THE government must own PLUS Expressways Bhd to ensure private operators do not simply raise toll rates, an academic said, as four bidders seek to buy the toll operator nationalised after the 1997-1998 financial crisis.

Keeping the highway in the hands of the government through Khazanah Nasional Bhd or the Finance Ministry would ensure that toll rates remain reasonable and tolled roads are not treated as money-makers, Timothy Wong, lecturer at the National University of Singapore’s Department of Economics, told The Malaysian Insight.

“In fact, a key mandate to Khazanah is to operate in markets like these, where it is better for the government to be the monopoly operator than to allow some private firm the benefits of monopoly power,” he said when asked to comment on the various proposals submitted by private sector players to take over PLUS.

“PLUS operates many highways that are monopolistic in nature, (where) there aren’t many alternatives to these them.

“The best example of that is the North-South Expressway. On many sections (especially non-urban sections), there aren’t viable alternatives for travel,” he said.

“In such situations, some level of government involvement is necessary to ensure any private operator does not exert market power by charging exorbitant prices to use the highway.”

Government control

If the government believes that private firms can operate and maintain the highway efficiently, then it could consider selling the asset to private companies while still regulating toll charges and service quality.

Another option would be for the government to maintain its ownership over the asset and tender out maintenance and operations to private firms with expertise in the area, he said.

“Regardless, the government will need to maintain some level of involvement in these assets, be it operationally or through regulation, otherwise the market will not operate in a manner that serves the best interest of society.”

PLUS is the largest concessionaire in the country, operating eight highways under five concessions.

Its largest shareholder is Khazanah, which holds a 51% stake through the UEM Group. The remaining 49% is held by the Employees’ Provident Fund.

There has long been private sector interest to acquire the lucrative highway concessionaire and recent offers by private firms have said they could slash toll rates from 25% upwards to help Pakatan Harapan with its election promise to eventually abolish toll.

However, Khazanah has said it is not keen for private entities to take over its majority stake.

Prime Minister Dr Mahathir Mohamad also said recently the national sovereign wealth fund is the best option at this juncture to manage the toll concession.

The government may believe that it can better revamp the toll concession system through direct ownership of PLUS but it will be a costly one if Putrajaya, already straining to deal with a huge national debt, is to acquire the concessionaire.

PLUS has about RM30 billion debts and it has not raised toll charges for the past 14 years since 2015. This is expected to affect its ability to maintain the sale of highways and will also cost the government in terms of compensation.

Maintenance costs are also huge, at RM1.3 million per kilometre, and PLUS has to maintain about 1,170km of roads, according to its managing director and CEO Azman Ismail, not to mention slopes, tunnels, bridges and culverts along its highways.

The offers on the table for PLUS as reported in the media, are:

Finance Ministry

The Malaysian Reserve reported that the Finance Ministry could place a bid for the 51% stake so as to keep the asset in the government’s hands.

The report quoting sources said the offer could be sweeter than proposals from other parties.

The proposal is likely to be discussed in the cabinet, as Khazanah is said to be standing firm with its decision not to sell PLUS to private parties.

MOF has not confirmed the report. The rationale of its purported bid is also unclear, since PLUS is already government-controlled via Khazanah and EPF.

Halim Saad

Businessmen Halim Saad and Wong Gian Kui have offered RM5.2 billion for Khazanah’s stake.

Halim, formerly of Renong Bhd which once owned PLUS, has also offered to provide 25% discount on toll rates and to maintain the concession period until it ends on December 2038.

Widad Group Bhd

Widad Business Group Sdn Bhd, a subsidiary of the Widad group founded by Muhammad Ikmal Opat Abdullah, has offered RM5.3 billion for the 51% stake.

However, when the compensation waiver of RM3.04 billion and debt assumption of RM30 billion is taken into account, the total enterprise value of the offer amounts to RM38.34 billion. This is the highest bid so far.

Maju Holdings Sdn Bhd

The total enterprise value of  Maju Holding’s offer, including the absorption of debt, will amount to RM34.9billion.

The company controlled by tycoon Abu Sahid Mohamed has proposed to absorb the RM2.7 billion toll compensation owed by the government to PLUS. It is also offering a toll reduction.

RRJ Capital Bhd

Hong Kong-based private equity firm RRJ Capital, led by Malaysians, has offered RM3.5 billion to buy out PLUS with its liabilities. It has also proposed up to 30% toll discounts and to do away with toll booths to ease traffic. In addition, it is also open to having equal partnership with government institutions to manage PLUS. – November 8, 2019.