Saturday, April 21, 2012

More "Get-Rich-Quick" Highways

On 26 January this year, Kumpulan Europlus Bhd disclosed to Bursa Malaysia that West Coast Expressway Sdn Bhd (“WCE”), a 80% subsidiary company of the Company, has received an approval letter dated 26 January 2012 from the Public Private Partnership Unit of the Prime Minister’s Department for WCE to undertake the Proposed Privatization of the Construction of the West Coast Expressway.

The Concession from Banting in Selangor to Taiping in Perak will cover a distance of 316km with an estimated project cost is RM7.07 billion.   The lucrative terms of the project included a concession period of 60 years; a “Government Support Loan” of RM2.24 billion at an interest rate of 4% per annum, and an interest subsidy, of up to 3% from commercial loans for a period of 22 years.  What’s more the land acquisition cost of up to RM980 million for the Project will be borne by the Government.

The term of the new Concession agreement with WCE is a far cry from the original terms awarded in May 2007.  However, because WCE had been unable to fulfil the terms and conditions of the original concession, these terms were re-negotiated.  The result was an increase of 134.5% from the original RM3.0 billion and an extension of the concession period from 33 to 60 years.  The soft loans and interest subsidies on commercial loans were all new sweeteners added to the agreement terms to ensure a lucrative project for the concessionaire.

In fact the anticipation and ultimate award of this concession has caused Europlus stock price to leap from a low of 88 sen in September to a high of RM1.36 after the above announcement in January.  Today the stock is trading at RM1.24, still 41% above its lows last year.  The low stock price before the award of the highway concession was unsurprising, given that Europlus made RM50.8 million in losses on less than RM28 million of revenue for its financial year ending January 2011.

However, despite being the single largest shareholder of Europlus, Tan Sri Chan Ah Chye announced that he has resigned as the President and Chief Executive Officer of the company.  It was announced that “after working on the West Coast Expressway project for the last 16 years, now that the project has finally been awarded to Europlus’ 80%-owned subsidiary, West Coast Expressway Sdn Bhd, it is his desire to spend more time with his family and do things he has no time to do for the last so many years.”

The announcement came as a shock because it clearly signals the fact that Tan Sri Chan Ah Chye will soon be receiving a “golden handshake” for his 27.6% stake in the company, valued at RM178.1 million at current market prices.  There is no conceivable reason for him to resign from all positions in the company if he were to maintain his shareholdings.  I have received unconfirmed information that his shares will be acquired at more than 30% above the current market price amounting to approximately RM231 million.

The BN Government has once again chosen the fastest route to make instant multi-millionaires by awarding unbelievably lucrative concessions to its favourite business cronies.  By just securing the contract Tan Sri Chan Ah Chye has seen his wealth rise by leaps and bounds with an immediate exit in less than 3 months after the award before the construction works even commence.

We have seen how Tan Sri Abu Sahid Mohamed, the owner of Maju Expressways (MEX) made a killing by disposing of his interest in the highway for RM1.7 billion and netting a net profit of RM1.09 billion, despite having invested only RM60 million.  While the MEX was awarded by Tun Dr Mahathir Mohamed in 1997 (revised in 2003), the current concession is awarded by Dato’ Seri Najib Razak.  The current Prime Minister is obviously taking a leaf out of his predecessor’s play book, making a complete mockery of his clarion call for “economic transformation”.

We call upon the BN Government to stop making instant multi-million profits for its cronies by withdrawing the award of the WCE concession to Europlus and to conduct and open, transparent and competitive tender for the award of the project to ensure that only the best companies offering the lowest construction price and shortest concession period are given the contract.  Only then will the interest of tax-payers’ be protected and not fleeced like in all previous highway and privatisation contracts.
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