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.


Anonymous said...

Your assessment and conclusion disputable. Read it at

written by Dr Rafick

Ellese said...

This doesn't make sense. Where is the government going to get the money to pay off? It will balloned our budget deficit.

The govt proposed deal is better. It doesn't effect the budget. Yet allows the government to control the company and seek variation of terms in concession. What needs to be done is to renegotiate the terms of concession ( which Uem has said it as a must) and ensure Epf has higher adequate return than it's current lower returns.

lan said...

Good but not the best. Still waiting for your feedback for the above

Dr Mohd Rafick Khan said...

Hi YB Tony
Thank you for visiting and penning your views in my blog. Allow me to publish my reply to your comment here.

I believe the differences lies on how we interpret things.

I am fully aware and appreciate the difference between Government, Government link companies and EPF. They are different entities.

I disagree when you say that there would be no impact on the government budget if the government take over PLUS. From a legal point of view, the government has two options on how to take over PLUS. They are:

(1) Nationalization of asset and pays off the debtors and shareholders
(2) Use one of the GLC where government has 100% controlled. In this case, UEM suits the description

If option (1) is chosen it will have an impact on the budget and foreign investors. We would be sending a very negative messages to investors who wants to invest in infrastructure related projects. This is not good.

I understand your/DAP proposal where by raising bond the government would be able to settle the cost of taking over PLUS but you must appreciate that it is a process that cannot be done in 24 hours.

From a cash flow point of view it would have an impact on the budget as the government has to fork money out and pay the owners and then the government use the property to raise bond. As I said earlier it cannot be done over 24 hours. There is a time gap between taking over, paying and raising bond which will have an impact on the government budget. Using DAP proposal, I have illustrated the cost impact on the government. And I believe you appreciate the fact that the government machinary is bounded by rules and regulations and only BNM can issue bonds.

The short cut , fast and effective manner is do things along the private sector way with minimal government intervention. Therefore using UEM as a vehicle makes a lot of sense.

Then on the issue of EPF where you said that you prefer EPF to come in after the concession agreement has been revised. I think many people do not have access to the full details but I believe the EPF board are very financial conscious lot. They have to make sure their investment surpassed their minimum expectation. If not they will not go in. I believe they have done what need to be done to ensure just that.

As I mentioned this is a journey for both Govt/UEM and EPF to ensure all stakeholder interest is protected and my own analysis says that EPF will be rewarded handsomely and the highway will be return to Khazanah (UEM) 100%.

As indicated the DAP should be proud that actually the government use their ideas albeit a slight modification in tactics.

From financial point of view it relieves the government of any financial burdeon. I hope my explanation is clear. If not lets have coffee and we have a longer chat. :)

Dr mohd Rafick

pak twain said...

Dear YB Tony,

I'm quite intrigued by the suddenness and urgency on the part of the government regarding PLUS. I did some research (online) and discovered problems with PLUS' investments in Indonesia.

1. They have recently sold off their holdings in the JV company PT Cimanggis Cibitung, which was awarded a contract for a RM 1.2 billion highway, for RM20 million. How much have they spent on the project? Was it a forced sale since there is no progress on the project?

2. The RM 2.7 billion Cikampek-Palimanan Highway has been plagued with delays and construction hasn't even started yet due to lengthy land acquisition process. Meanwhile, the contractor has to fork out money for land compensation. Recently the Indonesian government issued a warning that they may take back the concession. How much has PLUS spent on this venture? Has it been reported in their quarterly report?

Is there an urgency on the part of PLUS to privatise the company by the end of the year so that they don't have to publish the losses due to problems in Indonesia (another Sime Darby)? I hope PR can dig a little deeper on this and publish it for the public to see. I only had a few hours of reading so my info might not be accurate. Also, get someone who is proficient in reading Indonesian.

Hulwan Afif Haji Idris
Bandar Baru Bangi

Unknown said...

hello Tony

vat u think bout Malay Mails write up on Astro Row Escalates....

Why you don't care bout 3million subscribers kah, we are voters too... 3 million strong... in some sites they say, in Malaysia, there is 200 odd days of rain, that means NO SIGNAL for us.

For lousy broadcast Malaysians cough up 2.4 billion a year, NOW THIS SHLD GET YR ATTENTION

TOKZ said...


Pls. read this link

Senator Datuk Dr. Firdaus have something GOOD for you to shuv' it up ya ARSE.

Nat said...

Hi Tony,

This is unrelated to the post, but I just found out that the health ministry will be releasing Genetically modified mosquitoes in a few months. Didn't get to hear what was announced on radio earlier.

I did some searching and am still rummaging for some info and found this:

and this:

I strongly feel, without first letting the public know the details of this exercise and detailing possible future implications, they are putting us Malaysians into danger.

What is there is an event of an uncontrolled biohazard? I am sure our ministry and government will not be able to cope with damage control. Plus releasing these mosquitoes into open areas such as Pahang, there is no fail safe of any sorts mentioned to recall them if anything gets out of hand.

Hope you can look into this as well.

I am doing my best to pass the info around and make Malaysians aware of this.


Anonymous said...

We as rakyat wish that the Govt will scrape all tolls esp those that encroached into the original roads and had been hijacked by Umno to put tolls and tax on rakyat - makes no sense at all, it is daylight robbery!

TWC said...

hi Tony, based on the above feedback, why are you look and sound stupid?

DAP does not deserved people like you.


Anonymous said...

YB, there is an article under Malaysian Defence Blog written by Marhalim from Malay mail on the analysis of National Defence Policy or Dasar Pertahanan Negara.
Why such important document was not debated in Parliament or are they hiding something or the Ministry don't trust MPs elected by the people. Isn't it public interest as to how this nation is being defended and how the money spent for all the million RM procurement? Is the policy in line with our National Interest? Take it on please!

Anonymous said...

The reason why the BN government preferred a GLC namely, UEM ,is because this UEM is an UMNO linked company and it rakes in billions for them. Simple as that.

Additionally, it is also linked to royalty and the BN government is killing two birds with one stone.

Anonymous said...

"Anyway, at the most least, the Gomen have put Their "Minds & Souls" for the interest of Rakyat Malaysia..towards Nation-Building for the generation to generation!"

Just look at the Trends Of Currency exchange rate amongst Malaysia,Brunei,Singapore from 1980s, 1990s, and 2010s, some significant clues will expose itself...!