This article first appeared in Forum, The Edge Malaysia Weekly on April 11, 2022 - April 17, 2022

Highways built in the city are beset with a host of conflicting demands from various stakeholders, but there is no quick fix for them.

The highway concessionaires want minimal interference from policymakers, especially the politicians, on toll increments. They prefer to operate in a regulatory environment where scheduled toll rate hikes can take place without hiccups, giving them a predictable cash flow.

A high degree of predictability in cash flow improves the concessionaires’ financial strength, allowing them to have more options in the long term for monetising the highways when the infrastructure matures.

That is not the case now with highway concessionaires. Although the government compensates them for any postponement of toll rate hikes, it is not quite the same as them receiving the cash flow that is stated in the concession agreement.

When a government resorts to populist moves such as not allowing scheduled toll rate hikes or reducing rates, there is little incentive for concessionaires to hang on to highways as a long-term asset in their books.

Two other key stakeholders in the highway ecosystem are the government of the day and the motorists who use the highways. Motorists will always resist toll hikes. As for the government, it has found it difficult to handle politicians from both sides of the divide when called upon to justify the compensation paid annually to concessionaires.

Generally, motorists would like to see toll booths within the city dismantled. Their argument is that the government has a duty to provide infrastructure and there is no necessity to pay toll on a daily basis for the long term.

Moreover, they complain that the highways are congested even though they are paying toll.

An example is the toll plaza at Sunway along Lebuhraya Damansara Puchong (LDP). It is one of the most congested highways, especially during peak hours. Even after passing the toll booth, motorists have to constantly bear with a massive traffic jam.

The government, meanwhile, has to balance its duty to honour a concession agreement with satisfying the demands of motorists who do not want rate hikes. It usually opts to extend the concession period or pay the compensation to avoid the hikes.

However, compensation for highways in the city is a thorny issue.

Apart from further stretching its already stretched finances, the government also has to justify how taxpayers living outside the Klang Valley will benefit from compensation payments to city highway concessionaires.

Since 2008, highway concession holders have been fighting a losing battle against the government and motorists on toll rate hikes. The government has not allowed any major rate hike. In fact, concessionaires are under increasing pressure to come up with ways to reduce or maintain existing toll rates.

The biggest blow to highway concessionaires was when PLUS Malaysia Bhd reduced the toll rate on its highways by 18% effective Feb 1, 2020. This happened during the Pakatan Harapan rule and was part of the government’s attempts to fulfil its election pledges.

PLUS Malaysia, a joint venture between Khazanah Nasional Bhd and the Employees Provident Fund (EPF), owns the largest network of highways in the country. The highways cut across states as well as run within the Klang Valley.

PLUS’ reduction in rates by 18% rendered it untenable for any other concessionaires to seek an increase in toll rates.

In the wake of an inconducive operating environment for concessionaires, a little-known company has offered to take over the four highways owned by Gamuda Bhd and Lingkaran Trans Kota Bhd. The price is RM5.48 billion, including debts of RM2.06 billion.

Amanah Lebuhraya Rakyat Bhd (ALR), a not-for-profit entity, has the blessings of the government to take over the highways. The government has agreed to extend the existing concession periods by between six and 10 years when the assets are transferred to ALR.

According to the details of the proposal, in return for the extension in the concession period, the government need not pay Gamuda and Litrak compensation of more than RM4 billion.

Backed by the extension in the concession period, ALR is to issue papers in the bond market to raise money to pay for the four highways. The ultimate mandate for ALR is to see that the bonds are redeemed from the toll collection, the highways are handed to the government and the toll booths are dismantled.

The earliest target date for repayment of the bonds in full is 2032. By then, hopefully the highways can be handed over to the government, which will then have the option of dismantling the toll booths.

Can the highways operate without any tolling system? That is a tall order because of several factors.

Firstly, this goes against the grain of giving motorists the option of using either the toll highways or freeways. If the toll booths along all the city highways are dismantled, there would be no difference between the highways and freeways. Traffic will pile up on the highways and the old roads will probably be easier to travel on.

Also, maintenance of the roads is expensive. All essential raw material prices have gone up. If there is no revenue inflow in the form of toll collection, it would be difficult to maintain highways such as Penchala Link and Sprint Highway.

The upkeep of the highways will deteriorate if there is absolutely no collection of toll.

In the past, there have been instances of toll booths in the city being dismantled. This happened along Jalan Kuching, Old Klang Road and in Cheras. The roads were handed back to the federal government.

But most of the toll booths that were dismantled were already on an existing federal or state road. They became a toll highway after a private company forked out money to expand the road to ease traffic congestion. In return, the private company was allowed to collect toll, to the protest of motorists.

On that score, it is possible for some of the toll booths on the four highways that ALR has proposed to take over to be dismantled by 2032 at the earliest. But there is no certainty that all the toll booths along the highways will be taken away even after ALR redeems the bonds.

Anything can happen in the next 10 years that may disrupt the cash flow to redeem the bonds. Motorists should always keep that in mind.

The road towards toll-free highways in the city is not an easy one to navigate. But the consolation for motorists is that the rates will not go up now or in the future.

M Shanmugam is a contributing editor at The Edge

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