Road Tolls To Rise By 60 Percent

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Dec 13 2006
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According to a source, Malaysia will announce on Thursday, Dec-14-2006, a sharp rise in road toll rates to help trim state subsidies in a move that could spark a public outcry and raise inflation. Tolls will go up by as much as 60 percent and will affect users of five highways in and around the capital, Kuala Lumpur.

“The new rates take effect on Jan. 1, that’s our New Year present” the source, who declined to be identified, told Reuters. A spokesman for the Works Minister confirmed that an announcement would be made at a news conference at 3.15 p.m. (0715 GMT) on Thursday.

Under toll concession agreements that critics say favor operators, the government has to reimburse operators if traffic volumes and revenues fall short of pre-agreed projections. Most of the highways were approved in the 1990s by the administration of then Prime Minister Mahathir Mohamad, which made privatization and mega-projects one of its hallmarks.

Works Minister S. Samy Vellu said recently the government would have to fork out 2 billion ringgit ($565 million) in compensation to five highway operators if toll rates were not revised.

The operators include listed firms Gamuda Bhd (KLSE : GAMUDA, stock-code : 5398) and Lingkaran Trans Kota Holdings Bhd (KLSE : LITRAK, stock-code : 6645). Litrak operates the 40 km Damansara-Puchong highway, where the toll is to rise 60 percent, to 1.60 ringgit from 1 ringgit now, the source said.

“The real toll is 2.10 ringgit, so the government is still subsidizing 50 sen for each user,” the source said. Residents along the densely populated stretch had protested strongly against an initial proposal to levy a toll of 1.50 ringgit, forcing the government to fix it at 1 ringgit.

Some 418,000 vehicles used the highway daily on average, reflecting a 14.5 percent compounded annual growth rate for the past seven years, rating firm RAM said in a review of Litrak.

Government officials told that one reason for the shortfall in toll collection was due to motorists switching to alternative non-toll roads, the source said.

The toll hikes, however, will not apply to Malaysia’s biggest toll-road firm, Projek Lebuhraya Utara-Selatan (PLUS) (KLSE : PLUS, stock-code : 5052), a PLUS spokeswoman said. PLUS’ rate increase is fixed at 10 percent every three years and the next increase is not due until January 2008.

Have you ever come across any other countries of which the government is being held ransom by the road operators? This is better than the goose which lay golden eggs as the operators will definitely win with the “guarantee” huge profits from periodically toll-hike. It will definitely spark another round of inflation as the prices of goods will go up again with this hike. Previously the hike in fuel was being used as justification for numerous hikes started from transportation sector. Nevertheless, expect the stocks of these two companies to generate some interest tomorrow.

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