Freezing the toll hike – who pays?

“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.”

PRIME Minister Datuk Seri Najib Razak, announcing the toll hike freeze during his speech for the 2011 budget. PLUS owns four concessions, namely the North-South Expressway, Expressway Lingkaran Tengah Sdn Bhd, Linkedua (M) Bhd and Konsortium Lebuhraya Butterworth-Kulim Sdn Bhd. (Source: Budget 2010/2011: PM Najib’s speech, The Edge, 15 Oct 2010)

“DAP is shocked at the revelations … that [PLUS] could be compensated as much as RM5 billion by the federal government over the next five years for not raising toll rates. Clearly freezing toll rates is meaningless as the people still [have] to pay through compensation payments by the government.

“Worse, the government still owes PLUS RM2.5 billion, making the total compensation amount to be paid for the next five years … RM 7.5 billion!”

DAP secretary-general Lim Guan Eng, responding to UEM group chief executive officer Datuk Izzaddin Idris, who claimed that the federal government may have to compensate PLUS RM5bil for the five-year toll hike freeze. The RM5bil was on top of RM2.5bil that the government owes PLUS as compensation thus far for deferring toll rate hikes, Izzaddin said.

Lim, who is also Penang chief minister, said the RM5bil compensation would increase the federal government’s debt.

Lim added that it was time for the federal government to nationalise toll concessions in the public’s interest. (Source: Compensating PLUS RM 5 Billion For The Next 5 Years For Freezing Toll Rates Will Only Increase Both Federal Government Debt and Debt Service ChargesTo Unhealthy Levels, Lim Guan Eng’s blog, 19 Oct 2010)

“[F]or a vast majority of the toll concession agreements … The terms of the relevant compensation required for expropriation appears to be fair.

“For concessionaires not willing to renegotiate the toll rates to reasonable levels, it will not cost the government an arm or a leg to expropriate some of these highways.”

DAP national publicity secretary Tony Pua, after the party’s Ops Restore team reviewed the toll concession agreements which the federal government finally declassified in October 2008. Pua is also the investment liaison officer for the Penang chief minister based in the Klang Valley.

The Ops Restore team proposed that the federal government could take over PLUS with RM16.2bil and make its highways toll-free by 2016. The federal government has ignored the proposal.

On 15 Oct 2010, UEM Group and the Employees Provident Fund (EPF) announced its RM23bil bid to acquire PLUS. They issued a joint statement on 20 Oct 2010 that the RM5bil the government would owe PLUS for not raising toll rates was provided for in the concession agreement.

However, UEM Group and the EPF said they were willing to negotiate a new master toll agreement with the federal government with more “balanced and fair” terms that would benefit the people. UEM and its parent, Khazanah Nasional Bhd, collectively hold 55.25% of PLUS.

Pua notes that based on the concessionaire agreement with the government, PLUS is allowed to increase toll rates at a fixed 10% every three years. The rates have been frozen since 2005. If PLUS was allowed to raise the toll tariffs in full, a return trip from Kuala Lumpur to Penang would cost RM115.25 by 2015 in toll charges. (Source: Renegotiating “sacred contracts”, The Nut Graph, 19 Mar 2009)

“But concessionaires are compensated with taxpayers’ money.”

Teh Chi-Chang, then former economic adviser to the DAP secretary-general. Teh noted that even if toll hikes were delayed, the government still had to compensate concessionaires for the delay. He said the government could extend concession agreements as compensation, but “either way, taxpayers are affected”. (Source: Proposed law against unfair public contracts, The Nut Graph, 19 Feb 2009)

“The government just needs to exercise the clause.”

Pua, reiterating that some of the contracts, such as for the Lebuhraya Damansara-Puchong, allowed the government to buy back the tolled highways at reasonable cost. He noted that it was far cheaper for the government to buy back the highways than to continue compensating the concessionaire. (Source: Proposed law against unfair public contracts, The Nut Graph, 19 Feb 2009)

Related post:
Buy-back of privatised highway concessions more cost effective