Nationalisation of toll operators not viable?

JULY 15 — There seems to be a misconception regarding my proposal to nationalise PLUS, the company which operates our highways. I had proposed that Khazanah acquire the remaining stake it does not already own, but I did not propose that tolls be abolished. I believe that tolls should be maintained.

The reason I am proposing that Khazanah acquire the remaining stake in PLUS is to stop the government from paying the toll operator compensation which has been increasing annually, up to RM730 million in 2008.

In addition, the acquisition will enable the government to vary toll hikes instead of facing this dilemma every three years. A hike of nearly 10 per cent every three years may seem to be in line with the CPI, however as highways are vital social infrastructures they should not be generating huge profits via compensation from the government. I am positive people will be receptive to a toll hike if PLUS is not making huge profits, and the hike is necessary for the maintenance of the highways or repayment of loans.

Some may argue that since Khazanah is the majority shareholder therefore any compensation given to PLUS will flow to Khazanah and back to the government. I do not have the data to support whether most of the annual dividend from Khazanah to the government is from PLUS or that PLUS profit is used to subsidise the loss-making operations of Khazanah. Furthermore in the recent mini Budget, Khazanah received an additional RM10 billion for investment purposes.

The total compensation to the toll operator from 2003 to 2008 was RM2.837 billion. The possible cumulative toll compensation from 2009 to 2038 will amount to RM21 billion (RM730million by 29 years) and this excludes profit from operation of the business.

As such the comments by Bond Pricing Agency Malaysia Sdn Bhd (BPA) chief executive officer Meor Amri Meor Ayob may not reflect the true scenario. He was quoted as saying:

“Meor Amri went on to say that like it or not, toll rates will increase due to inflation and rising cost of highway maintenance. For example, every five years toll operators need to re-tar the road and maintain the highway's security systems and street lights. These are the things people fail to see when they look at toll operator's cost."

For PLUS, the increase in toll charges is mainly due to a contractual obligation rather than inflation or operational needs. Maintenance cost forms part of the the company’s operating cost but the other major cost is actually interest cost amounting to RM654 million in 2008.

It is misleading to paint a picture that PLUS is losing money or requiring a toll hike to sustain itself. PLUS has been generating profits since 2003 onwards and even if toll compensation is excluded PLUS will still generate a profit. For example, in 2008 the profit after tax was RM1.27 billion excluding the compensation.

Interestingly the dividend declared for 2008 amounting to RM800 million exceeded the compensation payable by the government of RM730 million. The compensation due from government has also been accumulating and has not been fully paid, and yet the management has been able to pay dividends consistently. This indicates that PLUS is operating profitability and its cash flow is healthy. It is also important to note that the bulk of PLUS loans are bonds.

Meor Amri goes to say:

“Thus, the only way toll rates can remain stagnant is when if there is no inflation, which is unrealistic. On calls for the government to subsidise tolls, Meor Amri said it is a defective notion as not all Malaysian citizens are toll users.”

We are users directly and indirectly as goods are usually transported on highways. Most logistics companies use highways. Thus if there is a toll hike it affects the prices of goods and service. The notion that a toll hike only affects the user is not entirely true as other consumers of goods and services are also paying for the toll hike indirectly.

In summary the proposal to acquire PLUS should be considered seriously as measures like the recent discount on tolls does not resolve the crux of the toll hike and compensation problem.

Bookmark

Email This

Comments (11) Add Comment

Show/Hide comments

...
written by Eric Cheh, July 15, 2009

"my proposal"?

How much royalty should you pay to DAP for your (ROTFLOL) proposal? You may well be the youngest MCA candidate in Johor, but you have already understood the concept of counterfeiting.
BTW, what exactly is your merit in being the youngest when you are merely daddy's son?

...
written by X Loyar Buruk, July 15, 2009

YB Chua,

Why are you focusing only on PLUS Expressways Berhad (PEB) as PEB DO NOT own all the highway concessionaires in Malaysia? Altogether, there are 22 highway concessionaires in Malaysia. PEB only own PLUS, ELITE, Linkedua and KBE. I think the issues are more on the urban highways such as LDP, Besraya etc. NSE, operated by PLUS is inter-state highway, in the same mould as East Coast Expressway (ECE) operated by MTD. FYI, goods to East Coast are not transported using the NSE but ECE. Khazanah does not have stake at all in MTD. Are you asking Khazanah to buy over all the 22 concessionaires? That will cost them more than RM40 billions I guess as they have to acquire the concessionaires from Gamuda, IJM, MTD, PNB, Sunway, Maju Holdings etc.

That is why nationalisation of toll operators are not viable.

...
written by mut, July 15, 2009

It is indeed insulting for MCA to be behind DAP in issues that affect the public.

It boils down to motivation I guess. I would credit DAP for the idea of nationalising PLUS and MCA for the scandal that is PKFZ.

That captures the essence of the two parties perfectly, without getting personal.

...
written by The Botak Man, July 15, 2009

It is possible to work out a formula to ensure increases in toll rates are kept to a minimum. This so-called formula has been presented to the government. It depends very much whether Najib wants to implement it or not. If Najib is wise, he would approve it. If he is not so wise, he may be tempted to "hijack" the proposal for his own people.

Unfortunately if his men were to hijack it, they may fumble and fail. The formula presented is incomplete to "discourage acts of hijacking".

I know Najib's people monitor comments everywhere. So please think carefully...

...
written by lasersharp, July 16, 2009

dude.. the profit from those privatised highways was already booked via inflated construction contracts. of course there is still lots of cash on the table from the ongoing operations.

...
written by daniel chang, July 16, 2009

YB Chua,

Obviusly you are still supporting the BN mantra, and you have no ideas how much the citizen paying actually beside their tax and other burden that is been pass down to the rakyat. Until the day you know hardship, you have no place to lead the people. Don't just see thing from your own perspective, understand and known the suffering of people.

I had been paying LDP toll since 2003 (6 years or average of 2118 days with whopping of RM6777 ). Yet we still get stuck in the jam everyday, and not to forget time lost, car maintenance cost and other risk related to road accident due to the badly design LDP.

Imagine the same amount of money that is use on my children health care and nourishment need - and now let see which government will I vote for, BN or PKR. Yet I know BN will never change to serve the people, furthermore with your little world view - I am very concern on my children future.

And the best part I am only one of the citizen, imagine the population of 400,000 that need to pay the same amount of money. You want to lead, think and investigate before you voice accordingly - don't just get suck into your little adventure.

...
written by Zurina Jamaluddin, Professor, Universiti Sains Malaysia (USM), July 17, 2009

I found YB Chua’s opinion piece on nationalisation as incomplete and does not take into account the various predicament which the government has to face in the event of nationalisation.

There have been a number of reports by research houses as well as economists voicing their opinions on the proposed plans for the nationalisation of tolled highways and all of these have its merits.

Nationalisation of highways would cost the government billions of ringgit and going back to YB’s argument of “only PLUS”, that too would cost billions of ringgit. YB needs to look at the issue from the government and holistic public perspective and not for the benefit of the select few.

Using the analogy of a household expenditure with a steady pool of income, the government too needs to decide where to allocate its funds. Highways have been developed, connecting rakyat from various states and enabled commerce.

With highways now developed, the government thus must look at areas that needs its funds the most. With a growing population, more hospitals and schools needs to be build, more funds for education needs to be allocated to generate world class teachers, doctors and engineers. And with a sorry state of public transportation especially in Kuala Lumpur, Penang and Johor Bahru, allocation should be made to ease traffic congestion.

Economics 101 is at play here – supply and demand. The high demand in terms of increase usage does not warrant for nationalisation as the supply i.e. highways provided by the toll concessionaires are more than sufficient.

YB, users of highways – individuals and / or businesses -- have been enjoying the benefits of our highway infrastructure. You had mentioned that “a toll hike only affects the users is not entirely true as other consumers of goods and services are also paying for the toll hike indirectly”.

This is untrue and you are wrong. I met with President of The Associated Chinese Chambers of Commerce and Industry of Malaysia (ACCCIM) who while is a supporter of nationalization admitted that the impact of toll hike is not as serious as hike in petrol prices. This is because the increase in toll does not seriously affect the price of commodities, therefore trader will not revise the prices of their goods due to this reason.”

With this, I suggest YB Chua check his facts before stating them officially in the article.

The question is, why does the government need to takeover something that is already efficiently run and seriously, would we get the highways we have now if we only rely on our government and why should be “fix” a sector that does not to be “fix”, why aren’t we looking at fixing our healthcare or education system?

YB Chua, I do believe what the analysts, economists, academician and BPA’s Meor Amri are saying is that why pour more money into a sector that is doing well to benefit a certain group of people when the fund could be used in other sectors that will benefit all Malaysians, and to this end I agree.

...
written by Wan Azri, July 17, 2009

The government does not have the funds to nationalize highway operators as there are just too many concessionaires, and not all are under Khazanah anyways. I do not see any valid reason as to why only PLUS should be nationalized as this would only benefit a select few and the nationalization of all highways would just be out of the question.
Can you guarentee that as a result of such a purchase, taxes would not eventually increase? Of course they wouldn't mention it, nobody wants to hear of such things as the burden would not come at the expense of profit. They would definately pass on the costs to you. Nationalization is a backward step, and privatization (which it already is) is the way forward.
As CFO of DRB-Hicom you surely do not know your maths since it is a loss making entity! Surely the blame should be on you. It is much better to channel those funds into public services such as new schools and hospitals etc.

...
written by Gavin , July 17, 2009

Y.B Chua, it is easier said than done. The only reason your interested in this is because DAP was the first to come up with the idea, and now you want to be seen as being on the rakyats side by sharing their sentiments. If you think that nationalisation is that easy then, Najib would have announced it the moment he walked in to office and in order to secure the future of BN! With all the mis-information circulating around I'm sure nationalisation of tolls would have been an easy way to secure votes but obviously there is more to it than meets the eye.
I hope that you re-think your ideas, having said that I understand that everyone is entitled to their own opinions.

...
written by mut, August 26, 2009

From what I can see, the privatization drive initiated by the kleptocracy under BN (especially UMNO) was the biggest source of political funding imaginable from its inception in the 1980s under Mahathir.

PLUS was one such, and if we remember the case and subsequent award to UEM and Renong went to the courts and the cost was increased from Rm1.8b to RM3.2 and then subsequently to RM6.4b. This outlay should have been recouped much earlier, and anyone can do the maths - the tolls have been going on for well over 25 years with frequent increases and government "compensation" !

Don't tell me in the meantime the concessionaires could not recoup their outlay (unless we are talking about UMNO/BN Maths which is also in action in the PKFZ scandal).

As faor the taking over the carcass (after the UMNO boys in Renong had finished with them in the 98 crisis), it is a viable investment proposition that will pay for itself over a number of years (13 years I believe) - that figure is acceptable as a payback period (does anyone says otherwise?). In the meantime, the government gets a perpetual income stream (forever, unless the government does an UMNO stunt and privatises it again to cronies) and the rakyat pays less toll (just enough for maintenance - pls ignore the "no toll will mean no money for highway upkeep" straw man arguments UMNO and government supporters will try to raise).

This should be the case as the highway HAS PAID for itself after 25 years !

...
written by Petrus, October 03, 2009

These are all the magic play of figures or assumption. It's a plain waste of time to debate whether the highway should be nationalised or not. If I am the consumer, I will vote for nationalisation with all my hands and legs. If I am a contractor(big and small) esp. with the guarantee to sustain my wealth and the influence to do it 'My Way' or shareholders, I will vote against the nationalisation proposal even if it is proven in black and white that it is very pragmatic to do so. Simply, 'Relativity' is the essence.

Write comment

Show/Hide comment form

The Malaysian Insider

Related Articles

Nationalisation of toll operators not viable?

Malaysia Latest

Business Latest

BREAKING VIEWS

Berita Bahasa Malaysia

Most Read

Sponsored Links