Reminder: PLUS can be privatized at ZERO incremental cost to the taxpayer

Someone is circulating a story, staying PLUS cannot be privatized because it will “anger East Malaysian Barisan Nasional component parties which control 40% of the coalition.” (Edge Daily June 10)

May I remind you of the DAP proposal to privatize PLUS, at zero cost to the tax-payer, and which we have offered completely free for the benefit of the public. No fees a’la PKFZ.

By the way, the RM8.5bn it will take to keep PKFZ running over the next 42 years is sufficient to privatize PLUS, and Litrak! Based on Port Klang Authority’s own assumptions, which reporting accountants PricewaterhouseCoopers has termed ‘optimistic’, PKFZ will be cumulative cashflow positive only in 2051. I don’t know about you, but I will most likely be dead by then. I would take a toll-free North-South Expressway and LDP which I can enjoy immediately over PKFZ, which may or may not actually make money in 2051.

Lower toll rates can boost the economy

The MCA has jumped on the bandwagon for a toll-free PLUS.

Their proposal is in many ways similar to the DAP’s proposal - I noticed they even used the same KL-Penang toll rate example ☺. But there is a crucial difference – the DAP proposes that the government/Khazanah general offer extends to all minority shareholders of PLUS, including Employees Provident Fund (EPF). The MCA, on the other hand, considers EPF as part of the government. I completely disagree with that. EPF is the custodian of the rakyat’s hard-earned retirement money. It MUST NOT be treated as yet another source of funds for the government to fritter away.

Still, I am glad there is more support for bringing toll rates down. Cheap and efficient transport can do wonders for the local economy. The most recent proof – Japan’s dramatic toll rate cuts last month. Japanese expressway users now pay just ¥1,000 for unlimited travel on weekends and holidays.

It had a tremendous positive impact on the local economies. Weekend traffic on local highways soared 18% yoy! The boost is even more pronounced when compared to two weeks before – traffic was up 40%! All these means more income for local hotels, shops, restaurants and services – a key ingredient in keeping the domestic economy afloat as exports plunge.

Dare we hope for the same in Malaysia? Y1000 just ¥1,000 is equivalent to RM38. That’s incredibly cheap for the average Japanese who earns far more than the average Malaysian. So how about, say, RM20 for unlimited travel in Malaysia? I’ll bet that will encourage more Malaysians to take their families away for a weekend in Port Dickson, Melaka, Ipoh, Pangkor, Penang, Kuantan, Cherating …… boosting sales of everything from keropok lekor to assam laksa ☺

RM60bn stimulus – includes RM0.5bn for toll concessionaires!

Extract from Point 32 of the speech by Finance Minister YAB Dato' Sri Najib yesterday:
“The Government will also provide RM480 million to ensure that toll rates are not increased.”

Bear in mind this is just the additional amount of compensation to avert further increases in toll rates. The government is already compensating the concessionaires for past toll rate hikes which were not implemented. I estimate compensation to PLUS alone is RM700m per year. That will go up to RM1.5bn in 2011, if PLUS is not allowed to increase rates.

There is no need for this. The DAP has presented a concrete, viable proposal for a toll-free PLUS by 2016, at no additional cost to the government.

Hmm. Here's a thought. Khazanah has a RM10bn allocation, and a chequered execution record. I'd be very happy if it spent that RM10bn on buying out the rest of PLUS and making it toll-free even earlier!

Call on the Works and Finance Ministers for a Toll-free North-South Expressway by 2016 and to save taxpayers’ RM14 billion

I joined our MPs Tony Pua (PJ Utara), Teo Nie Ching (Serdang) and Lim Lip Eng (Segambut) at a press conference this morning to publicise our proposal:

“The DAP Ops RESTORE (Restructure Toll Rates & Equity) Team would like to congratulate the Works Minister for first having declassified most of the highway toll concession agreements, and followed up with the removal of two toll plazas at the New Pantai Expressway (NPE) and the Sungei Besi Highway in the past two weeks.

We call upon the Works Minister to declare the compensation promised to these concessionaires for the abolition of the toll, for if the compensation involved is equivalent to the toll that would have been collected, then the joy for Malaysians will be shortlived.

In addition and more importantly, DAP Ops RESTORE Team calls upon both the Works and Finance Ministers to make the entire North-South Highway and its related concessions such as the ELITE, Butterworth-Kulim (BKE) and the Second Link Highways under PLUS Expressways Berhad completely toll free by 2016.

Following our team's consultations to date with legal experts, investment bankers as well as the general public, we have developed a comprehensive, practicable and creative programme to return the highways to the people at the least possible cost, and shortest possible time without compromising the integrity of the financial markets.

Our proposal will:

1) Impose no further increase in North-South Highway toll rates.
For example, a return KL-Penang journey will remain at RM86.60 today instead of RM115.30 in 2015 and RM168.80 by 2030.

2) Create RM14 billion savings for Malaysians from 2009-2015
This will be the amount saved either (i) by Malaysians using the highway because of no further toll rate increases or (ii) in terms of compensation which would have to be paid by the Government to PLUS Expressways.

3) Continue to collect toll only until 2015

4) Incur no additional cost for the Malaysian Government or Malaysian tax-payers

Background information:

1) PLUS is listed on Bursa Malaysia at a price of RM2.88 per share and a market capitalisation of RM14.4 billion (24th February).

2) The Government of Malaysia, via Khazanah owns 65% of PLUS.

3) PLUS has outstanding net debt amounting to RM8.5 billion.

We call upon the Government to take the following actions:

1. The Government should make a General Offer (GO) to acquire all minority shareholders of PLUS with a generous 15% premium at RM3.30 per share, costing RM5.25 billion thus ensuring that minority shareholders are protected.

2. The cost of acquisition, added to the RM8.5 billion net debt of PLUS will amount to RM13.75 billion.

3. This cost will be funded by issuing Malaysian Government Securities (MGS) at 3% interest (or less), costing RM413 million per annum. Total repayment will amount to RM16.2 billion over 6 years.

4. At the same time, PLUS should generate at least RM20b in net positive cashflow the 6 years to 2015 without further toll rate hikes and assuming a conservative 3% pa traffic growth.

5. Therefore by 2015, the government can completely repay the MGS and still have RM3.8 billion excess which could be used to build a better public transportation system throughout the country.

Not only will the execution of the above proposal bring joy to all Malaysians with a toll-free North South Expressway, the exercise will fit perfectly with the upcoming “mini-Budget” by the Finance Minister:

• RM14 billion saved by Malaysian consumers will reduce the cost of living for the average Malaysian in times of economic difficulties we face today.
• RM14 billion saved will also redirect expenditure to other more productive sectors of our economy by increasing domestic consumer demand.
• The reduced toll rates and its subsequent abolition will substantially reduce the cost of doing business in Malaysia, increase logistical efficiencies and ultimately make Malaysian companies more globally competitive.
  
• Best of all, the plan will stimulate demand and make available substantial funds for public infrastructure development without the Government having to increase the precarious budget deficit further.
  

Hence, the DAP Ops RESTORE Team would like to reiterate our call to both the Finance and Works Minister to include the above proposal in the proposed mini-budget set to be announced by the Finance Minister on the 10th March for the benefit of the Government and all Malaysians.”

Keen readers will note the toll-free target is now earlier at 2016 instead of 2020. The main difference between this and the proposal we presented at the public forum is we now assume 3% pa traffic growth, compared to zero before.

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.

Concession agreements – what happened to motorists' interests?

Whenever a new toll highway was announced, the BN government promised motorists would get smoother rides and faster travel times in return for paying toll.

These promises were never codified in the concession agreements. All the concessions we have viewed so far do not contain any service level agreements. The concession agreements essentially give the concession-holders the right to collect toll in return for constructing the highways.

But what about the main purpose of these highways: convenience for motorists? There are no service level agreements for the concession holders to comply with. So you and I are now stuck in traffic jams, pay toll and get stuck in jams again, and there appears to be nothing we can do.

We paid the toll. The toll fee is supposed to buy us a product - smooth travel. The concession-holders did not deliver the product (smooth travel) to us, even though we have paid. Quite clearly this is an injustice. The BN government should step in to redress this state-of-affairs.

Unfortunately there is no scope within the concession agreements to demand compensation. But the government can apply moral-suasion and appeal to the concessionaires to behave as good corporate citizens. Here's the logic:

1)It is clear traffic on the toll highways is well above expectations. The number of cars using the highways far exceeds the concessionaires projections. The highways were not built to carry so much traffic. That's why we have to endure traffic jams.
2)Because the traffic is above expectations, the toll companies must be collecting far more revenue than they expected.
3)This excess revenue does not “belong” to the toll companies. They have not provided the expected service – smooth traffic flows – in return to motorists.
4)This excess revenue should either be: (a) returned to motorists in the form of toll discounts (lower toll rates x above-expected traffic flows = same revenue as projected by the concessionaires) or my preferred alternative: (b) collected by the government and used to improve public transport. Of course, if (b) is done, there must be transparency in the total funds collected and how they are actually used.

Do you agree? If you do, write to the Works Minister and and make the above suggestions.

Viewing highway toll concessions – back to the pen-and-paper age

I joined DAP MPs Tony Pua and Nie Ching at the Works Ministry on Friday to take a look at the highway toll concessions that were recently declassified.

The civil servants were civil and polite but had to enforce archaic conditions. Besides the fact that each person can take only one agreement at a time for two hours, we are not allowed to use notebook computers while viewing the agreements! So there we were, about 14 people in all, taking notes the old-fashioned pen-and-paper way. This in a premises with Wi-Fi!

I appreciate the BN government making the agreements public – at least we can now discuss these without the Official Secrets Act (OSA) hanging over our heads. But I would point out salient points have never really been top-secret in the first place – pertinent details are available in Rating Agency Malaysia reports, and have also been given to bankers and analysts as the toll concessionaires raised borrowings or listed themselves on Bursa Malaysia.

Also, the very restricted viewing arrangements are hardly conducive for proper analysis. It would be far more useful if we could make copies of the concessions for thorough analysis instead of having to go to the Ministry every time we need to confirm something. In this internet age, surely the documents can be made available on-line. Or at least, provisions should be made for the public to buy hard copies.

The current arrangements also mean that, practically speaking, the documents are public only to Klang Valley residents. Someone staying in, say, Ipoh can hardly be expected to travel all the way down to KL just for a 2 hour viewing; and even then, he may not get to view the concession he's interested in if someone else has already taken it! There is only one copy of each agreement.

For the benefit of the 15m Malaysians who don't live in the Klang Valley, how about truly making the documents public, Mr Works Minister? Post them on the internet.

On Wed – some of my thoughts on the concession agreements.