Please get the bearing right on toll rates – T.K. Chua

It was actually quite an oxymoron when Minister in the Prime Minister's Department Datuk Seri Abdul Wahid Omar said the government should not continue paying high compensation to highway concession companies to keep toll rates from rising.

Similarly, Rafizi Ramli's proposal to provide highway concessionaires with other government projects in lieu of toll increase is also not feasible. It will only make the problem bigger when more lopsided agreements are signed in the future.

The correct way is for the government to review all existing agreements and not to sign future agreements without proper evaluation and assessment.

If agreements are lopsided and unfair, no amount of toll hikes or compensations by the government is going to solve the problem. Is this not the mother of all problems we face today?

I do not have privileged information so I will write based on common sense.

To begin with, I think most highway projects undertaken through privatisation are saddled with cost padding and moral hazard issues.

When highways projects are awarded with the government guaranteeing revenue and profit, who really would care for proper costing and feasibility? Even banks extending loans to highway concessionaires are not bothered. They know, irrespective of cost and feasibility, all projects must succeed, failing which the government will step in to bail them out either through compensation payments or toll hikes.  This is moral hazard to me, where returns are not proportionate to the risks undertaken.

Toll rates should rightly be determined by cost of construction and maintenance. But what if there is cost overrun and cost padding due to the moral hazard mentioned earlier? What if many concessionaires have made enormous amount of money from “construction” rather than “operation” of these highways?

When highways are constructed with very high costs or high profits, of course high toll rates will follow. If we do not regulate the profits of highway concessionaires, the sky could be the limit since most of these highways are essential public monopolies.

In the US, the profits of public utilities are regulated, usually capped based on certain percentage of return of investment. Rate revision is usually preceded by a public hearing to ensure fairness to all parties.

Highway concession companies must be allowed to make money. I think no one would dispute that. The issue is transparency, proper cost evaluation and reasonable profit since these are public monopolies where the alternatives are either not available or not feasible.

Unless the government is willing to play its “public interest” role, no amount of compensation or toll hikes is going to solve this problem.

* T.K. Chua reads The Malaysian Insider.