The PORR-blems with toll concessions

Works Minister S Samy Vellu announced on Dec 18 that the cabinet has approved the RM2 billion construction of the Penang Outer Ring Road (PORR) to be undertaken by Peninsular Metro Works Sdn Bhd and the concession agreement will be signed early next year. 

I am disgusted to see this announcement for the following reasons:-

1. Giving out the RM2 billion contract without inviting open tender will encourage corruption. The amount of money involved is so huge that even a saint would be tempted. You can imagine the chain of indebtedness between the minister and the main contractor, the main contractor and the sub- contractor, the sub-contractor and the sub-sub- contractors and the suppliers and others down the chain. In fact, the president of Bumiputera Contractors Malaysia openly said at a recent conference that contractors had to pay bribe all the way from getting the contract to acceptance of work and collection of payments.

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2. The awarding of toll road concessions without open competitive tender encourages bribery and corruption. I recall that Prime Minister Abdullah Ahmad Badawi once said that, as long as he lives, he would fight corruption and this system of giving out large contracts without inviting tenders has to stop. Why is he not keeping his word?

3. With the exception of this approval, as far as I know, our PM has not approved any new toll road concessions since his appointment. Before that, many such concessions given out without open tender around Kuala Lumpur and Selangor. It would be a challenge for anyone to find another city with as many toll roads as Kuala Lumpur. This would remind foreign tourists of the toll system during the Middle Ages when travelers had to pay toll to several landlords for even a short journey.

4. I believe our PM is trying hard to achieve the goal of becoming a developed nation by 2020. To attain that status, he has to get rid of corruption and improve our corruption ranking. According to Transparency International, Malaysia is placed at No.39 and all developed nations have much better ratings. Singapore is ranked No.5. Can you imagine Singapore giving out a large contract without an open tender?

5. Samy Vellu also said the government would provide a RM160 million soft loan to enable the contractor to start work. Who are the people behind Peninsular Metro Works Sdn. Bhd? It looks like a RM2 paid up capital company. It has no money to start the RM2 billion contract work and needs a loan. Isn’t this ridiculous. Have they handled such large contracts before?

What is a toll road concession?

It is a contract given by the government to allow the concessionaire to raise finance, design, construct, operate and collect toll. In the concession agreement, the government guarantees the concessionaire an internal rate of return [IRR] of usually 15 percent per year for 20 years by the adjustment of the toll rates based on traffic volume and other cost variations.

With the government’s commitment, the contract is bankable that is a consortium of banks will be prepared to finance the project. An IRR of 15 percent per annum means that an initial investment of RM1 will double every five years, quadruple every 10 years, and the RM1 will become RM16 in 20 years. It should be very profitable for investors if the management is transparent and honest.

So, the people must not forget that they have to pay toll to cover all the construction costs, interest charges as well as the contractor’s profit.

In most progressive countries, a good city road system free from frequent traffic jams is regarded as an essential need, much like education, health care and clean air. It must be the duty of the chief minister and his government to provide PORR to solve the traffic problem free of charge and Penangites should expect nothing less.

In fact, Penang in many ways is similar to Singapore. Both cities have similar historical backgrounds and both developed very much the same way. Despite their rapid progress, Singaporeans do not have to face daily traffic woes like us. Their government had better planning and foresight.

Why let others collect toll?

If the government needs the tolls, then the whole project should be undertaken by the government. It should not be given to others to make profit without having to take any business risk. Though it is sure of making profit, the government gives out the concession and this can only indicate that it is not confident of managing the project itself.

I mentioned that with an IRR of 15 percent, RM1 becomes RM16 in 20 years. The contractor, without taking any risks, will be earning far too much profit. In fact, the key to get the best deal is for the government to get the cheapest interest for the loan. I would be surprised if the Penang government could not get an interest free loan from the federal government for this project.

If the federal government has to charge interest, I am sure the rate will be much cheaper than commercial bank rates. With the free or lower interest rate, toll rates would be substantially lower. We must all urge Penang Chief Minister Dr Koh Tsu Koon (left) to consult Dr Lim Keng Yaik, who should be rather familiar with long-term loans as he was recently involved in the Selangor water concession deal.

If the Penang government cannot manage the project by itself then more competent contractors should be invited to submit tenders so that the best offer can be selected. How can one choose the best deal for the people if there is only one offer? There are many large public listed construction companies in Malaysia who have done similar works and are hungry for works that they tender for projects in India and other countries.

Where’s the long-term planning?

In recent years, we have seen so many new roads, traffic diversions, two-way roads becoming one way and now PORR. Soon we will see the second Penang bridge with more new approach roads.

In view of all these seemingly ad hoc activities, I cannot help but wonder if the city planners have a long-term plan for the whole of Penang island – incorporating not only the road system but including a broader comprehensive and integrated public transport policy. Planning for a light rail train (LRT) system, like the one in Kuala Lumpur, is not too far- fetched.

As we all know, the heavy traffic volume did not appear overnight. These jams indicate a lack of planning and foresight.

I believe that all Malaysians and sensible politicians can appreciate this article and I trust some influential politicians will take this up with the authorities to do the right thing.

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