Tuesday, March 06, 2007

"Excessive Profits"

We have always been griping that the Government compensates the toll concessionaires too much, or the toll rates are set at unreasonably high levels. But no one is really in the know as to how much these toll concessionaires make in terms of profits, not exactly anyway, even though many of these companies are listed entities.

So when I got my hands on a copy of the Lebuhraya Damansara-Puchong (LDP) concessionaire, Litrak's stock exchange listing prospectus issued in November 1996, I (figuratively) fell off my chair.

Here's a little background about listing prospectuses. They are issued firstly not only as information with regards to the prospective company, but also a document to protect investors from unscrupulous businessmen. That means that all information contained in the prospectus must be fair and true, with all statements and forward projections verified and validated by lawyers, accountants, market researchers as well as regulators. Non-compliance or provision of information found to misleading or untrue will land the various parties, including the directors of the company itself into hot soup.

Within the prospectus itself, there is no other piece of information more important than earnings projections, for it is the key benchmark by which investors can make reasonable evaluation on the worth of the company. Companies seeking listings without earnings certainty, need not make such forecasts or projections. Hence, when Litrak made their 30 year earnings projection based on their LDP concession agreement, you can be certain that it was almost as good as gold.

Well, lets get to the juicy details:

Cost of building LDP: RM1.327 billion
The total capital cost of construction of the Highway is currently estimated at RM1.327 billion inclusive of capitalised interest of RM142.3 million.
Projected Profit after Tax (PAT) over 30 year concession period: RM18.865 billion
Projected PAT 1997-2006: RM1.222 billion
Projected PAT 2007-2015: RM3.826 billion
Projected PAT 2016-2029: RM13.817 billion
Yes, you've read it right. Over a short period of 30 years, Litrak is practically guarateed of RM18.7 billion profits, relative to an initial cost of RM1.3 billion. That's more than 14.2 times return on capital. The LDP concession agreement signed by our elected Barisan Nasional government virtually guaranteed “excessive profits at the public's expense”.

Even if the Government had funded the construction of LDP by issuing generous high yielding treasury bonds at 5% rate, the overall cost of construction taking into account interests payable would only have amounted to no more than RM5.75 billion.

More than RM10 billion of our hard-earned tax payers' monies are literally siphoned off for the benefit of the few politically connected. There was no open or competitive tenders made for the concession rights..

And this is only for a single highway project. Can you imagine the cumulative impact of the tens of highway concessions in this country? Is it "excessive (guaranteed) profits"? You decide.
Post a Comment