Wednesday, January 07, 2009

Cheaper to Expropriate LDP

Article published in The Sun today, pg 6

ex⋅pro⋅pri⋅ate   [eks-proh-pree-eyt]
–verb (used with object), -at⋅ed, -at⋅ing.
  1. to take possession of, esp. for public use by the right of eminent domain, thus divesting the title of the private owner: The government expropriated the land for a recreation area.

  2. to dispossess (a person) of ownership: The revolutionary government expropriated the landowners from their estates.

  3. to take (something) from another's possession for one's own use: He expropriated my ideas for his own article.
I have blogged earlier that after reviewing the agreement of several toll concessions, including Lebuhraya Damansara-Puchong (LDP), Cheras Grand Saga Highway, KESAS and Butterworth Outer Ring Road (BORR), the Government is able to 'expropriate' these highways by giving between 3 to 6 months' notice at 'reasonable' prices.

Lets lay out the facts and figures for LDP here.

1. Cost of expropriation
  • Cost of Construction: RM1.327 billion 
    (inclusive of capitalised interest as published in Litrak's listing prospectus)

  • Interest to shareholder loans to Litrak @ 12% per annum, if any, net of interest and dividends already paid. Pending further investigation and number crunching, I'm going to assume negligible amount due for this item as all existing loans/bonds are taken from 3rd parties and not from shareholders.
2. Government compensation to LDP for 'lower' toll rates:
  • Approximately RM628 million as of 2008

  • Annual payments of RM75 million (compensation for lowering the toll rate from RM2.10 to RM1.60)

  • Contract runs to 2028, i.e., 20 more years of compensation to maintain lower toll rates. Assuming continued 'subsidy' of RM0.50 per annum and constant traffic volume, compensation will amount to RM1.5 billion over the next 20 years.

  • Total compensation 'paid' by 2028 will be approximately RM2.2 billion
Simple mathematics say that RM2.2 billion in compensation for lowering toll rates is much higher than the cost of expropriating the LDP concession. Even if we were to write off the RM628 million which has already been paid, future estimated compensation of RM1.5 billion alone is sufficient to cover the cost.

The Government cannot then say that they don't have the funds to expropriate the highway(s). If they have the money to pay the compensation, they certainly have more than enough money to pay for the expropriation.

What's more, the compensation rate may increase further after 2016 as the toll rate is scheduled to be increased to RM3.10 then. And after appropriation, the Government can either lower the toll rate substantially and its revenues be used to expand its public transportation infrastructure.

So, what say you, Barisan Nasional?
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