Lopsided Agreement

(The joker who tried to monkey around with the public on toll agreements but it got backfired very nicely in the last general election. Image source: www.daylife.com)

We knew that we were screwed from day one (and probably the day when Barisan Nasional was formed).

And the more the former Works Minister, Samy Vellu, monkeyed around with his threats and flip – flop statements; we were sure that our suspicious all this while was dead right.

Then as if to pacify the growing discontent, the Government “finally” decided to make available the toll concessionaire agreement public but with conditions attached to it. It did not take a rocket scientist or anyone long to notice that the agreements are lopsided. Very, very lopsided but it was not a big surprise. We had expected it so anyway.

Of course, there are reasons for this, claimed the lopsided Government.

From theStar:-

THE Government was forced to become guarantor for highway concessionaires in the 1980s and 1990s because banks refused to give out loans to the companies then, Economic Planning Unit director-general Tan Sri Sulaiman Mahbob said.

He was quoted by Sin Chew Daily as saying that this may have led to the agreements between the Government and concessionaires to be lopsided.

May be lopsided, you say? Certainly there is no scent of guilty feeling anyway in the statement.

Then we have Tony Pua’s “Memo to Works Ministry” which makes an excellent analysis of what can be extracted from the bits and pieces of information obtained from the recent disclosures. Closer to home, this is what was said on LDP:-

Similarly for LITRAK, the concessionaire of Lebuhraya Damansara Puchong (LDP), it had RM293 million in revenues and made RM142.7 million in profit before tax for its financial year ending 2008, representing a margin of 48.7%.

Furthermore, the toll rate for LDP is scheduled as per the agreement to be increased to RM3.10 from the current rate today before government compensation of RM2.10 in the year 2016.

LITRAK had even in its Bursa Malaysia listing prospectus in 1997, forecast a total net profit of RM18.8 billion during the 30 year concession period despite LDP having cost only RM1.33 billion in construction and capitalised interest.

Some buggers are making serious money all due to the lopsided agreement by the Government. RM18.8 billion return for a RM1.33 billion venture. Even with yearly maintenance, salary to toll collectors to collect toll, annual dinner, rewards to employees and management, etc, it is still nothing compared to the toll that has been collected or compensated, both ways by the public.

Not bad at all when one is having a lopsided agreement sealed in iron.

Now the fact that the agreements were indeed made lopsided and the public is in the losing end, the question therefore remains, what is the Government is going to do about it.

There are 2 obvious options:-

  • Renegotiate the agreement; OR
  • Buy out the agreement

Tony Pua provides a simple case study on the 2nd option using LDP:-

As a simple example, the Government is already compensating LITRAK RM75 million per annum for maintaining its current toll rates at RM1.60 instead of the contracted RM2.10 as of 2007. Assuming this compensation is maintained for the remainder of its 20 year concession, it would cost the Government RM1.5 billion in payments to LITRAK.

On the other hand, should the Government exercise its option to expropriate the concession; preliminary calculations show that it’ll cost the Government only RM1.4 billion to complete the exercise based on the terms of the agreement, or less than the compensation payments.

Hence, in LDP’s case, it makes absolutely no sense for the Government to maintain its annual compensation payments to the concessionaire when it could buy back the entire highway for less!

The longer the Government waits and drags its feet on this issue – the public are going to bleed more money to greedy and intolerant people.

No tags for this post.

5 thoughts on “Lopsided Agreement

  1. Oh, they are saying they are not going to buy any toll concessionaires.. Simple and easy solution, any person capable of thinking would know buying the highways is one of the solution that should be considered, seriously. Renegotiating the agreements may be harder to do so.

  2. Whilst the Government arm twist the public on many other things, they are pretty soft on the toll operators – it makes one wonder who the Government of the “people” really represents.

Please Leave Your Thoughts on the Post

%d bloggers like this: