Why PLUS Should NOT Be Privatised

courtesy : http://malaysiafinance.blogspot.com/

My opinion:

You should consider not privatising because:

a) There are already too few big caps on the Bursa that attracts foreign funds and institutional investors. Already we have lost Maxis, can you imagine a time if IOI Corp and Sime Darby were to be taken private as well. You can then relegate the relevance of Bursa to foreign funds to almost non-existent.

b) The implications of taking PLUS private may mean that future capital raising for similar projects will be harder. Investors will consider that they will be taking the bulk of the risk upfront, but when traffic goes past critical mass, governments may take them private. It will translate into higher funding cost for similar projects in the future.

c) The majority of investors does not know that PLUS is actually Asia's largest listed toll expressway operator! The biggest. Next is Jiangsu Expressway (177 HK) and Zhejiang Expressway (576 HK). That certainly has to count for something, doesn't it? There are not many things that can put Malaysia on the investment map. We can argue about the merits of Sime Darby in acquiring the other big plantation firms, but at least strategically we have the largest plantation firm in the world. Being right up there in size means being able to dictate trends and squeeze out efficiencies. I think even management of PLUS does not realise the magnitude and relevance of the company and where its at, and what it can be.

d) The users-pay model for toll roads is an important aspect to expand the infrastructure and logistics for a country. Maybe some will argue that the terms may have been a bit too generous. That is up for debate. We should really embrace global best practices by opening up future toll projects for open tender. That way, we can ensure a fairer system on the consumers.

e) Toll roads operators will always get whacked when they start to rake in good profits, and the almost annual increments grate on consumers' nerves. I will give you an example, the Sydney Harbour bridge is less than 2km to cross and I remember as a student paying 50 cents to cross the bridge, now its $3.00. Toll roads are roads that may never be built (or being built quickly) if it wasn't done as a toll road. Toll roads must never be the only way to reach a destination, there has to be a choice. But generally, users in Singapore or Australia or the US do not gripe that much because their salaries and disposable incomes almost have a more than commensurate rise with other cost of living items and incidentals - and that is the crux of the matter.

f) If the government were to take up all the funding for all toll roads and make it free for all users, governments everywhere will never get to where they are now. Taxes will have to rise substantially to fund, repair and maintain them.

g) Looking at the positive side, at least Malaysia has not sold any tollways to foreign infrastructure operators like Macquarie Infrastructure. That company has bought over power plants, tollways, airports, etc... and there has not been a single positive feedback from consumers. Costs and annual hikes have been even more prohibitive when its sold and managed by independent companies.

h) The main gripe has more to do with rising cost of living that does not match the earnings power and growth of normal Malaysians. I have argued before that local salaries are depressed by virtue of the rise in foreign workers and Malaysia's addiction to subsidise for almost every thing. We subsidise fuel/gas, have controlled prices on many goods, we subsidise too many things, which prevents our salaries from rising and our grand plan is not strong enough to continually move our industries further up the value chain. Then you have these tollways which gets their guaranteed increments year in year out.

Consider how much it cost to travel on the NSE in 1995, when graduates pay was around RM2,000-2,200 ... and you compare today the cost of traveling on the NSE. 14 years later and graduates starting pay is still around RM2,200-2,500. That is the crux of the problem.

The government and politicians are fighting the wrong battle by taking PLUS private to appease the general public. The correct battle is to reduce foreign workers, reduce subsidies for fuel/gas and electricity for companies, and trash out the inefficient and ineffective industries we have been shouldering (such as auto). The quite inefficient allocation of resources by having huge taxes and duties on car imports just to protect the failing local auto makers should be scrapped. Malaysia is still in the top 3 places on earth where it is costliest to buy a car - that robs the people of a lot of purchasing power. Think better strategically, and you will find the public not so opposed to the toll rates. If your Toyota only cost you RM50,000 and not RM98,000 - I think many of those who rant and vent their anger at tolls would be placated.

We are addressing the wrong issue, we are getting angry at the wrong issue. Its not toll rates but our purchasing power and inefficient allocation of resources. Until then, we will keep fighting the wrong battles and getting angry at the wrong things. Get the big picture right once and for all.