Take the highways but no concession extension, please

 

In Malaysia, toll highways are under the ambit of the works ministry through its agency, the Malaysian Highway Authority or LLM.

Under Act 231, LLM regulates and supervises the development and operation of all highways and expressways in the country.

It is LLM’s responsibility to ensure that expressway concessionaires maintain service quality, and provide safe and comfortable services to all users.

As such, LLM signs the concession agreements on behalf of the government.

In the case of privatised expressways which were given out via a build, operate & transfer (or BOT) scheme, the common concession agreements are valid for 30 years.

Upon the expiry of the concession agreements, the concession holders must surrender their expressways to LLM.

Free of toll

LLM will then manage, operate and maintain the expressway free of any toll charges.

Doesn’t that sound wonderful? To be able to perform a journey without having to pay toll?

But it can only happen after the 30-year concession period is completed.

There aren’t many examples of such completed concessions for expressways. I can only recall Metramac’s Jalan Kuching toll and possibly Batu Tiga toll, in Shah Alam, which is part of the Federal Highway.

The North South Expressway’s original 30-year concession ended many years ago. So, by right, it should be free to all users now, at least in the northern section from Bukit Kayu Hitam (Kedah) to Bukit Lanjan (Kuala Lumpur) a distance of 460km, where it was built first.

But no, that is not the case.

As the expressway owners managed to convince the government that they needed to expand certain sections of the expressway from two lanes to three, in order to accommodate the growth in traffic, their concession period was extended twice – now till 2038.

Four toll highways

In the case of the four toll highways in the Klang Valley, I suspect the takeover proposal was presented to the government on an unsolicited basis.

There was no tender or official invitation by LLM.

In this case, the politicians running the government at the moment must be fair not to override LLM’s role and responsibilities. LLM is the regulatory body for all the four concessions agreements.

At the same time, it is equally important to recognise the users’ rights and interests as they have been paying the concession holders every time they used the four toll highways for the past 20 years or more.

When the new company decided to put together a proposal to take over the four highways, it was effectively buying over the stakes owned by the current shareholders.

This is purely a commercial decision between sellers and buyers. It should not involve the government.

The buyers are fully aware of the costs, the flat rates, the revenue streams, the cost of funds, the interest charges and the balance of the concession periods.

Therefore, their business model has to make it work within those constraints and without the possibility of any extension.

Concession agreements

On the government side, LLM must maintain the concession agreements, be consistent and adopt a proper approach in dealing with the takeover.

But the most important consideration is that the interests of the users, who are looking forward to a free highway, after a 30-year wait, must be protected.

Without a doubt, the users expect free highways once the concessions are over. This must be met by the government as per their original policy and as reflected clearly in the agreements.

The government must not try, or be seen as trying, to deviate from the original agreements.

It should not make ad hoc decisions on what appears to be “favouring” a certain group of private sector businesses and depart greatly from its own policy on highway development.

Concession extension

Why is it not right to extend the concession period?

The answer is simple. Because the original government policy says so.

It goes against the principles of privatisation and the BOT policy.

By continuing to charge tolls when the concession has actually ended, the government is not fulfilling its side of the bargain.

When the policy is very clear that the highways should be handed back to LLM upon the expiry of the agreement, those in power at the moment must not try to modify or alter the concession agreements.

They must honour their obligations to the rakyat who voted them in.

By making exceptions to the policy and applying them only to these four highways, the government is setting a bad precedent.

A policy must be consistent and must be applied to all parties without exception.

The government can always formulate a new policy if it so wished, but this must be applied to all highway concessionaires so that LLM can implement and monitor them easily.

Where PH failed

Any departure from the original policy documents and original agreements must not be done on an ad hoc basis.

It makes a mockery of the government’s good and proven track record in highway building through privatisation and BOT.

Despite some discrepancies in the past, LLM’s administration has proven to be fairly successful and financially reliable. So, it is best for the government to maintain the way it works and not deviate or make any unwanted alterations.

The government, I am sure, wouldn’t want to throw it all away and jeopardise good policy instruments by suddenly adopting new methods to “favour” a certain group of people.

Pakatan Harapan failed partly because of this wrong approach. It tried to meddle with the same four highways and the situation became convoluted. Eventually, PH was not successful.

A good strategy is not to go anywhere near those areas where PH had failed.

It if does so, it will not only make the government look highly suspicious, it will also give rise to favouritism, nepotism and cronyism.

Super profits

Declarations of justification on behalf of this new company, such as that it would operate as a non-profit company, sound rather hollow.

Even the argument that there would be no rate increases for the balance of the concession period does not hold water and is not very convincing.

The main point here is that most of us who are associated with this transportation sector are fully aware that owning and operating highways is highly lucrative.

Toll expressway subsidiaries are regarded as “cash cows” for many corporate enterprises that venture into toll highways.

They are also known to have reaped benefits by getting involved in highway construction, the margins for which produced super profits for them in the early stages of the concession period.

The government should not fall into a trap that the rates for the balance of the original concession period will be maintained at the same level.

These flat rates should be the norm rather than an exception.

Are we all that gullible to also believe that there won’t be any traffic growth in future years?

Future traffic growth would be sufficiently large to ensure a growth in revenue even operating at the same toll rates, a factor that the government probably has not taken into consideration in its decision-making.

In the past, the government had extended the concession period on the pretext that, so long as the toll rates remained flat, it wouldn’t burden the users or motorists. That argument has proven to be flawed.

But extending toll collection for the benefit of a few could prove to be a much bigger defect in our highway policy. - FMT

The views expressed are those of the writer and do not necessarily reflect those of MMKtT.