Friday, November 17, 2017

The Government should call ERL’s bluff and allow ticket prices to hike instead of bailing out the company with a 30-year extension

The Deputy Minister of Transport, Aziz Kaprawi, told Parliament this week that the Government was extending the concession period for the ERL service by 30 years. This will double the concession period for the ERL, which was meant to expire in 2029. The concession for the ERL is held by Expressrail Link Sdn. Bhd (ERL) and was signed in 1997.

The Deputy Minister has stated that concession extension is the Government’s compensation to ERL for rejecting its last three scheduled fare hikes. The ERL Express service is currently priced at RM55 but should be priced at RM74 according to its initial concession agreement. It is meant to increase again in 2019 to RM97 and another increase was due in 2024 bringing the fare up to an astonishing RM126.

ERL had previously demanded RM2.9 billion in compensation from the government due to its inability to raise fares based on its initial schedule. However, the Auditor-General’s report found that ERL’s revenue was between 11.5% and 13.7% of its projected revenues.  Hence why should tax-payers compensate ERL for revenues which were outrageously inflated anyway?

On the contrary, instead of trying to stop the fare hikes, we call upon the Government should “approve” the fare hike per the concession agreement, should ERL chooses to implement them.

This is because should ERL chooses to hike the fares further, their ridership will fall even further than its already low levels today.  The Deputy Transport Minister in his parliamentary reply on 15 November confirmed that when the ERL increased its fares from RM35 to the current RM55 fare on 1 January 2016, the number of passengers dropped by 19% to 8.9 million. 

Any ordinary person with a sound mind would be able to tell you that should ERL choose to increase its fares further per the above schedule, the number of riders will drop even more drastically. And by Datuk Aziz Kaprawi’s own admission, ERL had suffered 6 continuous years of post-tax losses from 2009 to 2014.

The reason is simple, there’s now ample competition in transport service availability to both KLIA and KLIA2.  The same journey using GrabCar or Uber ride service will cost RM65 and approximately RM75 respectively.  If the rides are shared, then the fares are significantly cheaper than ERL.

Hence the Government should call ERL’s bluff and allow them to proceed to raise its fares.  If ERL does so, and collapse financially due to the lack of passengers, the Government has the right under the concession agreement to take back its service.

However, if ERL chooses not to hike its fares despite being allowed to do so by the Government, then the tax-payers will be absolved of any obligations to compensate ERL!

The question hence for the Government is, is its rejection of fare hikes an honest attempt to protect the rakyat, or its really a masked attempt to bail out ERL and save a crony-linked company?

The ERL concession was awarded in 1999 through a direct negotiation with the ERLSB, whose largest shareholder is the YTL Group. By choosing to extend ERLSB’s concession, the Government is helping ensure that those lopsided terms continue.

The ERL has taken a business risk with seemingly lucrative terms – including a fee of RM5 and RM1 to be paid for every international and domestic traveller respectively using KLIA or KLIA2, regardless of whether they use the ERL.  Since 2002, this has amounted to RM741 million.

However, now that business apparently isn’t so good, why should tax-payers step in now to bail out the company shareholders?
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