This article first appeared in The Edge Financial Daily on March 21, 2018

KUALA LUMPUR: The government may have the intention to abolish toll roads to lighten the burden on the people but this is too pricey to do, at least for now.

Works Minister Datuk Seri Fadillah Yusof makes it clear that the government will rather restructure the toll collection scheme than take over the toll concessionaires.

“It’s not viable for us to take over the entire concession; it is better for us to consider a restructuring scheme that we are looking at now,” Fadillah told Parliament yesterday.

Fadillah stressed that the government will not take the risk of bringing the matter to court should the toll concessionaires demand for compensation on future earnings in a premature termination of a concession contract.

“The losers will be the government and the rakyat if there is compensation to be paid on top of the legal costs,” commented Fadillah in reply to a question posed by Serdang member of parliament Ong Kian Ming.

He explained that in the event of an early termination of concession, compensation for loss of future profits is “part of the negotiation” between the government and highway concessionaires despite it not being part of terms and conditions in most concession agreements.

“When there is an agreement between both [parties on early termination], it is fine. But when one side does not agree, they will insist on [compensation] of future profits,” the minister added.

Earlier, Fadillah quoted a 2010 study by the Performance Management and Delivery Unit, which estimated overall costs to take over all highways in the country to be RM383.3 billion — comprising costs to take over the highway concessionaires (RM45.2 billion) and costs to abolish toll collection (RM338.1 billion).

Ong, however, argued that given there is no clause on compensation for an early termination of concession agreement, compensation for future earnings should not be included in the calculation.

According to Ong, the government could save more by going to court instead of abiding by the terms of the concessions.

“However, in the terms and conditions of almost all toll concessionaires which I have studied, there was no mention of takeover costs based on future profits. What they said [in the concession agreements] is the payment for cost of construction and cost of capital,” said Ong.

Ong brought up the proposed takeover of Eastern Dispersal Link (EDL) from Malaysian Resources Corp Bhd by the federal government, which did not include any calculation of future earnings from toll collection.

“What was underlined included the cost of construction, and part of the capital funded by shareholders for the payment — with a return on investment of between 8% and 10%.

“So the formula can be used to take over other toll concessionaires such as LDP (Damansara-Puchong Expressway) and the [Kajang]-SILK [Highway],” said Ong.

That said, Fadillah pointed out that the compensation cost for EDL has not been finalised as the negotiation has yet to be completed.