'Generous' Najib must be grilled: Loss-making firm gets RM7bil road deal and RM2bil loan

The West Coast Expressway (WCE) is not a new project. It is a project that has been delayed for over 10 years due to financial problems. Europlus, had problems funding the projects since the 1997/98 Asian financial crisis. The WCE was first mooted by Tan Sri Chan Ah Chye, who controlled Europlus 15 years ago. To promote the project, Chan set up Konsortium LPB Sdn Bhd (KLPB). He holds 27.58% equity interest in Europlus and construction giant IJM Corp Bhd owns 22.72% stake. IJM also holds a controlling stake in KLPB.

IJM through Road Builder Holdings Bhd, operates the toll concession for the Sungai Besi Expressway, New Pantai Expressway and Kajang-Seremban Highway. And with the WCE also in the bag, IJM stands to be the biggest toll operator in the country. The record-breaking 60 years toll concession between Europlus and the government would mean that IJM gets to remain in the business of collecting toll for a very long time.

The ties IJM has with the BN government is pretty clear with several prominent former government personalities heading the board of directors. This would explain the favorable leeway given to Europlus for the WCE.

Loss-making company but Najib gave it a RM7bil contract!

The project started moving in 2007, when KLPB entered into a concession agreement for the construction of the WCE. The very fact the government was willing to entertain Europlus and renegotiate the terms to build the WCE should be questioned since year after year Europlus has seen revenues fall from RM50.4 million to RM28.0 million. Europlus is basically a non-perfoming company, yet Prime Minister Najib Razak's administration awarded it with a RM7.07 billion contract!

At January 31 2008, Europlus' total revenue was RM58.5 million, but by January 31 2011 the total revenue for the group stood at RM28.0 million. Gross profits for 2008 was RM8.9 million, in 2010 it was a negative RM17.2 million, but this rose back to RM4.2 million for Jan 31 2011. The net income for Jan 31 2008 was negative RM24.8 million but by January 31 2011 the net income stood at negative RM50.8 million.

Biggest sucker-punch ever: RM2.24bil cash injection

Europlus is a money-lossing entity yet after renegotiations on the WCE, they have pulled the biggest sucker-punch ever with the Malaysian government.

Upon signing of the WCE agreement with the Ministry of Works, a government support loan (GSL) of RM2.24 billion will be given - which is tantamount to a cash injection for the ailing Europlus. The toll revenue will be split with the government on a 70:30 basis in favor of the government. After paying back the RM2.24 billion loan, the toll revenue will be split 30:70 in favor of the WCE. To spice things up a little more, the WCE’s GSL will be charged an interest rate of 4% per year and they will also enjoy an interest subsidy of up to 3% from commercial loans.

And if granting all that money is not enough, the cost for land acquisition amounting to RM980 million will be borne by the government. Talk about extra favors!

Aside from all the questionable terms given to Europlus, after renegotiating the original terms of 2007, the fact that the Najib government still awarded a RM7.07 billion project to a company that had a negative revenue of RM50.8 million as of Jan 31 2011 is just insane. It makes defies all business logic. But business logic is not the main concern in a deal that would basically create a monopoly over toll collection.

Underperformer record

With the presence of IJM as a controlling stake-holder in Europlus, one can only imagine how much road users of the WCE will be asked to pay. No doubt about it, Europlus will never again operate in the red with this agreement, but IJM will stand to be the largest and wealthiest toll operator.

But there is another way to view this overly generous agreement and that is in the well-documented record of the under-performing Europlus. The toll revenue split of 70:30 in favor of the government will only reverse when Europlus pays back its RM2.24 billion loan.

What happens if Europlus finds it hard going to pay back the loan? The government may then continue to earn 70% of toll revenues for up to 60 years. And we all know, toll revenues bring in great profits.

Malaysia Chronicle