Tricky Issues Over Toll Takeovers

---

QUESTION TIME | While one commends the government for at least trying to reduce the toll burden on the public, the sad and unmistakable truth is that some form of tolls is going to be around for quite some time, given the one that the government is negotiating for in Kuala Lumpur.

It looks like the ultimate “solution” is for the government to simply accept that tolls are going to be around, even if they are going to be called by a misnomer such as “congestion charge”, with some token reductions here and there when the government takes over
It will be very far from their promise that tolls will be abolished - that is way in the future. For instance, most of PLUS’ concessions, which include the North-South Expressway, only expire in 2038. That’s 19 years to go, but the government should be planning now not to renew the concessions when they expire
Many things are not clear at this stage of negotiation and how it is effectively going to be done, but what is clear is some form of payment is going to be there for a long time to come
The government recently announced negotiations with Gamuda to take over some toll roads in Kuala Lumpur. These are the LDP, SPRINT, KESAS and SMART tunnel. It is proposed that there will a congestion charge for peak hours which is the same as the toll charge
For off-peak hours, 11pm to 5am, there will be no charge, while for other times, there will be a 30 percent discount. However, peak hours were not specified
In effect, the only major benefit to consumers is a 30 percent reduction during off-peak hours, which have yet to be specified and the abolition of toll from 11pm to 5am during which traffic is likely to be very low anyway. If you are travelling at peak times when most people travel, you pay the full toll charge
It is better than no reduction at all, but there is a minefield of possibilities, as I explain here. For instance, how much will the government pay the concessionaires? This is a tricky issue because concessionaires, especially the early ones, were given pretty good deals before
First, construction was overpriced and usually undertaken by various arms of the concessionaires who inflated prices not only for high construction profits, but also for longer terms and higher tolls. This constitutes a double whammy for toll users
Triple whammyTo make it a triple whammy, toll concessionaires were given a fixed schedule of toll increases. If toll does not go up, the government has to compensate them for the loss of toll revenue. To make it a quadruple whammy, the government, in some cases, even guaranteed traffic numbers, undertaking to provide soft loans if traffic projections were below forecasts
Most likely, there were no provisions for the government taking anything more if traffic projections were higher, at least for the early toll concessionaires, implying hardly any risk for the concessionaires - upside gains are theirs, but downside risks are the government’s
Until today, these agreements are classified under the Official Secrets Act, which provides mandatory jail sentences for offenders, making impossible their fair assessment and evaluation. It is a similar situation for independent power producers and for many other concession agreements
Ironically it was Dr Mahathir Mohamad (photo), during his previous term as prime minister from 1981 to 2003, who introduced toll roads widely as part of his controversial privatisation project, which gave concessions to the private sector to operate in areas which were previously the government’s preserve. Now he is ultimately responsible for unravelling part of his “legacy” to the nation
Fairness dictates that the early profits that privileged concessionaires obtained be reflected in the prices that the government pays for these concessions. But in practice, it is a nightmare as concessions may have changed hands and/or have new shareholders, in addition to the original ones
It would be opening up a rather old can of worms and raising questions of how far back the issue of corruption and patronage has to be investigated to sort these things out. It would be nice to hope that some of these, as old as some 34 years, may be sorted out soon. But that is unlikely
Many of these contracts were awarded via direct negotiation through a system where cronyism, patronage and even corruption prevailed. Civil servants’ concerns were routinely overruled
Immediate burdenThere is thus inherent over-pricing in toll concessions and the government may end up paying far more than it should for these toll concessions, unless the government is very tough in the negotiations and is well-advised by professionals. It is a lack of professional advice, incompetence and corruption that led to all of these in the first place
Also, contracts may be invalidated if corruption can be proven. But stakes have changed hands. The biggest toll operator in the country is PLUS, which is eventually 51 percent owned by the government sovereign fund Khazanah Nasional Bhd and 49 percent by savings fund Employees Provident Fund, in which almost all Malaysian workers have stakes. These bodies may incur losses if they sell at what may be considered to be a fair price by the government, after all things are taken into account
The government has to be careful not to pay too much because that becomes an immediate burden (some estimates put the total value of toll concessions to as high as RM150 billion), which the government can ill-afford to pay for, given a huge revenue gap of some RM22 billion a year caused by the removal of the GST
The inevitable two conclusions are that some form of toll, perhaps called by other names, will remain and that the government runs the risk of paying too much for toll concessions by buying them out. A viable proposition may, therefore, be to let the toll concessions die a natural death when they expire.
After that, simply outsource the maintenance of roads to the private sector, keep the ownership and kill the tolls. With the increased revenue that comes from honest and competent management of the economy over two decades, by which time most toll concessions would have expired, tolls can truly be a thing of the past. And patronage, cronyism and corruption too - hopefully
P GUNASEGARAM says corrupt practices may invalidate signatures on the dotted line. E-mail: [email protected] - Mkini

---