By Khairie Hisyam
Major public infrastructure like highways are sometimes contracted out to the public sector in most parts of the world, that’s not new. But in Malaysia the concessions can seem never-ending – isn’t it time to end that?
Not two weeks into 2016 and the Government of Malaysia may have set a new record – it signed what may be the longest highway concession the nation has seen to-date at 53 years and six months.
The concessionaire in question is Bursa Malaysia-listed Ekovest Bhd, who will build Setiawangsa-Pantai Expressway (SPE) for an estimated RM3.74 billion. By all indications the new expressway is slated to be operational by 2020, after which Ekovest will charge and collect toll payment from road users until the concession expires.
It remains unclear how long this expressway will be and what the per-kilometre cost will be at. Not to mention how much toll will be levied on Malaysian motorists who use it when completed and operational. But the immediate question that arises is whether Malaysia really, really needs to give out such long concessions.
At the heart of the matter, the government should explain to the public why it felt this new concession needed to be 53 years and six months long. What sort of internal rate of return will Ekovest be getting and is it so low as to necessitate more than half a century of repayment by motorists in the form of toll charges?
The issues underlying the burning questions here go back to the original purpose of handing out concessions for public infrastructure works and utilities: managing costs to the government.
And in the end the question mark here is whether we have lost sight of this intention by awarding concessions that span more than half a century and why.
In the beginning, the original logic behind letting the private sector build public infrastructure is so the government, with limited money, can drive more developments simultaneously without having to pay for everything simultaneously.
But the private sector doesn’t build things on such a scale for free, hence concessions – these contractors are allowed to recoup their costs and a little profit besides by charging toll for motorists using the highways they built, for example.
And in most other countries, once the private sector have had their costs back with some profit on top, the concession is allowed to expire and the infrastructure they built returns to public ownership – after which the public can use it without paying for anything like toll and the like. This is essentially the built-operate-transfer model that comes under the private finance initiative concept.
But not Malaysia, it seems. This mind-bogglingly long concession aside, just last year we heard that the federal government extended the concession held by PLUS Malaysia Bhd for the Federal Highway, which was supposed to expire in 2018. It was renewed until 2038.
Now, the Federal Highway, as many would remember, started charging toll for its use since the early 1990s. How is it that after more than two decades, the government thought necessary to extend the concession (and by extension the need to pay toll for using the highway) by another two decades?
Have costs not been fully recouped since the Federal Highway was first built? The public has no way of knowing since concession agreements fall under the Official Secrets Act 1972 – thus the terms of these concessions are official state secrets.
And since the government seemed confused on when it would be appropriate to let highway concessions expire so that the public can stop paying certain toll charges, maybe the terms should be unclassified and made public – what could be so sensitive about something that is ultimately in the interest of the public to know more about?
Unless, of course, the concession agreements contain some lopsided terms in the private sector’s favour that ultimately leaves the average motorist on the roads short-changed… but that cannot the case, can it?
Coming back to the 53-year concession for SPE, if there is no satisfactory explanation following then perhaps it is timely to consider an official limit on the number years allowable for new concession agreements henceforth, say 20 years without any renewal possibility.
This not only protects the Malaysian public from spending lifetimes paying for certain public infrastructure out of pocket and indirectly ending up paying higher costs than needed by allowing inflated returns for the private sector from concession agreements.
But this proposed limit also injects some much-needed sense into the decision-making in Putrajaya, because maybe then someone will have a light-bulb moment and realise that hey, these highways are supposed to, eventually, return to public ownership.
GRRRRR!!!
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