When Prime Minister Ismail Sabri and Works Minister Fadillah Yusof proudly announced there will be no more toll hikes for four highways in the Klang Valley, you know the next 15th General Election is around the corner. But the announcement on Monday (April 4) is not only long overdue, but was actually a proposal first mooted by the previous government in 2019 – Pakatan Harapan.

 

So, not only the unelected Sabri administration has shamelessly copied the solution, it proves that the democratically-elected Pakatan administration could provide more benefits to the people if it is allowed to administer for the 5 years mandate. Unfortunately, it was toppled and betrayed by Muhyiddin Yassin, who plotted with defeated Barisan Nasional and Islamist party PAS.

 

The latest proposal will see a private company – Amanat Lebuhraya Rakyat Berhad (ALR) – taking over the four concession companies, namely Kesas Sdn Bhd which manages KESAS highway, Syarikat Mengurus Air Banjir dan Terowong Sdn Bhd (SMART tunnel), Sistem Penyuraian Trafik KL Barat Sdn Bhd (SPRINT highway) and Lingkaran Trans Kota Sdn Bhd (LDP highway).

Works Minister Fadillah said the restructuring will see existing shareholders – the EPF, KWAP, PNBM and Lembaga Tabung Haji – get an early return on investment (ROI). PM Ismail, on the other hand, bragged that in order not to burden the people, the toll rates will not be increased until the concession periods end, not to mention it will save the government at least RM4.3 billion.

 

However, whenever the highly corrupt Barisan Nasional announces a proposal, you can bet that there are a lot of hidden costs. To begin with, there’s no such thing as a “non-profit” company, as the ALR is being called. While the private company’s chairman is Azlan Mohd Zainol, the details of the new concession owner, who will acquire 100% of all four concession companies, are unknown.

 

Besides Azlan, who is chairman of Eco World International Bhd, MBSB Bank Bhd and MRCB (Malaysian Resources Corporate Bhd), other directors of ALR are Nirmala Menon (director of Bank Negara Malaysia and Sime Darby), Idrose Mohamed (former Managing Director of POS Malaysia, PLUS, Prasarana), Mohamed Sharil Tarmizi (director of controversial Digital Nasional Berhad) and Soam Heng Choon (Rehda president).

The claim that the toll rates will not be increased until the concession periods end is also misleading. In truth, the concession periods will be “extended” again between 5 and 10 years. Meaning, the new owners will be making huge profits – hundreds of millions of Ringgit – with the extension of concession periods in exchange to maintaining the current toll rate. Get real – there’s no free lunch!

 

Originally, LDP, which started collecting tolls in 1996, was given a 34-year concession until 2030. KESAS, meanwhile, has a concession period of 31 years until 2024 (extended to 2028) and has been collecting toll since 1993. The concession period for SPRINT was for 33 years, which commenced in 1998 and will expire between 2031 and 2034. SMART was given a 40-year concession until 2042.

 

The so-called “non-profit” new owner, ALR, plans to raise RM5.48 billion via “sukuk” to acquire all the four expressway concessions. In essence, major shareholders like Gamuda, Litrak, Perbadanan Kemajuan Negeri Selangor, Kumpulan Perangsang Selangor Bhd and Malaysian Mining Corporation (MMC) Berhad will instantly receive their profit by transferring the rights to collect tolls to ALR.

But all the concession agreements have been lopsided from the moment it was signed. Malaysia is the only country in the world that has such ridiculous concession periods of between 30 and 40 years for toll collection. The privatisation of toll roads, disguised as a mega plan to promote Malay entry into business, has in reality only enriched a handful of UMNO-Malay elites

 

Missing from the public knowledge are the structure of the highway concession – total cost of the project, return of investment, break-even time frame, compensation to be paid by the government and concession period. Details of concession agreements are classified and data of ownership are hidden with multiple layers of “nominees”. There is absolutely no transparency.

 

The extension of concession periods is the primary juice for the new owners. Exactly how much profit ALR is looking at? Litrak (Lingkaran Trans Kota Sdn Bhd), the concession that owns 100% of LDP highway and 50% of SPRINT, could shed some lights as it is a public-listed company. Between 2001 to 2021, Litrak recorded RM7 billion in revenue and RM2.67 billion in net profit.

Yes, for the last 20 years, Litrak has already made hundreds of millions of Ringgit in revenue – every year. For example, in 2001, its revenue was RM137.2 million with net profit of RM35 million. It skyrockets to a whopping RM261.9 million net profit (RM503.8 million in revenue) in the financial year 2020. Even during the Covid-19 pandemic, it made RM205.8 million net profit in 2021.

 

Using that as a yardstick, every year of extension granted after the expiry of the concession period will see ALR reaping at least RM200 million profit. It will take only 5 years of extension to join the “billion-Ringgit” club. And this is only based Litrak’s 100% stake in LDP and 50% stake in SPRINT. We have not even talked about profits from KESAS and SMART highways.

 

According to Gamuda’s annual report, it’s 70% stake in KESAS contributed RM248.4 million in revenue and RM113.5 million profit for the financial year 2021. Its 50% stake in SMART, however, saw RM17.7 million revenue and RM16.2 million losses. Obviously, the four highways are cash cows that guarantee profit due to the insane government compensation and toll rate increase clauses in all agreements.

More importantly, the lucky new owners are taking over four concession companies that are already fully operational with the manpower in place. Litrak’s 2021 Annual Report showed that it only spent RM10.9 million (down from RM13.4 million in 2020) on maintenance for LDP highway and RM7.9 million (down from RM8.8 million in 2020) on SPRINT highway.

 

How does this Barisan Nasional proposal differ from Pakatan Harapan’s? While ALR is offering RM5.5 billion and enables the government to save RM4.3 billion in toll subsidies for all the four highways, Pakatan’s previous offer was RM6.2 billion, but would save the taxpayers RM5.3 billion in similar subsidies. Therefore, both proposals are quite similar. Sabri government is just playing with numbers.

 

However, Pakatan Harapan government’s proposal would see 30% discount and free toll for 16 hours a day on all the same four highways, thus benefitting millions of motorists every day. Barisan’s latest proposal will be superior if it could match Pakatan’s discount structure and does not allow anymore extension to the current concession periods.

From the RM5.5 billion raised, ALR will pay RM2.12 billion to Litrak Sdn Bhd, KESAS (RM1.24 billion), SPRINT (RM1.81 billion), and SMART (RM313 million). Hilariously, when the Pakatan Harapan proposed a similar takeover in 2019, the United Malays National Organization (UMNO), who became the opposition after the 2018 General Election defeat, had condemned the proposal.

 

UMNO Senator Khairul Azwan Harun previously questioned why the Pakatan Harapan government was acquiring highways whose concessions are about to expire. He said – “In Aug 2017, it was confirmed that highways like LDP would no longer see an increase in toll rates. How is it strategic to acquire them now for RM2.47 billion (LDP) and RM1.38 billion (KESAS)?”

 

Former PM Najib Razak had also criticised Pakatan’s previous takeover plan. He claimed that Malaysians would be shouldering the cost to acquire the four highways. Of course, now that PM Ismail Sabri, vice-president of UMNO, agreed to acquire the same four highways whose concessions are about to expire, the disgraced UMNO Senator and Najib suddenly become as quiet as a church mouse.

It was in 2016 under Najib administration that toll rates for the LDP highway were raised by 48%. However, as the rates payable by highway users were already raised by 31% from RM1.60 to RM2.10 in October 2015, the scheduled hike in January 2016 was not passed on to users, but instead compensated by the government. Najib had also allowed SPRINT to increase its three toll rates by an average 72% in Oct 2015.

 

It’s a gimmick to say that the government will not be spending a single penny for the restructuring of concessions for four major highways. By giving extensions to the new player, the Ismail Sabri administration is simply shifting the burden of compensation or toll subsidies (which actually are taxpayers’ money) to millions of motorists, benefitting new cronies.

 

In the same breath, it’s also misleading for Works Minister Fadillah to claim that the new restructuring offered by ALR will not involve government guarantee. The government compensations for all four concession companies itself are government funding guarantee, which are still valid even after ALR acquired 100% of the highways.

The single largest shareholder of Gamuda is Raja Eleena, the daughter of former Sultan Azlan Shah of Perak and the sister of current Sultan Nazrin. According to the company’s annual report, she indirectly holds 4.48% (112,500,000 shares). Not many people realize that she was the richest woman in Malaysia. Her fortune will skyrocket after the disposal of Gamuda’s stake in all the four highways.

 

It’s not rocket science how ALR, a 4-month-old company that was only incorporated on December 13, 2021, is being allowed to milk four cash cows. As a rule of thumb, it usually takes 8 to 10 years for a highway concessionaire to break even and cover their cost of investments. Therefore, with the exception of SMART, all the three highways – LDP, SPRINT and KESAS – are already profitable ages ago.

 

Therefore, instead of trumpeting that the government has a brilliant plan to freeze toll rate hike, all the highway operators should not only be forced to give massive discounts, they should also not be allowed to extend the concession periods. Instead of allowing ALR cronies (who pretended to be a charity house) to make profits, should it not be better for the Finance Ministry to take over, as per Pakatan’s previous proposal?

 

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April 5th, 2022 by financetwitter

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