Highways are best left with the govt


Concurrently, Litrak said the board of its associate company, Sprint(pic), had also deliberated on the offer and unanimously found it

Highways are public infrastructure just like ports and airports. The major difference is that highways serve thousands of motorists, while the operators of ports and airports serve a select group of shipping lines and airline owners.

As highways directly serve thousands of motorists, they are highly politicised.

Motorists whined and cringed at the need to pay tolls so much to the extent that it became a political issue championed by the previous Opposition party that now rules Putrajaya.

By default, the responsibility of bringing down the toll rates is the responsibility of the Pakatan Harapan government now.

Even though the government promised the abolition of tolls, in reality, this cannot happen. It will cause chaos in the bond market, erode investor confidence and incur the wrath of investors who would never put their money in infrastructure projects in Malaysia again.

Also, there is a need for toll highways and freeways. If there is no differentiation, then the traffic will veer towards highways and the current federal roads will see less traffic and be `highways by default’.

However, motorists do not like to see toll rate hikes, especially for matured highways. In the past, to assuage motorists, the government intervened by not allowing concessionaires their scheduled toll rate hikes.

Since the 2008 general election when the Barisan Nasional government lost its two-thirds majority in Parliament for the first time, there has not been any toll rate hike for highways under PLUS Expressways Bhd. Even for intra-city toll rates, there has only been one hike – in October 2015 – since the general election that changed the fate of politics in the country.

In return for not allowing toll rate hikes, the government subsidises the concessionaires.The highway subsidy bill is growing and is something that the government cannot and should not be burdened with.

Why should the ordinary taxpayer in Sabah, Sarawak or even Kelantan subsidise a motorist in Kuala Lumpur or Kedah?

So, the government is working out a solution – not one but two – apparently.

The Ministry of Finance has proposed to take over four highways belonging to GAMUDA BHD and its associate company, Litrak Bhd, for RM6.2bil in a deal that everyone is aware of.

The model adapted is rather simple if one were to break down the transaction.

Essentially, the government uses its stronger credit standing to indirectly take over the companies through a special-purpose vehicle (SPV). The SPV will command a lower interest rate compared to what the financial institutions charge Gamuda and Litrak.

For instance, Litrak’s cost of funds is about 7%, while the government-backed SPV gets money at about 5%. On a RM6.2bil funding, the difference in financing cost itself comes up to slightly more than RM124mil a year.

The savings from cheaper financing and cashflow from the operations of the four highways are then used to service the debts and maintain the highways. It is the same model that was used in 2011 to privatise PLUS – now owned by the UEM Group and the Employees Provident Fund (EPF).

There is no money coming out from the coffers of the government. Works Minister Baru Bian has thrown his hat into the fray by stating that the ministry’s solution to tackle the toll highways will be tabled at the Cabinet this month. The ministry has mandated the Malaysian Highway Authority, which, in turn, has engaged an accounting firm to come up with a holistic solution to regularise toll rates across all highways.

The solution supposedly is based on the concept of all the highways being placed under a single entity using terminal values to end the concessions. It also addresses the issue of ensuring low toll rates for future highways.However, the fear on the Works Ministry’s proposal is that highways that are profitable would not get a fair deal for their assets. This, in turn, would disrupt the already fragile stock market.

A third force that has cropped up is the Maju Group, which has offered to take over PLUS Expressways, the biggest highway operator in the country with roads from Kuala Perlis to Johor Baru. This is not the first time Tan Sri Abu Sahid Mohamed has made a bid for PLUS. His previous attempts were unsuccessful.

Pakatan Harapan needs to resolve the highway issue before its faces the electorate in four years’ time, or even earlier. The tolls on highways cannot be abolished. At best, they can be reduced and the government is in the best position to do so.

Highways have steady cashflow and traffic will keep on increasing over the longer term. Some highways see a drop in traffic, but over time, it will pick up as the population grows.

The government’s superior cost of funds compared with private companies and individuals gives it the advantage to take over the highways. The savings in lower interest rates and cashflow from toll operations should be more than enough to service the debts and maintain the highways.

It’s best to leave the highways in the hands of the government.

Towards this end, the government should perhaps consider relisting PLUS and making it the anchor company to take over the highways. A relisted PLUS could offer shares at a discount to the public and the proceeds from the listing would come in handy to take over all the other highways.

PLUS is already owned by the government and the EPF. What better vehicle does the government need?

A relisting of PLUS would also lead to better transparency in its cost of maintaining the highways.

The contention now is that the private companies incur a lower cost to maintain their highways compared to PLUS. This is one of the anchors of Maju’s proposal to take over PLUS.

A relisting of PLUS would make transparent its cost of maintaining the highways once and for all. And if other companies can maintain the highways at a lower cost, then they should be allowed to do so.

But to harmonise and maintain toll rates, ownership is best kept with the government because it gets the best cost of funds.

The views expressed here are solely the opinion of the writer.


   

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