Highway privatisation: Driving Malaysia towards success

July 21, 2014
Travel Smarter

An efficient and good road network is the backbone of a country’s economic growth. Malaysia (then known as Malaya) has undoubtedly recognised this from decades ago when it launched a seven-year plan to develop the Peninsula’s roads by the newly federalised Public Works Department in 1953, with about RM150 million allocated for the upgrading of the North-South trunk road.

In 1970, the Ministry of Works, through the Highway Planning Unit, devised its first comprehensive road development program for the next five years. The program continued the Government’s policy of extending rural roads which included the construction of three new highways linking the east and west coasts of Peninsular Malaysia. One of the identified stretches was the Lebuhraya KL – Karak (KLK) that was opened to traffic in 1977.

As the country progressed and the landscape of the public transportation change, there was a pressing need for the Government to further improve the infrastructure. It was also obvious that a gigantic task such as building a network of highways could be financially taxing on the Government. The only practical solution was to partner with the private sector and lift the financial burden off the Government.

The Cabinet approved the construction of the entire North – South Expressway (NSE), with an estimated cost of RM2.6 billion to be financed by the private sector. However, the plan did not immediately take off, as no companies were keen to take part.

However, the private sector that was initially very skeptical about the viability of the project was later convinced when the Government announced the privatisation policy as one of the means to spur economic development, as well as improve the effectiveness and quality of public services in 1983.

The Federal Roads (Private Management) Act (Act 306) that allows private concerns to collect toll for specified period on a build-operate-transfer (BOT) basis was gazetted in 1984. Only almost a decade after the Government decided to build highways to connect the North and South of Peninsular Malaysia did the privatisation of highways materialise. On 29 December 1986, the Minister of Works announced the first award for highway privatisation concession to United Engineers (Malaysia) Berhad (UEM) for the NSE project, to be undertaken by its subsidiary, Projek Lebuhraya Utara Selatan Bhd (PLUS) and work begun in April 1987. In its agreement with the Government, PLUS was to provide all toll related activities and to operate and maintain the NSE during the concession period. The concession is now managed by Projek Lebuhraya Usahasama Berhad.

The first privatised highway implemented by the Government was a huge success. Consequent to that, highway privatisation has helped shaped the landscape of not only the public transportation sector in Malaysia, but also the country’s economy in general. When private highway concessionaires started to work with the Government on the development of better road access and networks, they had turned the state of our highways on its head. Advanced expressways with modern facilities were introduced which also gave users a pleasurable driving experience. The emergence of private highway concessionaires has also contributed immensely to the development of the tourism and trade industry, while saving the Government millions of ringgit on funds it could use for other public infrastructure projects.

By implementing highway privatisation, the Government is inadvertently saving the public’s money because it does not have to burden itself on highway expenditure anymore. Instead, the funds could be channel towards the building of other infrastructure such as schools, hospitals and other development needs for the people.

Most importantly, from a financial point of view, is the issue of risk and opportunity cost. With the private sector taking on the highway projects, the Government was able to transfer the various risks to these private companies, mainly financial and construction risks as well as environmental and labour risks that could lead to cost increases.

It is without a doubt that privatisation of highways had spurred and accelerated the growth of many industries, tourism and trade of the west coast of Peninsular Malaysia. With the completion of the NSE highway by PLUS, rapid development was evident in areas along the highway routes such as Nilai, Negeri Sembilan and Bukit Beruntung, Selangor. New townships and industrial areas outside the Klang Valley mushroomed and flourished, providing jobs to many, especially the local people who are now allowed the option of not migrating to bigger cities in search of better economic opportunities.

Privatisation also promotes efficiency and productivity of highway operators. For example, PLUS succeeded to complete the NSE project 15 months ahead of schedule.

The building of the NSE also exposed Malaysians to new technologies, skills and expertise in the construction and maintenance of highways. Privatisation also allows the transfer and sharing of knowledge within locals in the industry. For example, Linkedua Sdn Bhd, the toll operator for Lebuhraya Malaysia – Singapura Lintasan Kedua (LINKEDUA), collaborated with Universiti Teknologi Malaysia by providing on-the-job training to 102 trainee engineers of the university when it was developing the highway to the southern neighbour.

However, in all things good – convenience has its price. With highway privatisation, motor vehicles need to be charged for utilising the highway infrastructure and facilities. With the “user pay” concept, motorists are charged a certain toll rates. For those who do not wish to travel on the alternative toll-charged routes, they could always commute using the toll-free roads to get from one place to another.

With user charges, naturally consumers’ hopes are higher and the onus is on the highway operators to meet and exceed these expectations and constantly strive to better their services in various ways. All these will eventually lead to better responsiveness to consumers’ demands and increase in efficiency of service delivery, especially in an industry that is niche but competitive such as this.

Despite all this, there is still antipathy from certain quarters, which feel the Government should be shrewder when negotiating toll rates with highway concessionaires. What the public might not realise is the fact that the business of building, operating and maintaining a network of highways requires very heavy investment and the highway concessionaires also have obligations towards their respective shareholders to ensure reasonable returns on their investment.

All in all, if we look at the other side of the coin, had the Government financed the nation’s highways the traditional way, the public would have not been able to enjoy the convenience and state-of-the-art facilities of the tolled highways which saves them plenty of travel time and lessens the risk of accidents, among many other benefits.