For whom the roads toll

FEB 11 — At the heart of the debate over highway toll concessions is the ideological question of whether roads are a corporate asset or a public good?

Economists will argue over the definition of a public good, which is theoretically defined as non-rival and non-excludable. In other words, air is a public good because it is non-rival (breathing it does not reduce its availability to others) and non-excludable (no one can be effectively excluded from breathing). By nature, it is understood that private market forces are unable to provide public goods in optimal or profitable quantities, hence the need for the government to provide them.

In this context, the polemic over whether roads are a public good depends on the definition of its use. Some argue that roads are a public good because one car using a road to get to its destination will not prevent another car from doing the same. In addition, roads are non-excludable because anyone can use them. Yet it is also easy to turn the argument around and point out that every additional car on a road means a deterioration of quality in the form of congestion, and that forms of road pricing or tolls can be implemented to exclude non-paying users.

That said, trying to define it in this sense is merely an argument in semantics. The real question that merits our attention is: should roads and highways be a corporate asset or a public good?

Everyone can agree that roads are a basic infrastructure. It is also necessarily state-owned because only the state can expropriate land to build roads through the law of compulsory acquisition. Yet the state also has the right to privatise the building and maintenance of a road or highway to private concessionaires who can then recoup their investment through charging tolls.

But is that fair to the people? Not if one considers how the Malaysian government structures its concession agreements. And certainly not if one believes roads to be a basic infrastructure and public good. If the rationale for private highway concessions is to relieve the state of the short-term burden of building and maintaining roads, then it must also not be done at long-term expense to the public.

Take for example the North-South Expressway, in which the concessionaire, PLUS, received an extended 50-year concession period until 2038. The cost to build the spinal highway was a princely RM6 billion, yet as of December 2010, with more than half of its concession period yet to run, PLUS had already amassed more than RM24 billion in receipts and compensations. One can only imagine how much more money they stand to make in the next two decades and a half, especially with toll hikes embedded into the concession agreement and highway usage almost certainly expected to increase.

And now of course we have the recently announced West Coast Expressway project awarded to Kumpulan Europlus for an even longer 60-year concession. This one makes even less sense. In what is called a private-public partnership, the government will be providing a soft loan of more than RM2 billion, and on top of that also subsidising Europlus’s commercial loan interests by up to three per cent for 22 years. In addition, the government will also bear the cost of land acquisition estimated to be nearly RM1 billion.

This is notwithstanding the fact that Europlus does not even have a track record in building highways. In fact, any track record that they can claim is of dubious repute to say the least. Granted, there is a profit-sharing scheme being built into the agreement, but if the government is so willing to spend more than RM3 billion up front not including the cumulative interests of the soft loan and commercial loan subsidy over 22 years in a project estimated to cost RM7 billion (which itself is another disputable item), then really it is illogical to undertake this so-called public-private partnership much less to impose a 60-year concession period.

The idea of privatised highways is meant to propagate a laissez-faire economy, but the unfortunate result in our country has been the proliferation of state monopoly capitalism. To put it crudely, it has become another way to amass huge profits for cronies at the expense of the people.

Therefore, in order to answer the question of whether roads should be built and maintained by government or not, we must first be clear to whom the government should serve.

If the government is understood to be subservient to special interests (read: cronies), then the corporatisation of roads with its irrational concessionary periods makes perfect sense. If however we posit that the government is meant to serve the people, then roads should be provided as a public good and generally free of charge except in circumstances which require road pricing for traffic control.

And so, for whom does the road toll? It may toll for thee, but certainly not for free.

* The views expressed here are the personal opinion of the columnist.