The subsidised “privatised” Senai-Desaru Expressway

One of the privatisation project covered by the 2010 auditor general’s report is the Senai Desaru Expressway Project in Johor. The purpose of this 77 km highway is to link Johor Bahru to the Desaru tourist areas. A concession company was appointed to build, collect tolls, operate and maintain the highway during the concession period.

The agreement was signed between the government and the concessionaire in July 2004. Construction is supposed to take 3 years and should have been completed in 2008. However, due to various difficulties three extensions had to be given until Dec 31, 2010 for it to be completed.

The cost to build the highway is RM1.37 billion and the original estimate of land acquisition cost was RM365 million which means the original total cost is RM1.735 billion.

Cost to build highway: RM1.37 billion
Land acquisition cost: RM0.365 billion
Total cost: RM1.735 billion

The interesting thing is although this project is privatised, the land acquisition cost is fully borne by the government!

And the more interesting thing is that the land acquisition cost “has increased from RM365 million to RM740.60 million due to payment for compensation that exceed the market price, high injurious affection and severance payments and interest payment of 8% due to payments not made within the stipulated period.”

So now what is the total cost of the highway? RM2.11 billion out of which 35% is paid for by the government (which means the taxpayers).

Cost to build highway: RM1.37 billion
Land acquisition cost: RM0.740 billion
Total cost: RM2.11 billion

Something is not right. The taxpayers contribute RM740 million to have this highway built but the public will still have to pay toll to use the highway for 33 years. Yes, the concession company is given the right to collect toll for 33 years.

OK the government will get a share of the profits – but only AFTER 15 years and only gets 20% of the profits! This doesn’t sound like a good deal for the country. If the government want to privatise the highway, privatise it all the way and let the concessionaire pay the full costs including the land acquisition. Otherwise, why privatised?

Just like the other highway concession agreements, the agreement for this subsidised “privatised” Senai Desaru Expressway probably contains some interesting details. For example, is the concessionaire guaranteed a profit? If the tolls collected are not enough will they get any compensations?

Apart from the doubling of the land acquisition cost, the auditor general’s report also highlighed the following shortcomings

– The project was not in accordance with the specifications causing damages to the road surface. Some stretches of the highway were built to less than the minimum depth of 95mm.

– The road surface is undulating at certain stretches and erosion-prevention measures at five bridges over rivers have not been incorporated.

– The highway is still considered “unsatisfactory and a danger to road users.”

– The concession agreement did not specify any liquidated and ascertained damages to be imposed in the event of delays. Aren’t these standard clauses in such agreements?

The concessionaire is Senai Desaru Expressway Bhd (SDEB) a company incorporated by Ranhill “which has long been described as UMNO-linked”.
The other main shareholder of SDEB is Yayasan Pendidikan Johor (YPJ) an arm of the Johor State Government.

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