Toll hike a needless burden on the Rakyat

It’s unjustifiable and the highway operators are not contributing as much an increase in taxes as their net profits suggest

COMMENT

By Raja Ahmad Shahrir

The last 30 years have seen Malaysia’s road system evolve from bumpy, winding, single carriage to dual and sometimes triple carriage multi-storey flyovers. This evolution has helped develop the nation to be where it is today by ensuring that people and goods can not only be transported, but in a quicker, efficient and more economical manner.

Unfortunately, this evolution comes with a cost. Recent news that 15 highway roads will increase its toll rates put another blow to everyday Malaysians’ already dented disposable income. The question is, is the increase in road tolls justifiable? What action should the government take to ensure the peoples’ needs are taken care off?

In 1988, the first Concession Agreement was established. Part of the agreement included UEM being granted the rights to finance, design, construct, operate and maintain the highways. Few months down the road, PLUS, a wholly owned subsidiary of UEM at the time, entered into a novation agreement with the government under which UEM transferred all its rights, obligations and liabilities under the Concession Agreement to PLUS.

Supplemental Concession Agreement in 1999

In 1999, the government and PLUS entered into what is called a Supplemental Concession Agreement. This agreement amended some of the initial agreement, among them the agreed toll rates and also introduced government compensation and toll sharing. Ten years later, a second Supplemental Concession Agreement was established, this time to include the new actual toll rates and new government compensation arrangements resulting from the lower toll rates imposed.

With a privatise industry, it is not surprising that current agreements are more favourable to highway operators than they are to the government. The state of Indiana can attest to this, where agreements between the state and the private sector were drafted in such a way that any shortfalls in the former’s revenue, the state ends up reimbursing the toll operators for lost revenue. Private sector may or may not be able to manage highways more effectively than the government, but they are certainly smarter at inking more favourable agreements, at the expense of the government and its people.

Part of the Concession Agreement between PLUS and the government include “Toll/Volume Certification”, which is a control procedure by PLUS in order to minimise the potential loss of toll revenue. This agreement provides for the appointment of a Government Auditor and a Concession Company Auditor to jointly agree on the actual traffic volume and toll revenue.

This is for the purpose of determining the Government’s obligation to pay toll compensation should the actual toll rate imposed be lower than the agreed toll rate (part of the agreement that states how much each vehicle type pays). If the actual toll rate exceeds the jointly agreed amount, PLUS is obliged to share the excess with the government.

Toll increase affects majority of Malaysians

In Malaysia, there are 361 vehicles per 1,000 people. With a population of 29 million, that equates to approximately 10.5 million cars in the country. If we assume one vehicle per person, that’s 10.5 million people that potentially will be directly affected by the toll increase. Let’s not forget that indirectly, this toll increase can and will affect everyone one of us one way or another. It seems that we do not have much of a choice but digest this increase in toll rates. First and foremost, we do not seem to have a choice of any other mode of transportation.

About 7.2 million people live in greater KL, and from this figure I would imagine a large number work in the city center. Unfortunately, the current mode of public transportation does not provide wide enough coverage to provide people an option to commute to work via public transport. Therefore, many of us tend to rely on our own cars to get to work. There are also 12 NKEA projects that are expected to increase jobs in Greater KL from 2.5 million in 2010 to 4.2 million jobs by 2020. This will only increase the demand for shelter closer to the vicinity, push the property process up, and eventually push majority of the population even further from the epicenter.

What this means is that for those of us that work in KL (both city center and greater KL), we need to cover a longer road network or coverage in order to get to work. So with these increase in highway tolls, we really do not have much of an option now, do we? How else can we travel without using major highways such as the LDP (which moves slower than a snail!) or NPE? These highways are so important to us as it is the bridge between income and non-income.

The MRT Project is only expected to be completed by 2017. So even if you are fortunate enough to be living near one, for the next three years you have to bear the burden of the new toll rates for approximately the next 1,440 times! – 20 workdays a month, three years, and two trips a day. This is absolutely absurd.

Before allowing the highway operators to increase the toll rates, the government needs to perform a thorough study and research to understand who actually gains the most from the increase in toll rates. Is it the government (we assume if it is the government, the gains will then be directed to the people – very BIG assumption), or is it the highway operator?

PLUS’ profit increase and tax payment
Let’s take a brief example of some financials from PLUS. From 2008 to 2009, the company experienced a 10% increase in net profit. However, the increase in taxes the company paid in 2009 was only 1% compared to 2008. And from 2009 to 2010, the increase in net profit was again 10%, and this time the increase in taxes paid was 9%.

So it shows that PLUS isn’t giving back much to the government or the people in the form of taxes anyways regardless of how much profits it makes. Therefore, the increase in toll rates is purely for PLUS’s gain. Furthermore, with an average traffic growth of approximately 7% from 1994 to 2004, these highway operators are surely piling on those revenues even without having to increase their rates.

Our Road Transport Department (RTD) should play a more active role (they are not the only ministry in the country that is sleeping). Looking across the bridge to our neighbour, The Land Transport Authority (LTA) in Singapore has three key strategies:

1 Make Public Transport a Choice Mode

2 Manage Road Usage

3 Meet Diverse Needs

The LTA ensures that thorough research and study are performed, proper and effective initiatives are identified and sound and people-centric policies are in place to ensure that the Singapore people are provided with a good land transport system.

The way forward

From the profits that these highway operators rake in they should at least play an extra role to ensure that the people are provided with better road access and develop ways of reducing traffic (since our government is not doing much on this matter). That is the least they could do, since they are not contributing as much an increase in taxes as their net profits suggest.

These firms should be innovative and invest in technology (as a way to give back to the people, after all they are profiting from us) that helps to manage traffic and incidents, and also in technology to provide more timely traffic information to ensure users are aware of which route to take. These are technologies that are being used in Singapore to manage the road usage. Furthermore, by engaging in initiatives like these, it lowers the likelihood of misuse of public funds by the government.

Draft better agreements with the concessions when the time arise (unfortunately, it will be sometime before this can happen again) – one that is more people centric. So once again, the Prime Minister has fooled us, when in his 2011 Budget speech, he explicitly stated that:

“The Government is very concerned with the rising transport cost borne by the rakyat. To alleviate the burden of highway users, I am pleased to inform that the toll rates in four highways owned by PLUS Expressway Berhad will not be raised for the next five years, effective immediately.”

Less than five years on, we are already going to experience an increase in toll rates. Furthermore, his cabinet member Wahid Omar may be confused to what his boss’s plans are on progression and moving forward. Statements made earlier this week where the former suggests that if the people are not happy with the increase with the new toll rates, they should consider alternative roads. Alternative roads like the bumpy and winding one-way carriage that our grandparents used to travel? How is that progressing and moving forward?

Raja Ahmad Shahrir is Research Associate at Institut Rakyat, a think tank affiliated with PKR. He tweets at @RajaShahrir and facebook RajaAhmadShahrir