In January this year, the Government raised the toll fare for 5 privatised highways in the Klang Valley. The Bentong and Gombak toll on the Karak Highway was raised by 20% and 25% respectively. The 3 KESAS Highway toll was raised by 47%, while the Batu 9 and Batu 11 toll along the Grand Saga Highway was raised by 43% and 50% respectively. The highest increment however, was at the tolls along the Lebuhraya Damansara-Puchong (LDP), by 60%.
These 5 highways were constructed at a cost of RM4.13 billion. The toll rates have been raised excessively despite the fact that the Government has paid RM2.28 billion in compensation to date, as well as an additional RM2.59 billion over the next 5 years, or a combined total of RM4.86 billion. The compensation promised to date has already exceeded the construction cost of the highways by 18% or RM734 million.
As a further example, the total capital cost of construction of the LDP is estimated at RM1.327 billion inclusive of capitalised interest of RM142.3 million. However, the projected profit after tax (PAT) over 30 year concession period has been estimated at RM18.865 billion based on the agreement with the Barisan Nasional-led Government. The projected profit represents a 1,400% return on capital, which is excessive by any reasonable standards.
With the impending increase in toll rates for the North-South Highway, and in the light of the clear cut inequity in the concessionaire agreements, as well as in the overwhelming interest of the Malaysian public, the DAP proposes the renegotiation of all toll concessionaire contracts for Malaysian highways.
It is proposed that the toll rates shall be decided in an open and transparent formula which takes into consideration a reasonable rate of return commensurate with the risk undertaken by the concessionaire. If for example, the traffic volume has been guaranteed by the Government, then clearly, there is little risk in the venture.
Future increase in toll rates shall in turn, be decided via a open, verifiable and transparent formula which takes into account inflation rates, global cost of building materials, traffic volume, maintenance as well as the operating efficiency of the toll companies.
By using this formula, toll rate increases shall not be decided in an arbitrary manner by either the Government or the concessionaire, which often results in failure to take into account of public interests.
In the event that no amicable settlement can be arrived at with the toll concessionaires by June 2008, it will be proposed that the Government acquire the toll and highway assets of the concessionaires at a small premium to their book values.
Renegotiation of contracts or acquisition of assets is not unique in either the developing or developed world when conducted to serve overwhelming public interest. Just a month ago, the Irish Government has announced plans to acquire the copper network infrastructure from Eircom, Ireland’s largest telecommunication provider. In 1983, the Spanish Government went to the extent of expropriating Rumasa, owned by Jose Maria Ruiz Mateos, which owned 700 businesses with 65,000 employees.
The Indian Government has been acquiring private banks as late as 1980 which gave the Government 91% control of the banking sector. Both Venezuela and Bolivia has successfully taken concrete steps to regain control of their country’s natural resources such as oil & gas, as well as other minerals this year with most exploration and mining companies agreeing to renegotiated terms.
Should the highway assets be acquired, private companies shall be invited to an open, transparent and competitive tender to manage and maintain these highways. Profits to the Government arising from the operations of these highways shall be designated to Fund for Malaysian Public Transportation System or Dana Sistem Pengangkutan Awam Malaysia (DASPAM). This fund shall be managed by a Public Transportation Council, represented by the Government, the industry and the civil society to monitor the cost, efficiency and effectiveness of our public transportation system.
(Speech 10 on 2008 Budget in Parliament on Monday, September 10, 2007)