Malaysia more likely to face a budget crisis than to balance the budget by 2022 or 2023

Media Statement by Dr. Ong Kian Ming, Member of Parliament for Serdang and Assistant Political Education Director, on the 9th of January 2018

Malaysia more likely to face a budget crisis than to balance the budget by 2022 or 2023

The recent admission by the Second Minister of Finance Datuk Seri Johari Abdul Ghani that the Malaysian government would not be able to achieve a zero budget deficit by 2020 should not come as a surprise among those who have been studying the Malaysian budget.[1] This is despite the many promises announced by Prime Minister Najib that Malaysia would reach this zero budget deficit by 2020.

Malaysia’s debt service charges increased from RM14.2 billion in 2009 to RM30.8 billion in 2018. The share of the budget to pay for debt service charges has increased from 9.1% in 2009 to 13.2% in 2018 (estimated). (See Figures 1 and 2 below)

Figure 1: Federal Government Operating Expenditure by Object including debt service charges (2009 to 2011)

Figure 2: Federal Government Operating Expenditure by Object including debt service charges (2016 to 2018)

This increase in the debt service charges as a % of the budget should not be surprising given that the growth in the federal debt is much higher than the increase in the federal revenue. From 2009 (Najib became Finance Minister in September 2008) to 2017, the federal debt grew by 89.7% or an annual growth rate of 11.2% compared to a 37.5% growth or an annual growth rate of 4.7% for the federal revenue during this period (see Table 1 and Figure 3 below).

Table 1: Growth in the Federal Debt versus Federal Revenue, 2009 to 2017

Figure 3: Growth in the Federal Debt versus Federal Revenue, 2009 to 2017

What should be MORE worrying is the fact that payments for debt service charges incurred by 100% owned Ministry of Finance (MoF) Special Purposes Vehicles are also being paid by the government but are being ‘hidden’ in other parts of the budget. For example, payments for strategic sectors have increased from RM1.286 billion in 2017 to RM3.748 billion in 2018 according to the 2018 budget estimates. Included in this payment is a RM1.1 billion payment to Dana Infra / Govco, which is the SPV in charge of issuing debt to finance the MRT lines and also the Pan Borneo Highway. This was verified in a written parliament to me by the Ministry of Finance II dated 29 November 2017 (Appendix 1).

In addition, other repayments (Lain-Lain Bayaran Balik) have also increased from RM1.528 billion in 2017 to RM4.236 billion in 2018. The biggest portion of this payment is for Private Finance Initiatives (PFIs) totalling RM3.971 billion (see Appendix 2).

PFIs are actually expenditure for development projects that are funded by 100% owned MOF SPVs such as Pembinaan PFI Sdn Bhd which has accumulated debt of approximately RM26 billion[1] and Pembinaan BLT Sdn Bhd which issued RM10 billion worth of bonds that were to be financed by yearly ‘rental’ payments by the government of Malaysia to fund the building of police quarters.[2]

If we add up these off-budget sheet debt service charges (approximately RM5 billion for 2018), the total debt service charge would be RM35 billion or approximately 15% of the total budget which is just at the threshold under the administrative fiscal rules. (See Figure 4 below)

Figure 4: Description of Debt Service Charges in the 2018 Economic Report (pg. 84)

As the amount of debt issued by 100% MOF owned SPVs continue to increase with projects such as the MRT Line 2 and Line 3, the LRT Line 3 and the Pan Borneo Highway, we can expect the total debt service charges (hidden and non-hidden) to continue to grow faster over the next decade. This can be partly seen in the 21% increase in the debt guaranteed by the federal government from RM187.32 billion at the end of 2016 to RM226.88 billion at the end of September 2017.[4]

I am not against development expenditure which brings long term benefits to the rakyat. But by ‘hiding’ the debt servicing obligations of such expenditure behind these SPVs, we are allowing wastage and corruption in other parts of the operating and development expenditure (under the Prime Minister’s Department, for example) to persist. What is worst for the rakyat is when funding to public higher education institutions and public hospitals are cut in order to pay for these ‘hidden’ debt servicing charges.

If this trend continues, I don’t believe that the government would be able to achieve a zero budget deficit even by 2022 or 2023. In fact, it is much more likely that we will have a budget crisis on our hands as our budget position worsens.

Appendix 1: Bayaran untuk Sektor Strategik 2018 (RM3.748 billion)

Appendix 2: Lain-Lain Bayaran Balik (RM4.236 billion)

[1] https://www.thestar.com.my/business/business-news/2018/01/05/fiscal-space-needed-to-balance-govt-finances-by-2022-or-2023/

[2] http://www.themalaymailonline.com/malaysia/article/putrajaya-confirms-pembinaan-pfi-debt-pile-near-rm27b

[3] https://www.marc.com.my/index.php/marc-rating-announcements/512-marc-affirms-its-aaais-rating-on-aman-sukuk-berhad-s-rm10-0-billion-islamic-mtn-programme-30102015

[4] http://www.theedgemarkets.com/article/malaysias-spiralling-debt-burden

Expect Toll Hikes if Barisan Nasional (BN) wins the 14th General Election

Media Statement by Dr. Ong Kian Ming, Member of Parliament for Serdang and Assistant Political Education Director for the Democratic Action Party (DAP) on the 28th of November 2017

Expect Toll Hikes if Barisan Nasional (BN) wins the 14th General Election

For those who still can remember, the BN Manifesto for the 13th General Election in 2013 promised ‘the gradual reduction of intra-city tolls’ (Figure 1 below). Since intra-city tolls are found mostly in the Klang Valley (KL and Selangor), one would have expected the toll rates on the major intra-city highways such as MEX, SILK, BESRAYA, LDP and SPRINT to be reduced.

Figure 1: Barisan Nasional (BN)’s GE2013 Manifesto promising the ‘gradual reduction of intra-city tolls

But two and a half years after the 13th general election, the BN government failed to deliver on its manifesto promise when it allowed toll hikes of between RM0.20 to RM2.30 on eighteen toll highways.[1] (See Figure 2 below) For example, the toll for the MEX highway to Putrajaya was increased from RM2.50 to RM3.50. The toll for the LDP highway was increased by RM0.50 from RM1.60 to RM2.10. The toll for the Karak highway at Gombak was increased by RM1 from Rm5.00 to RM6.00. In my own constituency, the toll for the BESRAYA highway was increased by RM0.70 from RM1.30 to RM2.00 and the toll for the SILK highway was increased by RM0.80 from RM1.00 to RM1.80.

What will likely happen in GE14 if the BN managed to win power? It is almost guaranteed that the BN will allow at least one round of toll hikes after GE14. Quite a number of toll highways have had their toll hikes postponed including all of the tolls owned by PLUS (NSE, NKVE, ELITE, LPT) and KESAS. Quite a number of tolls have also not received their allowable toll hikes as per their respective concession agreements (including the LDP). During this time, the government has had to pay compensation to these toll compensations for postponing the toll hikes.

Figure 2: Toll hikes in the Klang Valley implemented on the 12th of October, 2015

Given the financial pressures which the government is under, it is very unlikely that they would want to continue to pay the toll compensations which means that toll hikes are all but guaranteed. How much will the toll rates increase? Table 1 below shows the projected increase in the toll rates as stated in the respective concession agreements. For all of the tolls under PLUS, there was supposed to be a price hike of 5% in 2016 but it was not implemented. According to newspaper reports, PLUS is allowed to increase its toll rate by 5% every three years. If the toll hike that was supposed to take place in 2016 is lumped together with the projected toll hike in 2019, all of the tolls under PLUS would increase by 10% in price. For example, a one-way trip from the Damansara toll in Petaling Jaya to the Jawi toll in Penang would increase by RM4.05 from RM40.50 to RM44.55 and a one-way trip from the Sungai Besi toll in KL to the Skudai toll in Johor Bahru would increase by RM4.13 from Rm41.3 to RM45.43. The cost of one-way trip on the ELITE highway from KLIA to the Jalan Duta toll would increase by RM0.91 from RM9.1 to RM10.01. The cost of a one-way trip on the NKVE from Damansara to Setia Alam would increase by RM0.27 from RM2.70 to RM2.97.

The price of each of the three tolls along the KESAS highway would increase from RM2.00 to Rm2.50. The Cheras-Kajang toll will increase from RM1.30 to RM1.80 at the Cheras Batu 9 and the Cheras Batu 11 tolls. The LDP toll rate in Puchong will increase from RM2.10 to RM3.10. The AKLEH toll rate will increase from RM2.50 to RM3.50. The SPRINT toll rate at Plaza Damansara, Plaza Pantai and Bukit Kiara will increase from RM2 to RM2.50, from RM2.50 to RM3.50 and from RM3.00 to RM5.00 respectively. The GUTHRIE highway toll rate will increase from RM1.90 to RM2.60. The Gombak toll for the KARAK highway will increase from RM6.00 to RM8.00 and the Bentong toll rate will increase from RM3.50 to RM5.00. (See Table 1 below for a summary of the projected toll rate increases after GE14)

Table 1: Projected Increase in Toll Rates if BN wins GE14[2]

Highway Name Toll Plaza Current (Nov 2017) Post GE14 # Increase Post GE14 % Increase Post GE14
North South Highway (NSE) Damansara to JAWI (PJ to Penang) 40.5 42.53 to 44.55 2.03 to 4.05 5% to 10%
North South Highway (NSE) Sungai Besi to Skudai (KL to JB) 41.3 43.37 to 45.43 2.07 to 4.13 5% to 10%
NKVE Damansara to Setia Alam 2.7 2.84 to 2.97 0.14 to 0.27 5% to 10%
ELITE KLIA to Jalan Duta 9.1 9.56 to 10.01 0.46 to 0.91 5% to 10%
KESAS Awan Besar, Sunway & Kota Kemuning 2 2.5 0.5 25%
Cheras-Kajang Cheras Batu 9 & Cheras Batu 11 1.3 1.8 0.5 38%
BESRAYA Sungai Besi 2 2.2 0.2 10%
NPE PJS2 1 2.3 1.3 130%
LDP Puchong 2.10 3.10 1 48%
AKLEH 2.5 3.5 1 40%
SPRINT Plaza Damansara 2 2.5 0.5 25%
Plaza Pantai 2.5 3.5 1 40%
Bukit Kiara 3 5 2 67%
GUTHRIE 1.9 2.6 0.7 37%
New North Klang Straits Bypass (NNKSB) Kapar Toll 2.7 3.1 0.4 15%
Bukit Raja Toll (Kapar Bound) 1.6 2.1 0.5 31%
Bukit Raja Toll (Kport Klang Bound) 0.6 0.8 0.2 33%
KARAK Gombak 6 8 2 33%
Bentong 3.5 5 1.5 43%

Rather than voting for a government that will increase the cost of living for each and every Malaysian, voters must choose Pakatan Harapan who has promised to take over these toll concessionaires as per the terms and conditions in the concession agreements which will lead to the eventual abolishment of the tolls. The BN government has shown that it is willing to take over loss-making tolls such as the Eastern Dispersal Link (EDL) in Johor but continues to pay out billions in compensation to the concessionaires which own and operate the profitable tolls such as the LDP. This is another clear example of how losses by private companies are socialized i.e. taken over by the government but profits are privatized for the enjoyment of these toll concession companies. The only way that this can be stopped is if there is a change in the federal government in GE14.

[1] https://paultan.org/2015/10/12/12-highways-get-toll-rate-hike-highest-at-rm1-10/

[2] The information in Table 1 is based on the concession agreements that was accessed at the library of the Malaysian Highway Authority (MHA) / Lembaga Lebuhraya Malaysia (LLM). The toll concession agreements for MEX, LKSA, LEKAS, DUKE, LATAR and SKVE were not available for public viewing.

Why should BESRAYA toll users pay to get stuck in traffic jams?

Media Statement by Dr. Ong Kian Ming, Member of Parliament for Serdang, on the 21st of November 2017

Why should BESRAYA toll users pay to get stuck in traffic jams?

Every weekday evening, without fail, there is a long traffic jam starting from the BESRAYA Sungai Besi toll all the way to the Mines Shopping Mall. This bumper to bumper traffic of 2.4km frustrates drivers to no end because motorists are effectively paying to get stuck in traffic jams. This traffic jam has not been reduced even after the implementation of a contra-traffic flow which opens one additional lane after the BESRAYA toll heading towards Universiti Putra Malaysia (UPM).

What many motorists are not aware of is the fact that the government, specifically, the Ministry of Works, can take action against the toll concessionaire if these traffic jams persist. For BESRAYA, the toll concessionaire must ensure a Level of Service (LOS) “C” at the toll plaza and / or at the immediate interchange. Level of Service “C” means a stable or at near free flow of traffic. During peak hours, the Level of Service after the BESRAYA Sungai Besi toll is “F” which is bumper to bumper traffic.

According to the concession agreement, if the traffic flow falls below the “C” LOS, the toll concessionaire must appoint a traffic consultant to do a traffic assessment. If the traffic consultant confirms that the LOS has fallen to below a “C” level of service, then the concessionaire must apply for flexible tolling. This means that during off peak hours, the toll rate must be reduced by at least 10% (See Table 1 below). This is to encourage more motorists to use the toll road during off-peak hours rather than during peak hours.

Table 1: Peak and Off-Peak Tolling when LOS falls to below service level “C” during peak hours

Peak Period

(a) 6:30 am – 9:30 am

 (b) 4:30 pm – 7 pm

Toll Rate

As per this agreement

 As per this agreement

Off Peak

(a) 9:31 am – 4:29 pm

(b) 7:01 pm – 6:29 am

Toll Rate

Minimum 10% lower than Agreed Toll in this Agreement

If a reduction in off-peak toll rates fails to bring the LOS to service level “C”, then the concessionaire must upgrade the Toll Plaza or the affected interchange at their own cost. During this time, the concessionaire must pay the government an amount equivalent to 10% of the estimated costs of the upgrading works per month for the inconvenience caused until the appropriate upgrading work is completed. For example, if the upgrading works cost a total of RM10 million, the concessionaire must pay the government RM1 million a month until the upgrading work is completed.

The failure of the Ministry of Works to take any action against the BESRAYA toll concessionaire clearly shows that this government has no political will to take on the toll concessionaires. Instead, this BN government has no problems paying millions of RM to these toll concessionaires in compensation for not raising toll rates. The total compensation paid to BESRAYA from the start of the concession period until 2015 was RM77.6 million. Instead of paying out these millions to BESRAYA, the government should ask BESRAYA to solve the traffic jam problem at its Sungai Besi toll and to fine the concessionaire as per the terms and conditions of the concession agreement as long as the traffic problem has not been resolved.

Dr. Ong Kian Ming
Member of Parliament for Serdang