Wednesday, July 15, 2009

Nationalisation of toll operators not viable?

There seems to be a lot of misconception of the proposal to nationalize the PLUS highway. I have proposed for Khazanah to acquire the remainder stake but I did not propose that toll fee is abolished. I believe that the toll fee should be maintained. The reason I am proposing that Khazanah acquire the remainder stake of PLUS highway is to prevent the Government from incurring toll compensation that has been increasing yearly up to RM730 million in 2008.

In addition, the acquisition will enable the Government to vary the toll hike instead of facing this dilemma every three years. A hike of nearly 10% every three years may seem to be in line with the CPI index, however as the highway is a vital social infrastructure it should not be generating huge profit via compensation from the Government. I am positive that the consumer will agree to a toll hike if PLUS is not making huge profits and the toll hike is necessary for the maintenance of the highway 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 Government. I do not have the data to support whether most of the yearly dividend from Khazanah to the Government is from PLUS or that PLUS profit is used to subsidize other loss making operation of Khazanah. Furthermore in the recent Mini Budget, Khazanah receives additional RM10Billion for its investment purposes.

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

As such the comments by the Bond Pricing Agency Malaysia Sdn Bhd (BPA) Chief Executive Officer Meor Amri Meor Ayob may not be reflecting the true scenario. An excerpt of his statement is as follows:

“ 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 of toll is mainly due to contractual obligation rather than inflation or operational needs. The maintenance cost form part of the portion of the companies operating cost but the other major cost is actually interest cost amounting to RM654 million in year 2008.
It is misleading to paint a picture that PLUS is losing money or require toll hike to sustain. PLUS has been generating profit since year 2003 onwards and even if the toll compensation is excluded PLUS will still generate a profit. For example in year 2008, the profit after tax is RM1billion and RM270million after excluding compensation.

Interestingly the dividend declared for 2008 amounting to RM800million exceeds the compensation payable by the Government of RM730million. The compensation due from Government has also been accumulating and have not been fully paid. Despite the built of toll compensation payable of up to RM2billion, the management have been able to pay dividend consistently. This indicates that PLUS is operating profitability and its cashflow is healthy. It is also important to note that the bulk of PLUS loans are bonds.

The CEO then goes to say the following:-

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 transport of goods usually are through highway. Most logistic company uses highway to save time. Thus if there is a toll hike it affects the price of goods and service. The notion that toll hike only affects its user is not entirely true as other consumers of goods and services are also paying for toll hike indirectly.

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


  1. YB Chua,

    I found your 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 which that needs its funds the mos. 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 sector that will benefit all Malaysians, and to this end I agree.

    Zurina Jamaluddin
    Professor, Universiti Sains Malaysia (USM)

  2. Dear Zurina Jamaluddin,

    Thanks for your comment on the proposal.

    I agree highway users have been enjoying the benefits of our highway infrastructure, however sadly we have been overpaying PLUS. This is because PLUS is making huge profit and the government is still required to compensate PLUS.

    Profits of PLUS is over RM1 billions on average. This also shows that it is financially viable to acquire PLUS.

    Government compensate PLUS few hundred millions yearly and the amount has increased to RM730 million. If this money is channeled to other area, it will also benefit the rakyat. Financially PLUS does not require the compensation. The compensation alone over 29 years would amount to RM21 billion.

    You have your opinion on why PLUS should not be nationalized, but I believe I will stand by my proposal as nationalization of PLUS would avoid yearly compensation due to contractual obligation. However I do not propose abolishment of toll or that toll fees should be maintained forever. PLUS should be allowed to generate profit but the company’s action must be equitable to the rakyat.

    In addition, just for your knowledge, if PLUS highway is expanded or the road widened it is the government that pays for the expenditure but PLUS will collect the toll.