PLUS EXPRESSWAY : Scratching the tip of a block of tar

The biggest deal for the year so far is of course the UEM-EPF acquisition of PLUS. Without DAP Economic Bureau's alternative budget for 2010 proposing a RM15 billion bid to nationalise PLUS, I doubt if this UEM-EPF initiative would ever be mooted by the BN administration.


Tuesday January 18, 2011
PLUS Expressways says UEM-EPF offer ‘confirmed’

PLUS Expressways Bhd's board of directors, save for the interested directors, has deemed the UEM Group Bhd-Employees Provident Fund's (EPF) RM23bil takeover offer as a “confirmed offer.”

It told Bursa Malaysia yesterday that the board had decided to proceed with the adjourned EGM for its non-interested shareholders to consider the disposal of its entire business and undertaking to UEM-EPF, and the proposed distribution of the cash proceeds to all entitled shareholders via a proposed special dividend and selective capital repayment.

So under BN, the valuation is RM8 billion more than DAP's economic bureau but that is not what I am examining here.

I took a look at the 2009 audited accounts and try to appreciate the magnitude of the issue at hand.

I extracted the numbers from the audited 2009 accounts.

What strike me is that the compensation for 2009 and 2008 represent almost 70% of the total profit. The "compensation" is almost equal to the "direct operating cost" i.e. PLUS essentially is running a service with hardly any capital contribution of its own. Without compensation, the profits of RM1.2 billion for both years are already an impressive RM300 million.

The word compensation is dubious, as we only compensate when there is a loss, not profit.

I already hearing some one saying that Plus needs the huge profits to generate enough cash to pay for the capital infrastructure, right?

According to the balance sheet, resource available comprising compensation receivable plus all the cash in banks as at 31 December 2009 was around RM5.5 billion; about half of all liabilities due to government and financial institutions. Those debts are not immediately payable but many years later.

Note 24 of the accounts provide a breakdown as followings:
Due within 1 year : RM582 million
Due between 1 and 2 years : RM943 million
Due between 2 and 5 years : RM2.7 billion
After 5 years : RM6.8 billion

It seems that cash in the bank alone, RM2.9 billion (the 2 numbers shaded in yellow) was more than enough to pay 2 years' worth of borrowings already.

So just want do PLUS do with the RM800 million compensation receivable for 2009?

Why, pay dividend of RM800 million, of course!

Never mind if the welfare department monthly pay out to the needy is between RM150 to RM300; never mind if the flooring in some SRJK(C) is rotten enough to cause a teacher to fell to his death in Melaka; never mind if the medical facilities in East Malaysia are not up to scratch.....

Idris Jala is right, improper subsidy will bankrupt the country but he was not very clear with the nugget above. Time for PLUS and UEM to change their life style?

A fair amount of the borrowing is from "government" a.k.a. shareholders hence the subsidies come in more than 1 form, i.e. compensation plus interest free loans.

In Note 33 "Long Term And Short Term Borrowings And Amounts Due to Government", there is this lovely disclosure:



(a) (ii) Government Loans

ELITE entered into an agreement on 15 December 2000 with the Government whereby the Government provides financing up to a maximum of RM100 million, at an interest rate of 8% per annum capitalised on an annual basis.

The Government and ELITE entered into a Supplemental Loan Agreement ("SLA") and Additional Government Loan Agreement ("AGLA") dated 15 January 2003, whereby the Government agreed to waive ELITE's obligation to pay interest on the existing Government Loans with effect from 15 December 2000 to 31 December 2001 and to provide ELITE with an interest free term loan facility at a principal of RM300 million. It was also agreed that the aforesaid existing Government Loan shall be interest free with effect from 1 January 2002 to the final repayment date.


What the above mean is that in 2000 PLUS-ELITE suppose to pay interest of 8% but did not. After prolonged delay, in 2003, not only BN administration waived the interest not paid up according to the loan agreement, but advanced 3 times more the money at no interest.

If we mere mortal citizens try defaulting a couple of motorcycle loan instalments, we will encounter incomparable consequences, probably.

Taking PLUS under UEM-EPF would not mean the solution is found. Public utilities are meant to be loss making and finance by tax payers, not creating super normal profits for shareholders at public expense.

UEM via its subsidiaries like PROPEL enjoy a monopoly as PLUS's primary supplier of materials and services. A glance at "Recurrent Related Party Transactions" includes:

* provision of maintenance works and maintenance management services by UEM group companies - RM20,689,467

* construction and other related works to Expressway and Ancillary Facilities by UEM group companies - RM61,168,000

* provision of upgrading works in relation to the Expressways and Ancillary Facilities by UEM group companies - RM20,139,751

* provision of IT related services, maintenance and upgrading works, supply of IT equipment and software, electrical and toll equipment spare parts - RM6,636,760

(the above are amounts for 1 financial year)

If the profit guarantees are still in place then there is no real incentive for UEM to control cost since it is a cost-plus model. Although the Chairman's speech contained the following statement:

"We managed our costs efficiently amidst the economic downturn and realised total savings of
about RM 30.7 million by focusing on Six Sigma initiatives, the Project BETA (Boosting Efficiency Transforming Attitude) business process improvement programme, and several procurement initiatives."

The best model to save money for the rakyat is for the entire highway network to be maintained by a non-profit, non-dividend paying statutory body that understand it's mission is to provide efficient and effective road network for the welfare of the nation and rakyat.

Like health care, national road network should not be a tool to maximise profit for certain selected businessmen.

Taking away profit element of toll concessionaires and its monopoly service and material providers will lower the cost of business, increase the purchasing power of the rakyat and could have incalculable multiplier effect on the flow of economic activities of the nation.

1 comment:

  1. Every thing points to legal robberies of the Rakyat. That's not news anymore! Loyal Malaysians have no choice but to rid the country of these robbers. And the biggest of them all is UMNO/BN. They are the robbers and the law that legalised it.