The Government Should Offload Its Burdens

Will we see the re-introduction of fuel subsidies?

I find it puzzling that the government has shut its doors on Maju Holdings’s intention of buying the PLUS concessions (Govt Shuts Door On Maju’s Bid for PLUS – Malaysian Digest, 26 November 2017) when I don’t think they have actually met with Maju Holdings to discuss the proposed deal.

Although the Second Finance Minister said in September that the Finance Ministry would first and foremost get some clarification from Maju Holdings on how they plan to execute the no-toll-hike deal before deciding whether or not to allow the deal to happen, I can bet my bottom dollar that at the time of writing this post, they have not met.

The Second Finance Minister wants to obtain clarification from Maju Holdings before deciding

I have written on this matter before and I have laid down my reasons and Tan Sri Abu Sahid’s explanation that he made to the press during his interview sessions, but I am writing this again because I am alarmed at how the government has made a decision without even doing its due diligence on the matter.

The government’s decision to do away with four tolls beginning 1 January 2018 may be good news for those in the Klang Valley and those who go shopping at Bukit Kayu Hitam or drive into Thailand, but we also know that it costs 20 sen to 30 sen to use a public toilet.  So, nothing is for free.  While the people in the areas mentioned above enjoy their toll-free highway, the rest are made to pay in the form of an extension to the conclusion of the concession of other highways operated by PLUS beyond 2038.

That is not all.  The government would have to fork out RM110 million a year as compensation to PLUS, not inclusive of the compensation the government would have to pay every time they disallow a toll rate hike.  Multiply that figure alone by 20 years, it would come up to RM2.2 billion.  Now that is not a small sum of money.  RM2.2 billion could get you 22 80-bed hospitals that could benefit especially the rural areas of Sabah and Sarawak, or in a term that I am more familiar with, four squadrons of the KAI FA-50 supersonic advanced trainers and light combat aircraft. That is almost 50 badly-needed aircraft altogether.

Not only does the government have to think about finding money to compensate PLUS every year for the loss of income from the four tolls, the government also has to think about compensating PLUS and other concessionaires every time they are allowed to increase their rates.

With the global oil price rebounding, the government has also announced that it would think of a measure to not allow retail petrol (RON95). That sounds like more money flying away in the form of a subsidy – something the government has fought hard to do away with.

The proposed deal by Maju Holdings sounds sweet to me now.  Question is, what is the Finance Ministry and/or Khazanah afraid of?

Is it because Abu Sahid is perceived as Mahathir’s crony?  Then again, which owner of a Malaysian conglomerate isn’t a crony of Mahathir’s?  Out of the 10 richest persons in Malaysia in 2016 perhaps only a couple are not Mahathir’s cronies.

Is it because the Finance Ministry and/or Khazanah thinks that Abu Sahid does not know what he is talking about because he only operates a 26-kilometre highway therefore what does he know about a 800-kilometre one?  The question is what highway did UEM even operate before it was given PLUS? How different is Maju Holdings to MTD Prime and Anih Berhad that are now running the 358-kilometre East Coast Highway after running only the 60-kilometre KL-Karak highway?

Or are people on different levels making PLUS their cash cow? I’m just throwing my thoughts here because I cannot see what are they so afraid of if someone can help them lower their financial burdens.

The Finance Ministry keeps saying that it does not want to have to bail out Maju Holdings should the deal go wrong in the future, I ask myself, and perhaps the Finance Ministry and Khazanah too, should they not pray for the Maju Holdings to fail?  Abu Sahid wants to give the UEM and EPF RM4 billion in cash for free as a return on investments made in PLUS. That is a 20 percent Internal Rate of Return (IRR).

On top of that Abu Sahid through Maju Holdings, with the backing of his financiers, seeks to forfeit the government’s compensation of about RM900 million owed to the toll road operator, which arose as a result of toll hikes not being implemented.  Imagine what the government could do by chanelling this money to sectors that badly need such funds.

In other words, the government should pray for Abu Sahid to fail after giving him PLUS – the government takes back the highway which is already toll-free then as there would not be any concessionaire, while Maju Holdings would have to face its financiers.  The highway and all its infrastructures already belong to the government no matter what, and the government can still impose tolls albeit minimal to help maintain the PLUS highways.  So, what has the government got to lose?

Loss of income by EPF that affects its contributors?  I find that hard to swallow.  EPF has so much money that it would seek to re-invest in PLUS even after the deal takes place.  EPF needs to make money for its contributors. Or it could just seek to invest in another company.  EPF has so much money that it is investing in both money-making and money-losing companies as it is now.

Therefore, as a rakyat, I reiterate my concerns taking into account the amount of money needed to compensate PLUS for abolishing the four tolls, the amount of money needed to compensate PLUS and other concessionaires to not increase toll prices, and the imminent need to subsidise RON95 – has the government seen the assumptions made by Maju Holdings? Has the government called Maju Holdings or its financial adviser Evercore for a meeting like it said it would, before even deciding to shut the door on Maju Holdings? Has the government done a due diligence on the proposal by Maju Holdings?

The government should seriously rethink its stance in this issue.  There is just too much money that needs to be involved if the government continues to keep PLUS.  This is money that could be used to pay the other concessionaires to not hike up their rates as PLUS under Maju Holdings would not be increasing theirs until the concession agreement runs out.  Or the savings could go to building more schools, hospitals or buy more fighters for the Air Force.

The government has an opportunity to offload its financial burdens.  But why is it so afraid to take that step?

Real Growth For The East Coast

Graphic courtesy of The Star

The first rail line was opened in 1885 running between Port Weld and Taiping.  The line to the east coast running between Gemas and Tumpat was only completed in 1931, by passing major towns such as Kuantan, Kuala Terengganu and Kota Bharu.

For decades after that there was no real growth in terms of communications in the east coast.

As a punishment to the people of the east coast for not voting in the Barisan Nasional, aid to Kelantan was curbed and was changed into the form of ‘Wang Ihsan‘ in 1990, and the East Coast Highway terminated near Kuantan because Barisan Nasional was ousted by the people of Terengganu in 1999.

Najib Razak changed all that.

Phase 3 of the East Coast Highway which will terminate at Kota Bharu will commence during the 11th Malaysian Plan (2016-2020), as well as the East Coast Rail Link, a new rail link cutting through green fields.

The first phase will see the Klang Valley connected to Kuantan, Kuala Terengganu in the second phase and Kota Bharu and Wakaf Bharu in the third and final phase.


Announcing at the handover ceremony of the Ganchong Water Treatment Plant, he said that the GDP of the state of Pahang would increase by 1.5 percent when the ECRL comes online.

The Opposition as usual is opposed to anything that is good for the people if it comes from the government.

PAN’s Mujahid Yusof Rawa, for instance, questioned how it will benefit the local economy – and you do not need to be a member of Parliament let alone a rocket scientist to figure out the answer.

The ECRL will act as a land bridge for goods coming from the west coast going to especially Shenzen in China through Kuantan port, and similarly goods from the east coast get sent to the Middle East and India through Port Klang.

This land bridge would also allow goods from the eastern part of the globe be sent to the western part through these two ports without having to circumnavigate the Singapore strait.

This cuts down the over-reliance on the Strait of Malacca. Today, more than 80 percent of China’s energy needs pass through that narrow waterway.

So if you imagine it takes just four hours for goods to be transported by a lorry from Kota Bharu to Port Klang using the ECRL as compared to seven hours using the Gua Musang way or nine hours via the East Coast highway, you would be able to imagine the kind of economic growth the east coast states would stand to benefit from the ECRL.

No longer would SME or heavy industries have to be centred in the Klang Valley where the costs of land and living are far higher compared to in Kelantan and Terengganu. More jobs would be created and the luxury gap lessened tremendously.

The time for goods to be transported from Shenzen to Port Klang would be 30 hours lesser than having to sail them around Singapore.

Cost issues aside, this new network will create new alternative routes to boost trade for Asean, with Malaysia as the base; and why this has to be taken seriously is because the Chinese have a direct interest in the (Kuantan) port and the rail link,” said Mr G. Durairaj, managing director of maritime and logistics consultancy PortsWorld.

Already Kuantan port is home to several petrochemical companies such as the BASF-PETRONAS Chemicals. 

The port has also attracted RM8.9 billion worrh of investments including a RM3.5 billion steel facility.

The integrated steel mill will occupy a 287ha site – half the size of Singapore’s Sentosa island – and have an annual production of 3.5 million tonnes.

Imagine the size of investments that the ECRL could bring into the east coast states. Would you now question the benefits the ECRL would bring?