by Koon Yew Yin
Aliran Monthly Vol 25 (2005): Issue 11

	If the government needs the tolls, then the whole project should be undertaken by the government. Koon Yew Yin

Works Minister Samy Vellu announced in The Star (18 Dec 2005) 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 that the concession agreement would be signed in early 2006. I am disgusted to see this announcement for the following reasons:

Giving out a RM2 billion-contract without an 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 subcontractor, the subcontractor and the sub-subcontractors and the suppliers and others down the chain. In fact, the president of the Bumiputera Contractors Malaysia openly said in a recent conference that contractors had to pay bribes all the way from getting the contract to acceptance of works to collection of payments.

The award of toll road concession without open competitive tender encourages bribery and corruption. I recall that Prime Minister Abdullah Badawi had 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?

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

I believe our PM is trying very hard to achieve our 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?

Samy Vellu also said that the Government will give 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. Don�t you think this is ridiculous? Have they any previous experience with similarly large contracts?

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 per cent per year for 20 years through 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 per cent per annum means that an initial investment of one ringgit will double every five years, quadruple every 10 years, and the one ringgit will become 16 ringgit 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.

Toll-free roads

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

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

Why let someone else collect toll and make a big profit?

If the government needs the tolls, then the whole project should be undertaken by the government. It should not be given to anybody to make profit without having to take any business risk. Though it is sure of making a 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 per cent, RM1 becomes RM16 in 20 years. The contractor, without taking any risks, will be earning far too much profit. In fact, the key to getting the best deal is for the government to get the cheapest interest for the loan. I would be surprised if the Penang government cannot 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 rates, the toll rate should be substantially lower. We must all urge Koh to consult Dr. Lim Keng Yaik, who should be quite 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 themselves then a few more competent contractors should be invited to submit tenders so that the best offer can be selected. How can anybody choose the best deal for the people if he has only one offer and no other offers for comparison? There are so many large listed construction companies in Malaysia who have done similar work and they are so hungry for work that they are tendering for work in India and other countries.

Where's the long-term planning?

As we all know, this daily heavy traffic volume did not just appear overnight. These traffic jams would indicate that there was a lack of planning and foresight.

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

In view of all these seemingly ad hoc activities, I cannot help wondering 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 KL, is not too far- fetched.

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.

Koon Yew Yin, a Chartered Civil Engineer, is a former Secretary General Master Builders Association Malaysia, and a former member of the Board of Engineers, Malaysia, a statutory body to regulate the engineering profession

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