Highway Buy Back: A Reply to Critics

Recently there has been a slate of reports by various investment banking research houses as well as the highway concessionaires themselves who have been criticising any proposed plans to buy back the highways from the concessionaires such as a Bernama news report on the 5th July, and a report by The Edge 4 weeks ago.

We have proposed that the Government should buy back all shares of PLUS Expressways Bhd which it does not already own and take over its existing asset backed liabilities for the approximate amount of RM15 billion. This amount and more, will be recovered from motorists using the North-South Highway by maintaining the existing toll rates for a period of six years. Should PLUS be acquired this year, by 2016, toll will no longer be required to be collected on PLUS owned highways.

We have also proposed that highways such as the Lebuhraya Damansara-Puchong (LDP) with reasonable expropriation clauses be acquired from the concessionaires as per the terms in the concession agreements. It is estimated that the cost of buying back LDP will only cost approximately RM1.4 billion, including liabilities to be assumed by the government.

Critics have panned the above proposals based on the following reasons.

• The funds needed for the acquisition of highways can be better utilised for other projects.
• The acquisition of these highways which are largely in Peninsula Malaysia will anger East Malaysians who do not benefit from the funds used for buy-back.

Unfortunately, the arguments above only apply if the Government is not already spending more in terms of compensation to these highway companies. For example, toll compensation to PLUS amounted to RM655 million, RM698 million and RM731 million for 2006, 2007 and 2008 respectively. PLUS has 30 more years before the concession expires. Without even taking into consideration the direct toll collection from motorists, the Government's compensation amount over the next 30 years will exceed RM68 billion should the current toll rates be maintained, after taking into account the fact that PLUS is entitled to increase toll tariffs by 10% every 3 years.

Similarly for the LDP, assuming that toll rates are capped at RM1.60 and no traffic increase, it'll cost an estimated RM1.54 billion in compensation alone between now and the end of the concession in 2029. For both highways, it is clearly more economical for the Government to buy back these highways, allowing for more funds to be used for other projects, including those in East Malaysia.

• There is no economic impact from money spent to buy back the highways, compared to spending them on “stimulus” projects

This will also prove to be a fallacy. The outcome of the acquisition of these highways, will mean increased in billions of disposable income for millions of Malaysians as a result of toll savings. The stimulus impact of such an increase will certainly mean a boost in domestic consumption which will benefit our economy at a time when foreign investment contribution to our economy is falling rapidly. Extra funds in the pockets of millions of Malaysians will therefore have greater stimulus impact than the billions ending in the pockets of a few via the extraordinary profits made by these highway concessionaires.

• The Government will have problems raising the funds to execute the highway buy backs.
• The buy backs will result in a higher budget deficit

Unlike Government borrowing for normal development and operational expenditure, the funding for these highway buy backs are tied directly to the cashflow of the highways. For example, the RM15 billion required to buy back PLUS will be repaid over 6 years via the free cashflow generated by maintaining toll at existing rates for the period of time. It will be easy for the Government to raise such funds with the security of the very stable cashflows. The nature of the borrowings will also mean that it will have no impact on the budget deficit.

• The Government will have to bear the burden of maintenance, especially after the highways become toll-free

Yes, indeed the Government will have to bear the burden of maintening the highways. However, the cost of these maintenance have often been exaggerated. For example, the maintenance cost of the North South Expressway amounts to RM200 million while that of the LDP is RM10 million per annum. These amounts are only a tiny proportion of the compensations which the Government is already paying to the highway concessionaires annually. Furthermore, by conducting open tenders towards the maintenance of these highways, we can expect the maintenance to cost even less.

Therefore, the DAP would like to reiterate our position to the Works and Finance Ministries, as well as the Economic Planning Unit (EPU) to buy back PLUS Expressways via the stock market, as well as other highways by exercising the expropriation clauses within these agreements. The above proposals are the best options to ensure that Government funding is most effectively utilised, and the interest of the people are best protected.