Wednesday, October 20, 2010

More Toll Compensation for PLUS?

As the saying goes, there is no free lunch. The people's joy that there will be a 5 year moratorium on toll-rates was short-lived. UEM has announced that under the current concession agreement, the Government is likely to have to further compensate the toll concessionaire nearly RM5 billion for the freeze in toll rates. This is on top of more than RM800 million in compensation being paid by the Government since the toll freeze in 2008. For example, in the financial year 2009, PLUS Expressways Bhd was due RM813 million in toll compensation.

Based on the concessionaire agreement with the Government, PLUS is allowed to increase toll rates at a fixed 10% every 3 years and the last increase was in 2005, and the rates have been frozen since. A return trip from Kuala Lumpur to Penang would cost RM86.60 today, but will cost RM115.25 or 33.1% more by 2015 if PLUS is allowed to raise the tariffs in full.

In fact, given the circumstances where the Government is fearful of increasing any toll rates due to a potential voter backlash, should the toll rates be frozen all the way till the concession expires, the total compensation that needs to be paid over the next 28 years will amount to a mind-boggling RM64 billion!

It is unfortunate that the Government has chosen to ignore our DAP proposal provided early last year in February, and repeated in our Alternative Budget issued in September 2009 to take over the PLUS concessionaire. At that time, with the price of PLUS Expressways Bhd hovering below RM3.00 per share, we had recommended that the Government make a general offer to take over the shares at RM3.30 per share.

This price would be far lower than the price currently being offered by the UEM-EPF joint venture of RM4.60 per share. Instead of valuing PLUS at RM23 billion, it would have been at RM16.5 billion, saving the Government a potential RM6.5 billion in cost of acquisition.

Based on our proposal last year at RM3.30 per share, the cost of acquisition can be fully paid off within 7 years, financed purely by the profits of PLUS without further increasing toll rates. Hence the concession period can actually be effectively reduced to 7 years and subsequently the PLUS highway can be toll free or a marginal toll rate can be collected for the purposes of maintenance.

However, it is not too late for the Government to launch a takeover offer based on the same price that the UEM-EPF joint venture is offering to ensure that Malaysians get a better deal. At RM4.60 per share, post acquisition, the Government will be able to finance the cost of acquisition in its entirety over a shortened concession period of 14 years, freeze toll rates perpetually without having to pay compensation and allow PLUS to be toll free after that.

The above will be the fair deal that the rakyat will be looking for where the Government the acquisition does not cost the government a single cent as it is self-finance over cash generated during the 15 years concession period, toll rates will be frozen for 14 years and not just 5 years without the Government having to pay a single cent of compensation. What's more, the toll concession period can be reduced by half from 28 to 14 years.

The UEM-EPF acquisition does not bring benefits to the man on the street with the exception of transferring the astronomical profits from the current shareholders to the new shareholders. PLUS Expressways is extremely profitable due to the lobsided concession agreement resulting in PLUS achieving a profit before tax of RM1.62 billion and margin of 51% in 2009. The current acquisition by UEM-EPF is only a case of “robbing Peter to pay Paul” which does not include any restructuring of the concession agreements.

We call upon the Government to seriously considering directly acquiring the PLUS concessionaire in the interest of the rakyat instead of leaving the concession agreement unchanged. It absolutely does not make sense for the government to be compensating an obscene amount of RM5 billion to the concessionaire or possibly even as high as RM64 billion over the entire period, when the cost of directly acquiring PLUS will only be RM23 billion as offered by UEM-EPF. Unless of course, the Government is intent to make Malaysians suffer.
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