THE Automated Enforcement System (AES) project, which has barely reached its operational goals, will likely be ramped up once a joint entity controlled by Boustead Holdings Bhd and Lembaga Tabung Angkatan Tentera (LTAT) finalises the takeover of the project by the second quarter.

“The Transport Ministry has not decided on the actual date (for the reroll out of the AES), but it is likely to be soon, once the deal is finalised,” says a source.

As announced recently, Boustead (fundamental: 0.65; valuation: 1.8) has proposed to inject RM127.8 million cash into Irat Properties Sdn Bhd in exchange for a 50% stake, while Irat finalises a deal to take over AES’ concessionaires Beta Tegap Sdn Bhd and Automated Traffic Enforcement System (ATES) Sdn Bhd for an undisclosed sum.

The ultimate setup for the venture will be Boustead, LTAT and another party owning 50%, 49.17% and 0.83% respectively of Irat, which in turn controls 100% of Beta Tegap and ATES, and essentially the AES concession.

Beta Tegap and ATES inked a deal in 2012 with the government to establish, operate and maintain the AES equipment and systems that would be handed over to the Road Transport Department on a five-year concession period.

The AES was due to be launched nationwide in September 2012. However, due to public outcry, as well as apprehension from the police, the government decided to backtrack from the project, thus resulting in both firms —Beta Tegap and ATES — incurring losses after having invested huge sums in the initial rollout.

Since then, Beta Tegap and ATES have taken their case to the Kuala Lumpur Regional Centre for Arbitration (KLRCA). It is understood that the case is still ongoing, with both firms seeking compensation from the government.

Sources say the government has not been able to take back the concession contract granted to Beta Tegap and ATES as initially planned. “The AES concession is still with Beta Tegap and ATES, because AES Solutions Sdn Bhd [a government entity that was set up to take back and operate the AES project] was unable to reach a deal with the concession holders, which is why the two firms referred their case to KLRCA for settlement,” says a source.

To recap, in September 2013, then acting Minister of Transport Datuk Seri Hishammuddin Hussein announced that AES Solutions would take over the management of AES from Beta Tegap and ATES. The minister also assured that the takeover would be done in stages and in a transparent manner to avoid accusations of a government bailout.

However, there has since been little news of AES Solutions and the AES project. The status of the arbitration is also not available, although the compensation being negotiated between the parties is said to be as high as a few hundred million ringgit.

Nevertheless, now that Boustead and LTAT are involved, sources say the arbitration process could be called off if they wanted to.  

When contacted, a Boustead spokesperson says its board will be looking into engaging with Irat on the arbitration process following the corporate exercise.

“As we have only recently embarked on this corporate exercise, we will be discussing the arbitration with Irat and will share any pertinent developments at the appropriate juncture.

“We are confident that this will be resolved in due course — for AES to have a positive social impact on the nation and at the same time ensure the viability of the AES in terms of revenue generation and contribution to our bottom line over the long run,” the spokesperson said in a statement.

Since September 2012, only 14 cameras have been installed. In 2013, Deputy Finance Minister Datuk Ahmad Maslan told Parliament that Beta Tegap and ATES invested RM717 million to buy 300 cameras and the government was planning to purchase another 310.

For the project, both firms had obtained a 66-month concession period starting from Dec 9, 2011, with an option to extend for another five years at the government’s discretion. During the concession period, their revenue was to come from the payment of summonses by traffic offenders caught under the AES, based on a certain pre-set revenue-sharing formula with the government.

As the project failed to take off, ATES was seen recording an after-tax loss of RM20.61 million for the year ended June 30, 2014, and its consolidated net liabilities was RM47.12 million. Beta Tegap’s after-tax loss and consolidated net liabilities for the same period were RM22.58 million and RM32.80 million respectively.

Now with government-linked entities Boustead and LTAT entering the picture, the government hopes that the controversies shrouding the award of the AES project to Beta Tegap and ATES in 2012 will end, especially if it is able to avoid paying a huge compensation in the arbitration.

As Boustead is controlled by Armed Forces Fund Board, LTAT, their involvement could also avert public criticism that the project allowed the private sector to profit from traffic summonses.

Note: The Edge Research’s fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations. Visit www.theedgemarkets.com for more details on a company’s financial dashboard.

This article first appeared in The Edge Malaysia Weekly, on March 16 - 22, 2015.

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