MySay: For whom the tolls sell

This article first appeared in Forum, The Edge Malaysia Weekly, on January 13, 2020 - January 19, 2020.
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Every newly elected government encounters the dilemma of having to deliver on promises made to voters to get themselves elected in the first place. Pakatan Harapan found themselves in this position upon forming the government in May 2018.

And as with all newly elected governments, pressure from voters can lead to new governments hastily making erroneous decisions. The plan to selectively and partially deliver on the PH election manifesto promise to abolish tolls is one such example. This pledge especially excited some voters and has been much talked about by the public since.

Hence, while the prime minister and others concede that the manifesto was prepared by a small group without much consultation, even within PH, some quarters claim to be acting in pursuit of this specific commitment.

As well meaning as the government’s intentions may be, there are major concerns with the steps they are taking that should make the leadership seriously reconsider the announcement before they proceed.

 

Liquidating Gamuda cash cows

The Ministry of Finance’s plans involve taking over four toll concessions — Kesas, SPRINT, SMART and the Damansara-Puchong highway (LDP) — for a steep sum of RM6.2 billion.

Three of the four currently belong to Gamuda. To fund the purchase, a special-purpose vehicle (SPV) will be created to issue bonds to raise the capital required.

The first of many questions is regarding timing. Finance Minister Lim Guan Eng has acknowledged that the toll concessions will expire in 9 to 23 years, with LDP and Kesas expiring in 9 to 11 years. To take over these highways, when there is relatively little time left, seems unnecessary.

It might win the government some goodwill from beneficiaries, but with concerns over our massive national debt, raised by the finance minister himself, PH must not fall prey to short-termism for the sake of a dubious popularity boost. Is it really worth spending that much for a toll concession that will expire soon anyway?

 

Overpriced?

Perhaps the most puzzling issue is the RM6.2 billion valuation of the tolls. There is a legitimate worry that the government is paying far too much.

Traffic flows have already been declining on the four highways, with a reported average fall of 2.8% in the last financial year. If traffic continues to fall at this rate, the SPV’s revenues will also drop in the coming years.

And if money is short, as the minister says, then why spend it on taking over an existing asset, which would benefit users of selected routes in the Klang Valley, rather than on funding something the nation needs, for example, healthcare financing, a universal school meal programme, better public transport or a strategic new industry.

What about the means for funding the acquisition? Is issuing government-guaranteed bonds responsible, or too reminiscent of the government-guaranteed liabilities the Barisan Nasional was much criticised for?

At the relevant average cost of funds of 3.5% for fixed income papers maturing in 3 to 10 years, the SPV will need to pay interest of about RM220 million yearly.

While the first toll concessions were widely objected to when first introduced three decades ago, much of the initial objections were over how the government favouring an Umno-controlled company over another bumiputera engineering firm.

Other criticisms were the generous terms given to the toll highway concessionaire which assured them of handsome profits, as has become the practice since. Now, this earlier BN government generosity raises the cost of buying back these toll concessions.

Will the SPV purchase of the tolls really benefit the rakyat? It will certainly benefit the toll companies. If these tolls are scrapped, many toll highway users will save a bit every day. With the imposition of the proposed congestion charges, however, benefits to the public from scrapping the tolls will be reduced.


Nazran Zhafri Ahmad Johari has a law degree from University College London and is currently with Khazanah Research Institute

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