The Truth About The Toll Abolition Pledge

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Any move to forcibly takeover the highway companies would lead to the government having to fund future infrastructure works. M. Shanmugam, The Star
TOLL rates cannot be abolished altogether. At best the rates can be reduced and highways offer certain periods of toll-free access to motorist. Doing away with tolls on highways cannot be done.
This is quite clear from the latest statement that the government has issued in relation to its discussions with Gamuda Bhd on the takeover of its four highways where the full toll rates will be charged during peak hours. There would be a 30% discount during non-peak hours and toll free access between 11pm and 5am.
The abolition of toll roads ranks high in Pakatan Harapan’s manifesto. It is also proving to be an arduous task for the coalition. Voters keep reminding them of the promise of toll-free roads while highway concessionaires dread a takeover offer that impairs shareholder value.
It would be difficult to find a solution that pleases the people and at the same time does not spook capital markets.
The highway concession business is big. Investors hold some RM52bil worth of debts issued by 29 concessionaires and there are shareholders who had put money in with expectations of long-term returns. Nationalisation of toll highways is certainly not a solution because it would drive away long-term money in other sectors of the economy.
If toll highways are taken over by the government in the name of national interest, it would deter investors from putting their money in other infrastructure projects such as ports and railways.
Moreover, nobody is going to build a highway in future to ease congestion. Any move to forcibly takeover the highway companies would lead to the government having to fund future infrastructure works.
Is this what the government wants?
Certainly that is not what the players in the capital markets want to see. And it is also what the government, already saddled with huge debts, does not want to do.
It is time for Pakatan Harapan to be frank about its commitment to abolish toll. At best, what can be done is to reduce and harmonise toll rates across the country.
The process of reducing toll rates already started in 2008 when the Barisan Nasional government was first denied a two-thirds majority in parliament. Since then, toll rates on PLUS Expressways, which is the main artery of the nation, have not increased.
However, the concession of PLUS Expressways was extended to 2038 in a revised agreement in 2011, which is now proving to be mistake.
The new government went one step further. It decided to freeze toll rate hikes in 21 highways, including the urban toll roads. It also abolished toll for motorcycles on both the bridges in Penang and the second link in Johor.
The total cost incurred is RM994.43mil for 2019 and it would increase, depending on traffic flow.
Going forward, the government should not allow any extension to highways. However, the toll collection operations should not be abolished.
It should continue for two reasons, at least.
Firstly, the toll imposed is the differentiating factor between the highways and freeways – which are essentially the existing federal roads.
All highways in the country have an alternative road, which are the federal roads. The toll highways came about to offer motorist an alternative. If toll collection is done away, there will be no difference between the toll highway and federal roads.
Traffic would tend to flow into toll-free highways instead of federal roads. Eventually the federal roads would see easier traffic compared with highways. Is that what we want to see?
Secondly, toll collection from concessionaires whose concession period has expired can be channelled into a consolidated fund to finance all future toll highways.
Finance cost is the main contributor for high and incremental toll rate hikes. If the government comes up with part of the finance cost, toll rates can be low for new highways. And there would be no need for extension of concession periods.
The notion that companies want to own toll highways because they give recurring income is not totally right. It is not like what it used to be in the 1990s where concession agreements were lopsided, favouring the private sector.
Over the years, the concession agreements have been tightened with returns to investors regulated.
Also there are cases of traffic growth declining because of other modes of transportation, especially for the urban highways.
With the new regime, most concessionaires would be happy with selling the highways and re-allocating the capital tied to the new project. They would be happy to maintain the highways, which the government can regulate diligently with proceeds from toll collection.
Doing away with toll is not something that can be done easily. It would cost the government a bomb to take over the highways and send the wrong message to capital markets.
At best, toll rates can be frozen, reduced and kept low even for new highways.
 
 

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