People pay for sweet toll deals
MAKE Big Money Sdn Bhd (MBM), as the name suggests, wants to make mega bucks. Its shareholders have little to invest, but they have "connections". They prepare a "working paper" to be submitted to the government. They want to build bungalows which would be subsequently leased to the government for 30 years. The company doesn't have the land or the money. The government acquires the land and provides a loan so that the bungalows can be built. So, how can MBM not succeed? Everything is served on a platter and there's a ready taker when the bungalows are handed over. In the event MBM loses in this venture, the government will compensate the company!
This in a nutshell describes one of the many toll concessions that have been entered into by the government. For long, these concessions had been kept under wraps, for reasons better known to the powers that be. But with the declassification of the documents, it is now public knowledge that some of them were lopsided deals. How and why did the government enter into such deals? No one can answer these questions except the people who were tasked with the responsibility.
How could the government take the financial risks to pay for all costs? Besides, why did it undertake to guarantee concessionaires profits and indemnify them from losses and even ensured the profits?
It is interesting to note that former prime minister Tun Dr Mahathir Mohamad was quoted in theSun (Jan 9, 2007), as saying: "What you have is a cabinet which is not very knowledgeable all the time because it is not made up of experts but politicians (and) some politicians like myself can sometimes be stupid. The cabinet merely gave approvals in principle and never really studied the implications in some parts of the agreements."
Mahathir's statement implies those given the task to undertake the drawing up of the concession agreements failed in their duties by not providing proper advice and there was dereliction of duties. Surely, if the "reasonable man" test was used, no one would have entered into such deals which committed the government, in this case, the taxpayers. So, if the cabinet merely gave the approvals in principle, who then conducted the negotiations and the terms of the agreements? So, we have the works minister, the ministry's secretary-general, the head of the Malaysian Highway Authority and other officials who were part and parcel of the whole thing. And it is more than obvious that these personalities failed the people. What about the legal eagles in the government? Didn't they read the fine print?
The bottom line, despite Mahathir's assertion, is that the buck stops with the cabinet, irrespective of their ignorance or lack of knowledge on the subject. After all, they are supposed to be the guardians of public money. And surely, they had experts in the ranks of the civil service who advised them, and in this context, they failed miserably.
Now, the public can understand the previous minister's raving and ranting when financial assessments of concession owners carried out by the Rating Agency of Malaysia (RAM) were used to show their profitability. He had wanted the four opposition leaders (in February 2007) – Tan Sri Khalid Ibrahim and Tian Chua of PKR, Ronnie Liu of DAP and Dr Hatta Ramli of PAS – charged for disclosing the contents of Lebuhraya Damansara Puchong (LDP) concession contract, not withstanding the fact that the contents were already in the public domain.
These are some of the observations made by RAM in 2007:
» Litrak's toll rates were reduced to RM1 in March 1999 as a result of public pressure, with the government paying compensation for the reduced rates, the concessionaire was the real winner – To date, the lower toll rates have turned out relatively well for Litrak as they have attracted more vehicles to the LDP, contributing to the highway's strong traffic volumes.
» The LDP's excellent operating track record has translated into robust cash flow generation for Litrak, as reflected by its average annual free cash flow (ie operating cash flow less net investing cash flow) of about RM120 million over the past five years ... Looking ahead, Litrak is expected to generate at least RM150 million of free cash flow a year throughout the remaining tenures of its debt issues.
» Since the commencement of its tolling operations, LDP's traffic volume has continued to chart impressive growth, underpinned by its favourable alignment that stretches across the densely-populated areas of Puchong, Bandar Sunway, Petaling Jaya, Damansara and Kepong. The highway's average daily traffic increased to 417,581 vehicles in FYE March 31, 2006 (FY March 2006) from 188,066 vehicles in FY March 2000 – a 14.5% compounded annual growth rate for the past seven years. Meanwhile, traffic growth worked out to 7.98% for FY March 2006, exceeding RAM's expectations for the fourth consecutive year. Nevertheless, we expect the envisaged traffic congestion to moderate growth in the longer term.
With all these glowing statements on cash flow and profitability, were we, the taxpayers, misinformed as to why the government "has to pay compensation if we do not allow them to increase the rates"? This question is pertinent because there was more than the projected traffic volume and in turn, a bigger profit. Why then was an increase necessary? It was in the concession agreement, that notwithstanding the guaranteed profits, the company has the right to increase the rates periodically. How did we enter into such agreements? Will someone own up and tell us the truth?
