1 to RM1.60, instead of the planned RM2.10.)

PLUS meanwhile received RM88mil in compensation when its hike, scheduled for last year, was postponed to this year.

This, highlighted Wong, could be attributed to the compensation formula which is included in almost all the agreements.

“It showed that in the event the Government does not agree to an increase in toll, it will have to compensate concessionaires to the level where it meets the expected revenue under the agreement,” he said.

This meant that if the Government decides to take over the NSE, it would have to pay the concessionaire, PLUS, not only compensation but also its projected future profit for the whole concession period which runs up to 2038.

Pua concurred, “With PLUS currently making a profit of RM1.2bil a year, it means that the Government will have to pay RM36bil compensation – covering its estimated future profit up to 2038, other costs and interest on loans PLUS has taken.

“This does not take into account what they have already made. The original cost of building the highway was only RM5.9bil,” he noted.

Taking charge of the roads

As taking over the highways would dent the Government’s budget, Mohd Zin had instead appealed to highway operators already making profits due to high traffic volume to help ease the people’s burden by “giving something back” to the road users.

‘’That’s why we are seeking an understanding on this concession agreement so that the ones who have shown good returns on their investments reflect their corporate responsibility and give discounts and rebates like what PLUS has done.

‘’This is the moment for any concessionaire that feels it can give back to the stakeholders to look into it,’’ he had said.

Pua, however, proposed an alternative to forking out compensation for the Government – buy out the toll concessions.

“The Government will save more money in the long run. For a vast majority of the toll concession agreements, the Government has been granted the option of expropriation by providing three to six months’ notice.

“The Government has to pay for the value of construction works, less any loan or bond obligation which the Government takes over, and to pay 12% interest returns per annum to shareholders capital and loan invested in the concession, less any dividend or interest which has already been paid,” said Pua, who submitted his study team’s findings and proposals in a letter to Mohd Zin last week.

Citing Litrak (LDP) as an example, he illustrated how the Government will save money.

“The Government is already compensating Litrak RM75mil per annum for maintaining its current toll rate of RM1.60 instead of the contracted RM2.10 as of 2007. Assuming the compensation is maintained for the remainder of its 20-year concession, it will cost the government RM1.5bil.

“However, if the Government were to expropriate the concession, it would cost only RM1.4bil,” he said.

Highways should be a public good, added Pua, and by definition these do not always make money.

“Some highways need to be built in the national interest, for example in Sarawak, and it will be a cost rather than a profit centre –and this is the reason we have privatisation. It should not be free, but alternatives must be provided at reasonable rates,” he opined, adding that what they are proposing is that after taking over, the Government should not operate them but competitively tender it out for someone to manage and maintain.

“Because of the high cost, they should be allowed to collect toll, but it must be the lowest possible by way of competition.”

But Wong argued that while the Government has a legal right to take over the nation’s highways, it will not come cheap.

“I don’t think we have the resources to do it. But the irony is if we have the resources to compensate or promise to give that much, why can’t we do it ourselves?”

Wong believes that taking over highways could cost the Government in other ways.

“Contractually speaking, it would damage the credibility of the Government. Foreign bodies or whatever will think twice before making agreements with the Government. It is a way of backing out, and what it says now may not be trusted in future,” he said, and mused if anyone would want to invest in Sudan or Zimbabwe, where there is great uncertainty.

However, he qualified, “I am not saying I disagree with expropriation, but we must be objective. We do not want to make a decision where we end up using our future generation’s money or maybe even pay higher costs in future.”

Mohd Zin nevertheless has already declared that nationalising the expressways is not an option that the Government is considering for the moment: “(Buying back the highways) is a question of money; how much it will cost the Government. At the moment, we are not looking at the option.”

Wong and Pua are united in saying that at the end of the day, what is needed are more open, transparent procedures when building highways – those that benefit the people rather than a select few concessionaires.

As Pua put it, “Highways are necessary. There is no question about that. They have brought great economic impact to the country, and were essential to its development. But did we pay so much for it that we could have had two highways for the same cost?”

Wong believes that we need to change government practices and attitude towards our privatisation policy.

“It is because it looks like we are not getting a fair deal. We need open tenders instead of direct negotiation, especially with these mega-projects.”

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