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Sunday, June 14, 2015

How to break the highway toll puzzle

Govt-owned companies using taxpayer funds to make profits by charging tolls on taxpayers
COMMENT
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By Zakay A Rehman
Tun Mahathir challenges his detractors to destroy his legacies. Destroy might be too strong a word, but certainly some of his legacies are worth revisiting in terms of their relevance.
The current predicament of our government with the annual privatised highway toll adjustments is a legacy issue that must be addressed comprehensively. The logic behind the excuse that the government is bound by concession agreements cannot be accepted without a fight: a government that goes bankrupt will not be able to honour such agreements in any case.
The irony is that concession agreements for PLUS highways, for example, were designed to subsidise the project’s financing in the event that traffic volumes do not meet financing costs. However, the price fixing mechanism did not cap the concessionaires’ profits, presumably intentionally.
That these highway concession agreements are super profitable can easily be witnessed by their listed share prices. Ironically, these companies are government-owned, or at least the government controls more than 50% of the equity.
The business model of the government having private equity in public listed entities generating profits from concession agreements with the same government which then subsidises the concessions through taxpayers’ monies, or passes on higher tolls directly to the tax-payers, though obviously wrong, is so convoluted that it easily pulls the wool over the public’s eyes.
The solution has to be some form of unwinding of the concessions, which will require the government to take these companies off other shareholders and to dissolve the entities back into government hands.
Buying them out, unlike nationalisation, is a market approach. A better fitting financing structure would be some form of linear long-term debt financing, pegged against a fixed toll rate which can be made lower than current rates, to finance the debt cost.
Maintenance and management can be out-sourced, so the Public Works Department will not be asked to take back the work.
Nevertheless, the governments must ask some difficult questions about the dissolution of these business entities. It is a political decision. Sometimes what seems successful and stellar, on balance, is not all that necessary.
Zakay A Rehman is an FMT reader

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