EUROPLUS’ RM7BILLION QUESTIONS NEEDS ANSWERS

Europlus’ RM7bil concession needs answers

At a time when many concessions are near expiry, a 60-year toll-road one perplexes

Jan 28, 2012: A CONCESSION for 60 years may well be a record for Malaysia and the only thing that comes to mind, which is longer than that is Malaysia’s agreement to supply water to Singapore for hundred years signed in the sixties when the latter moved out of Malaysia.

Even for the North-South Expressway, the original concession period was half of that at 30 years while its length was more than twice that of the proposed West Coast Expressway at over 770km.

Not only is the concession extremely long, it is also very expensive with a development cost before land acquisition estimated at a whopping RM7.07bn for 316 kms from Banting, Selangor to Taiping, Perak out which 224km or some 70% will be tolled.

Kumpulan Europlus Bhd (KEuro), a long-ailing public-listed company that had been involved in property projects especially housing, which had been mired in problems, announced that the concession was obtained by its 64.2% owned West Coast Expressway Sdn Bhd (WCE).

The project, KEuro said, received an approval letter from the Public Private Partnership unit of the Prime Minister’s Department but it does not appear that a government announcement has been made so far.

KEuro, which is majority owned by entrepreneur Tan Sri Chan Ah Chye and another listed company IJM Corporation Bhd, said the project will be on a build, operate and transfer basis but it is clear that with a 60-year concession, many of us, including the project promulgators won’t be around when the time for transfer arrives.

Apart from the long concession period, there are other features which make it very attractive to WCE, including assistance from the government with a support loan of RM2.24bil starting from 2013 with an interest rate of 4% a year.

Over and above this, there is an interest subsidy of up to 3% from commercial loans for 22 years. Both interest rate subsidies alone could be worth up to some RM4bil over the period, assuming a principal of RM6bil jand depending on how the principal is repaid.

Meantime, the land acquisition cost of an estimated RM980 million will also be borne by the government. But any toll revenue over an agreed traffic volume will be shared 70:30 with the government getting the lion’s share. However, on full settlement of the loan, WCE will get 70% instead.

On almost every count, it looks like WCE has got itself a damn good deal. An examination of the deal based on earlier estimated construction costs and international costs again shows it to be favourable.

Curiously, KEuro had announced in May 2007 that WCE had obtained approval for the same concession but on much less favourable terms, raising questions as to why the deal appears to be so much better now.

At that time, it involved 216km and linked the same two towns, Banting in Selangor and Taiping in Perak, the main difference apparently being there was no construction of some 90-100km of non-tolled roads which there is now.

But still, the overall development cost estimated then was substantially lower at RM3.02bil and the concession period was less by almost a half but still very long at 33 years.

Comparing costs per km, it was substantially lower in the 2007 deal at RM13.9mil per km compared to RM22.3mil for the deal just announced. Over the last four years, WCE has been renegotiating the deal with the government and this seems to be the final outcome.

While the cost of construction of expressways differs tremendously among different countries and terrain as well as the type and quality of expressway, a 60% increase in costs over four years for essentially the same area and terrain seems way too much.

International comparisons are difficult because of different costs. India has a programme to build 1,000km of expressways for RS16,680 crores which works out to about RM10bil at current exchange rates. This translates to about RM10mil per km, less than half the figure for the West Coast Expressway.

Considering that roads are expensive and the public is already burdened by an extensive system of tolls, the government should be rather circumspect about granting toll road concessions, especially one for the hitherto unheard period of 60 years.

Before one can make a final judgement of whether this deal is fair, more details need to be released. The current and expected traffic on the highway has to be projected, the cost of construction established and a proper rate of return established so that a net value can be ascribed to the project.

To get the best deal for itself and for the rakyat, the government should have been transparent over the process and invited all qualified parties to bid to keep project cost, tolls and the concession period as low as possible.

It is still not too late to do that.

·Independent consultant and writer P Gunasegaram (t.p.guna@gmail.com) hopes against hope for transparency, open tenders and proper evaluation to save public money.