MCA Proposal to Acquire PLUS Bhd

MCA supports the proposal to acquire the shares of PLUS Bhd
31/03/2009

Press Release
Issued by MCA Spokespersons Sdr Lee Wei Kiat and Sdr Wong Nai Chee on a proposal to acquire 100% shares of PLUS Bhd

1. The issues relating to highway are always the subject matter of controversy among the general public because it affects the lives of everyone in particular public road users

2. Since the government announcement of declassification of highway agreements with effect from 1st January, 2009, the lawyers from the MCA Youth Legal Affairs and Parliamentary Research Bureau had embarked on the tedious work of reading all the highway agreements located at the library of JKR building, KL. The lawyers were able to read all 22 highway agreements together with their supplementary agreements offered for reading to the public.

3. Having perused all the highway agreements, we are of the view that there are four issues that necessitate further deliberation at the cabinet level and explanations needed:-

- Propriety of direct negotiation
Since the inception of the highway agreement in 1988 (the PLUS project) and late venturing into 1990s, the highway projects are no longer regarded as infrastructure projects which require special skills which only several companies in the country could provide. It is therefore inappropriate to conduct the exercise of this type of projects by way of direct negotiation. Direct negotiation in the light of this background smacks of corrupt practices and abuse of power.

· Rationale of granting loans to private concession companies by the Federal Government

Some of the highway agreements show that loans were given to the companies by the Federal Government without any security. For example, an interest free RM80 million support loan was granted by the government in the SILK agreement and that there was no where in the agreement that imposes the obligation of the concession company to provide any security in return. The conduct of utilizing public money to finance a private company in a lucrative project like this is questionable.

· Compensation payable by the Government

In the event the request for toll hike is not permitted when it falls due, the government would have to compensate the companies according to a formula that bears the element of projected revenue in the calculation. This is in actual fact a form of guarantee assumed by the government under the agreement to ensure the return of investment made by the concession companies! Either way, the concession companies will always have the last laugh.

· Verification of traffic volume

The element of traffic volume is an element in deciding the projected toll rate under the agreement. The projected toll rate will in turn determine the quantum of compensation payable by the government in the event toll hike is not permitted. Therefore, we are unsure how the traffic volume was agreed upon by the government during the stage of negotiation. Was the figure verified? What underlying assumptions were made in agreeing to the traffic volume figure? Did the government investigate the authenticity and reliability of the traffic volume proposals given by the concession companies?


Viability of PLUS acquisition

4. Therefore, MCA is of the opinion that it is in the best interests of the people to acquire the shares of the concession company in PLUS.

5. The government has an effective interest of 74% in PLUS leaving another 26% in the market. Assuming a share price of RM3.50 to RM4.00 per share is offered for the acquisition of the remainder shares, the total acquisition price is between RM4.55 billion to RM5.2 billion. The remaining shares could be acquired via Khazanah and upon completion, the Government would hold 100% stake. In terms of profit after tax margin inclusive of Government compensation, the PLUS business yields a profit margin of above 50% from 2004 to 2008.

6. The toll rate currently is set at 14.96 sen per km and by 2038 the toll rate is expected to increase until 29.16 sen per km which is double. As such, a trip from KL to Penang costing RM86 one way would cost RM168 by 2038.

7. From the financial aspect, PLUS has been generating a profit of RM400 million to RM600 million yearly form the financial year 2004 to 2007, even if the gross compensation from the Government for not increasing the toll is excluded. Meanwhile the cash flow generated from operations excluding any receipt from Government compensation for not increasing the toll is RM1.1 billion to RM1.4 billion yearly from 2004 to 2007. This clearly shows that if PLUS is taken over and held by the Government and EPF, the possibility of waiving toll increase can be carried out both financially or legally. Even if there is any toll increase it would not be based on contractual rates but more to sustain operations of the company and for loan repayment purposes.

Currently, the Government has been compensating PLUS yearly and the amount has been increasing yearly as follows:

Gross compensation
2003 RM 295’mil
2004 RM 307’mil
2005 RM 171’mil
2006 RM 654’mil
2007 RM 680’mil
2008 RM 730’mil

8. As at 31/12/08, the long term borrowing of PLUS amounts to RM9.4 billion and the dividend announced for financial year 2008 is RM725 million. If the entire amount is channeled for repayment of debts, PLUS can settle the long term borrowing in 13 years MAXIMUM based on the financial results as at 31 December 2008.

9. In summary by acquiring the remaining shares of PLUS, the Government would be able to establish policies and measures to ensure that the people are not burdened. The once-every-three-years toll hike can be avoided and any increase can be based on operational needs rather than contractual needs. Politically, it would signify a significant change in the Government and shows that the Government cares and listen to the people.