Tony Pua’s warped logic on paying RM6.2 billion to buy over the highways

The total cost over ten years is expected to be RM15 billion, not RM6.2 billion, with the interest and operational cost included

(FMT) – Tony Pua, the political secretary to Finance Minister Lim Guan Eng, said today that those critical of the proposed acquisition of four toll concessionaires by Putrajaya are using flawed logic and arguments.

He reiterated that the proposed acquisition would save billions of ringgit for tax-payers and highway users and provide the shareholders of the toll concessionaires a limited but reasonable return on their investment “to ensure the stability of the fragile financial markets”.

Pua said that despite two statements from Lim explaining the rationale for the proposed acquisition of the LDP, SPRINT, Kesas and SMART concessionaires by the government, there was still criticism, including from “unnamed experts”.

He said the offer was made on June 21 and had since been accepted by the respective toll concession companies. The exercise is awaiting the approval of the concession shareholders as well as final Cabinet approval.

• On the argument that acquisition would increase the government’s debt burden by RM6.2 billion and that the money could be better spent for other purposes, Pua said:

“While a designated special purpose vehicle (SPV) will be raising a RM6.2 billion debt to finance the acquisition of the four concessionaires, there needs to be a distinction between debt which the government will ultimately have to bear, versus debt which will be self-financed.

“In this case, the RM6.2 billion will be entirely self-financed via the collection of proposed congestion charges. This means the government will not need to fork out a single sen to pay for the acquisition of these highways.”

• On the argument that it would be cheaper to pay these concessionaires compensation for freezing toll rates than to acquire them, Pua said the government would have to compensate these concessionaires between RM5.3 billion and RM6.5 billion to freeze the toll rates until the end of the respective concession periods.

“With this self-financed acquisition, the government will save RM5.3 billion to RM6.5 billion in compensation payments.”

He said the acquisition cost of RM6.2 billion would be self-financed but if the toll rates were merely frozen, the concessionaires would collect at least RM5.3 billion in compensation from the government. Acquisition was, therefore, cheaper for the government.

“Contrary to the critics’ argument, if the government pays compensation to the concessionaires to freeze toll rates, it will only profit the concessionaires and reduce the burden for the urban highway users only.

“However, by acquiring the highways, the RM5.3 billion saved in the future will go towards welfare and development expenditure for Malaysians all around the country, while the highway users can save even more than before.”

• On the argument that certain highways that were expiring “soon” should be allowed to expire instead of being acquired, Pua said: “These critics may have forgotten that even for the ‘expiring’ highway – specifically referring to Kesas which will expire in 2028 – the government still needs to continue to compensate the concessionaire every year to freeze the toll rates.”

He said the government, which had offered to acquire Kesas for RM1.377 billion, would otherwise have to compensate the concessionaire between RM1.08 billion and RM1.19 billion depending on traffic volume up to the expiry of the concession.

“Hence, the same argument applies – that if the government can acquire Kesas for RM1.377 billion via a self-financing mechanism which does not require any government financial allocation, and the Malaysian taxpayers will save between RM1.08 billion and RM1.19 billion in compensation payments to the concessionaire over the next nine years.”

• On the argument that the offer exercise was a bailout for the “loss-making” SPRINT and SMART highways, Pua said earnings and profits for SPRINT would come towards the end of its concession period and the concessionaire was entitled to raise toll rates for the three highways under it in the future as provided in the existing concession agreement.

“Over the remaining life of the concession, SPRINT is expected to generate around RM1.5 billion in profit after tax for the shareholders, after settling all its outstanding debts.

“In comparison, the government has offered RM1.984 billion to acquire the concession, of which only approximately RM870 million goes to the shareholders. The balance of the RM1.114 billion is used to repay the debt holders of the highway.”

In addition, he said, if the government were to freeze toll rates and pay compensation, the compensation amount for SPRINT would range between RM1.57 billion and RM2.04 billion, depending on future traffic volume.

“As for SMART, it is true that the highway concession which ends only in 2042 is expected to be loss-making for a long time. It explains why the government is acquiring SMART at a net book value of RM369 million.”

Pua said if the concession was allowed to be continued, the government would have to compensate the concessionaire between RM671 million and RM1,028 million for the remainder of the concession.

He said the government’s proposal was cheaper.

• On the argument that the government’s offer would allow Gamuda to rake profits upfront, instead of over the concession period, Pua said it was “misleading”.

“The proposed acquisition will indeed allow Gamuda and the other concessionaires shareholders to recognise some of its future profits today. Otherwise, what incentive do they have to become ‘willing sellers’?

“However, through this acquisition exercise, the ‘future profits’ will be shared between the concessionaire shareholders, the government – via elimination of compensation payments -and the highway users, via reduced congestion charges.”

He said the government would save at least RM5.3 billion, “which would otherwise have gone into the concessionaires’ bottom-line”.

Highway users would save up to RM180 million a year from reduced congestion charges, or approximately RM2 billion over the respective concession periods.

“The reason why both the government and the highway users are able to benefit is because the ‘future profit’ of these highways are shared,” Pua said.