How we can achieve toll-free PLUS by 2020

The DAP's 'Can We Have Our Highways Back' public forum in Petaling Jaya last night was well-attended. 120 or so people signed in, the crowd looked a little larger and most stayed until the late evening end to share their views and hear MPs Lim Kit Siang, Teo Nie Ching and Tony Pua, constitutional lawyer Tommy Thomas and I.

The older generation (me included!) may remember Kit Siang being detained under the ISA in 1987, partly for his strenuous efforts opposing the inflated and opaque manner in which the North-South Highway privatisation concession was awarded. It's 20 years down the line, Kit Siang has been proven right – the toll these 'piratisations', not just highways, but also water and IPPs, have inflicted on Malaysians is unbearable.

Now, the DAP younger generation MPs like Tony and Nie Ching are leading the battle. If we don't sort out this toll mess, your grandchildren will still be paying toll. PLUS was supposed to have been toll-free by 2018. But because the BN government slowed down the pace of toll rate hikes (the initial agreement called for 22% pa for the first nine years!), tolling has been extended to 2038.

Slowing down the toll rate hikes just delays the problem. The issue is the original toll rates granted were too expensive anyway. For example, a return KL-Penang trip now costs RM86.60. by 2014, a return trip to Penang would cost RM115.30, up 33% from RM86.60 today. By 2020 it would be RM140! Do you expect you pay to go up at the same rate? I'll bet that by 2014, public outcry will force the BN government to defer toll rate increases and further extend the concession period. Either that or pay huge sums in compensation.

The BN government claims nationalising the highways is too expensive. Not true. Here's how it can work with PLUS as an example:
1)Market capitalisation of PLUS: RM15bn (at RM3.00, when I did the study. Share price is actually lower now at around RM2.70).
2)Government, via Khazanah, holds 65%. Value of 35% minority shareholders is RM5.25bn (at RM3.00). Offer a 10% premium to market price = RM6bn total.
3)PLUS has RM8.5bn net debt. Government also buys these over so total acquisition cost = RM14.5bn (6+8.5).
4)The government issues RM14.5bn of 10-year Malaysian Government Securities (MGS) to fund this. The yield (interest rate) on such MGS was 3.1% as of early Feb 09. Annual interest cost on the RM14.5bn = RM450m pa. So, over 10 years, the government has to pay back the RM14.5bn principal + RM4.5bn interest = RM20bn.
5)PLUS generated RM1.73bn operating cash flow last year. Assuming no traffic growth, and NO further toll rate hikes, it would generate RM17.3bn in total over 10 years. Throw in some traffic growth and operating efficiencies and there should be enough to cover the RM20bn principal and interest payments on the MGS.
6)In 10 years, 2019, the MGS is fully repaid. PLUS can be toll-free by 2020!
7)What's outstanding: The value of the government's 65% stake. The market value (at RM3.00) is RM9.75bn, but the government's actual cost is much lower. I estimate RM812m, based on 65% of the shareholders capital. The government can write this off. It's less than RM1bn – what's it compared to, say, losses at Klang port? Or the savings now that petrol is no longer subsidised.

Note: Eye-catching headline aside, I don't countenance a toll-free PLUS. It is a good principle that users should pay for the service they use. But the toll rate can be much lower and fairer, to cover recurring maintenance and any upgrade costs.
A Mandarin-language forum on this matter will be held at 8pm, Wed 25 Feb at Dewan Serbaguna MBSJ, Jalan Besar, Sri Kembangan.