Taxpayers handed RM555 mil ‘summons’ for AES

This article first appeared in The Edge Malaysia Weekly, on August 27, 2018 - September 02, 2018.
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AS the controversy surrounding the Automated Enforcement System (AES) reared its ugly head again, who should bear the ultimate price for the traffic management scheme gone awry?

At the moment, that price tag is a gargantuan RM555 million and is set to come out of taxpayers’ monies. But how the valuation was arrived at remains unclear.

Many other questions have yet to be answered about the AES, which was first mooted in 2005 and implemented in 2012.

At the heart of the complicated issue is how much money the original shareholders of the AES operators had gained when the Armed Forces Fund Board (LTAT) took over the operating companies from their original shareholders for RM555 million in 2015.

What LTAT paid for exactly remains unclear. The two companies, Beta Tegap Sdn Bhd and ATES Sdn Bhd, collectively had RM96.95 million in total assets and RM162.09 million in total liabilities as at June 30, 2015.

That leaves a glaring shortfall when compared to the RM555 million LTAT paid, raising suspicion of a sweetheart deal engineered by the Barisan Nasional government at the time.

When asked, LTAT CEO Tan Sri Lodin Wok Kamaruddin said the price was partly based on the expected returns.

“It [was for] buying the two companies, which own the concession [for 13 years] and other assets. So, the price was based on the return that could be generated from the concession over the 13-year period,” Lodin told The Edge.

The two companies are now held under Irat Properties Sdn Bhd, a 50% associate of LTAT. Boustead Holdings Bhd, LTAT’s listed flagship, bought a 50% stake in Irat Properties back in 2015.

Note that Boustead paid RM127.8 million for the 50% stake, and another RM55.5 million for 550,000 redeemable convertible preference shares in Irat Properties.

Boustead’s acquisition of Irat Properties shares was valued at RM2.13 per share, which included the separate injection of two properties worth RM508 million into the latter.

 

Political connections

The political connections underlying the AES had come under close scrutiny for years. The original five-year concession, prior to LTAT’s entry, was seen as a sweetheart deal for well-connected shareholders at the time.

For example, ATES was seen as linked to Datuk Omar Mustapha Ong, a former aide of ex-prime minister Datuk Seri Najib Razak, who had previously appointed Omar to the board of Petronas, among others.

However, Omar’s name does not surface. His associate, Chee Chwee Cheong, was among the original directors of ATES.

When contacted for this article, Omar said: “The original shareholders of the two companies are a matter of public record. I have nothing to add and welcome any investigation by the authorities should there be any allegations of impropriety.”

Beta Tegap shareholders then included Dr Andreas Teoh, said to be MCA-linked, and Toh Puan Rozana Redzuan, who is said to be related to former Umno leaders in Johor.

Note that MCA politicians had held the Ministry of Transport portfolio between 2005 and May this year, when the BN was voted out of Putrajaya.

It is worth noting that the original AES operators fell short of their commitments under the concession, leading to the takeover by LTAT.

Back in 2012, Beta Tegap and ATES were supposed to spend up to RM400 million each in capital expenditure to install the cameras in 831 hot spot areas nationwide.

Beta Tegap would cover Kuala Lumpur, Selangor, Putrajaya, Negeri Sembilan, Melaka, Johor, Pahang and Terengganu while ATES would cover the rest of Malaysia.

About 60% of the capex was supposed to be incurred within the first six months. To date however, only 47 cameras — out of a planned 1,000 — had been installed, Transport Minister Anthony Loke Siew Fook said last week.

The original fee structure for the AES operators was a three-tier payment system that was criticised as overly generous.

It was also seen as effectively privatising law enforcement as the AES operator was getting a share of the revenue from the summons collected.

In the first tier, the AES operators would get RM16 per summons issued, capped at five million summonses. In the second tier, the AES operators would get 50% of each summons paid, to a maximum of RM270 million.

After the two tiers, the operators would get 7.5% of the total summons collected.

However, only 18% of summonses issued have been paid since the AES came into force, Loke disclosed last week. That amounts to RM129.1 million for both tier-1 and tier-2 payments to the AES operating companies between October 2012 and May 2018.

Between 2012 and 2014, when the original shareholders were still owners of the AES operators, the total payment came to RM47.89 million.

However, publicly available records show that ATES posted annual net losses between 2012 and 2014. Likewise, Beta Tegap was loss-making up to 2014. It is unclear why.

Loke said the unpaid AES summonses amounting to RM435.42 million would be waived.

 

How much was AES worth?

Some clarity on whether LTAT overpaid for the AES acquisition could be shed if the government declassifies a previous due diligence exercise on the AES operators.

Recall that parliament had passed a motion approving the government’s proposed takeover of AES back in December 2013. That did not happen as LTAT was later asked to do it instead.

The then deputy finance minister Datuk Ahmad Maslan said both companies at that point had invested about RM717 million after buying 300 cameras, although only 14 were installed then.

Ahmad Maslan also disclosed that the finance ministry had conducted a due diligence on the two operators the same year.

However, it was never disclosed what the fair value of AES was based on the due diligence, or whether the RM717 million estimated investment was fairly priced or inflated.

The details in the study could shed light on whether the LTAT acquisition was overpriced and whether the original shareholders made undue gains.

When asked last Friday, Loke declined to discuss the previous government’s due diligence. “I was informed of some figures but we [the government] would not be bound by any of that,” was his brief reply.

He also responded to a statement by former LTAT chairman Tan Sri Mohd Anwar Mohd Nor on Aug 23.

Anwar had said that the previous government had promised to reimburse all LTAT’s investment costs plus a 12% return rate per annum for a two-and-a-half-year period.

“We will sit down and discuss with LTAT. As far as the government is concerned, our position is that we will only repay RM555 million to LTAT, nothing more, nothing less,” Loke said, adding the AES takeover was “a bad decision in the first place”.

The AES implementation was also clearly ill-conceived from the beginning as it was suspended shortly after its implementation on the Attorney-General’s recommendation in December 2012, following a public outcry and legal challenges to the validity of the summonses.

The following year, the government mooted a takeover of Beta Tegap and ATES, which was eventually approved by parliament in December 2013. However, in 2014, the government asked LTAT to acquire the two companies instead, a process that was concluded in 2015.

AES operations resumed in 2015 after LTAT had taken over the operating companies. Lodin said LTAT had formed its own management team and dismissed speculation that the fund had retained the existing people to continue running the AES system post-takeover.

In any event, 13 years after the AES was mooted, the clear injustice of the imprudent scheme is that it will ultimately be the Malaysian public’s to bear — and with so little to show for it.

 

 

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