As the government holds off raising toll rates yet again, it becomes clear that a long-term solution is sorely needed. And nationalising PLUS Expressways Bhd not only makes economic sense, but it would help to put the government back in the rakyat’s good books.

If anything, it would save the government the embarrassment of having to do an about-turn like what happened a month ago. To recap, barely 24 hours after the then Works Minister announced that toll rates on five major highways will be raised, the decision was overturned, resulting in many red faces.

As per the concession agreements, toll rates are to be revised every three years, failing which the government is contractually obligated to pay compensation to the toll road operators.

However, the government simply cannot keep paying compensation to these private companies in perpetuity. The government forked out RM2.84 billion in gross compensation to PLUS alone between 2003 and 2008.

But if the toll rates keep increasing, the numbers being put forward are hard to swallow. For example, a one-way trip between Kuala Lumpur and Penang works out to RM86 now, but come 2038 — when the concession period on PLUS’ highways ends — the cost would have doubled to RM168.

Thus, it is no surprise that over the past couple of months, two proposals have been put forward to the government from opposing sides of the political fence concerning the nationalisation of PLUS.

And PLUS was chosen rather than the other toll road operators for two simple reasons. The first is that it is the biggest toll concessionaire in the country, with the most number of roads under its belt. Thus, nationalising it would have the biggest effect, not only on the public at large, but also economic activity. The second reason is logic, since the government already has an effective interest of around 74% in PLUS.

This is through the government’s investment arm Khazanah Nasional Bhd, which holds 63.88% of PLUS (inclusive of shares held under UEM Group Bhd) and the Employees Provident Fund (EPF) that holds 11.38%.

In February, the opposition party DAP provided the government with a proposal that aimed to make PLUS toll free by 2016. The suggestion put forward by DAP was for the government to make a general offer for the shares it does not already own in PLUS at RM3.30 per share.

According to DAP, the cost of the acquisition would be funded by issuing Malaysian Government Securities at 3% interest, costing RM413 million per annum. Total repayment would amount to RM16.2 billion over six years, which would be settled using cash from PLUS.

Barely a month later, MCA announced that it was also suggesting to the government to nationalise PLUS through Khazanah, with the latter acquiring the remaining 26% stake on the open market. MCA suggested a range of RM3.50 to RM4 per share, which puts the total acquisition price at RM4.55 billion to RM5.2 billion.

Taking MCA’s example, at RM4 per share, and including PLUS’ outstanding long-term debts as at Dec 31, 2008, of RM9.52 billion, the total cost of acquiring the company comes to RM14.72 billion. And that is before stripping out PLUS’ cash pile of RM2.2 billion as at the end of FY2008.

In total, the cost would be less than RM13 billion. Assuming this is paid over 10 years, the amount could balloon to closer to RM18 billion. Divide the sum of RM18 billion by the period left in the concession, which is 29 years, and it works out to about RM620 million a year, which is still less than the RM730 million compensation paid out to PLUS in 2008.

Admittedly, this rough calculation does not take into account the time value of money but it proves the point that the funds could be put to better use elsewhere, for example, in improving the country’s inadequate public transport system.

Another argument goes that roads are a public service and should be run with the good of the people in mind rather than profitability. Thus, after nationalising PLUS, any increase in toll rates would be only for operational needs rather than for contractual obligations. And PLUS’ strong cash flow of RM1.1 billion to RM1.4 billion yearly from 2004 to 2007, excluding any receipts from government compensation, shows that waiving the toll increase is possible.

Based on PLUS’ closing price of RM2.96 on April 9, both proposals are suggesting a premium of between 11.5% and 35.1% per share, which is decent enough to keep the minority shareholders happy. Over the past 12 months, PLUS’ highest close was RM3.24.

While the amount to nationalise PLUS is substantial, especially given the current economic slowdown, it should be noted that it would not be a burden to the government as the company is profitable with strong cash flow. The company can finance the takeover without drawing from the government’s coffers.

Then, there is the role of the EPF to consider if the government decides to go with MCA’s proposal. As the only other shareholder aside from Khazanah, the EPF can act as another watchdog as to how PLUS is run.

 While some may argue that this will result in another “minority shareholder” scenario, it should be kept in mind that the EPF is still a government-linked body, rather than several private individuals.

At present, nationalising PLUS is still just a suggestion. The good news is, with public opinion carrying the strength it does now, it can be assured that the government will not take such a proposal lightly. But to be frank, nothing puts a smile on the face of the people more than seeing a toll booth demolished.