Wednesday, March 21, 2012

MEX: Government Can Expropriate for RM400m

The MEX is the most clear-cut case of making tax-payers’ pay for the construction of the highway, and subsequently allowing a BN crony to milk the tax-payers further by charging toll, in this case, over a period of 33 years.  There is no better example of how the BN Government and its cronies are conducting highway robbery in broad daylight.

Tan Sri Abu Sahid Mohamed who owns 96.8% of the highway has only effectively forked out RM60 million for the project, but with the proposed acquisition by EP Manufacturing Bhd (EPMB), he would effectively be making a NET profit of RM1.09 billion.  That works out to more than an astronomical 1,800% return on investment in less than 8 years since construction began in 2004 for MEX.

The rape of Malaysian tax-payers which made a billionaire out of Tan Sri Abu Sahid Mohamed on this exercise alone is simply outrageous and unacceptable because out of his “profit”, RM976.7 million was paid for by Malaysian tax-payers.  The grant hence constitutes 74% of the total cost of construction for the RM1.32 billion highway.

In EPMB’s announcement to Bursa Malaysia last Friday, the company has cited among the risk factors of the acquisition is the existence of an “expropriation” clause in the MEX Concession Agreement.  The announcement read:
Subject to giving three (3) months‟ notice, the Government may terminate the Concession  Agreement by expropriating MEX or the Concession if the Government considers such action  to be in the national interest or national security. Under such circumstances,  MEX will be entitled to compensation from the Government.
Based on the same clause applied to other highway concession agreements which were disclosed when they were declassified in 2008, the compensation terms for such expropriation would also be specified:

  1. the amount (if any) by which the Value of the Construction Works exceeds the aggregate of the amounts paid or the liabilities and obligations assumed by the Government… and all amounts as at the date of compulsory purchase or acquisition owing to the Government by the Concession Company.
  2. an amount equal to:
    1. the amount of interest which would have accrued on the moneys invested in or lent to the Concession Company by shareholders of the Concession Company as if the interest had accrued on such amounts from the relevant dates of payment to the date of payment by the Government on an accrual basis of 12%; less
    2. any net dividends or interest received by the shareholders of the Concession Company

In layman’s terms, the compensation terms for expropriation is as follows:

a. “the value of construction works” (RM1.32 billion)
b. LESS “the aggregate amounts paid” by the Government (RM976.7 million)
c. LESS “liabilities and obligations assumed by the Government (Not determined)
d. ADD 12% interest per annum “accrued on moneys invested” by shareholders of the concession (RM60 million x 12% x 8 years since 2004 = RM57.6 million)
e. LESS “any net dividends or interest received by shareholders” (None)

The maximum cost of appropriation of MEX by the Government will hence be only RM400.9 million [RM1.32 billion – RM976.7 million + RM57.6 million] before taking into consideration any liabilities which the Government has to assume.  If there are outstanding net liabilities which the Government has to undertake, then the cost of appropriation will be even less.  This amount will more than adequately compensate the investment of Tan Sri Sahid Mohamed in the highway who will make very reasonable returns on his RM60 million investment.

In comparison, based on calculations made available in the announcement by EPMB, MEX has projected earnings of RM3.2 billion over the next 25 years of the concession agreement which will be milked from ordinary Malaysians.

Therefore it makes absolute sense for the Government to expropriate or buy back MEX instead of letting the highway continue to rob the man-on-the-street.  Should the Government fail to expropriate the highway, the it will certainly make true the Malaysian BN dictum of “crony first, rakyat last”.
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