Guan Eng Fails Addition, Subtraction, Multiplication

Here is some very high level arithmetic by Lim Guan Eng :

https://www.msn.com/en-my/news/national/guan-eng-defends-new-toll-deal/ar-BBZzouB?ocid=spartanntp

Guan Eng defended 18% reduction in toll 

saying move would save govt RM42bil in long run

The value of discounting factor more than previous concession period

We reduced toll, we do not need to pay compensation, govt will save RM28b

The 18% saves the people and govt RM42bil to RM43bil

those who criticised “merely making statements without counting”

PLUS toll concessions had 18 more years to expire

now more than doubled to another 38 years (before expiring). 

My comments : Let us use a real live example and do some arithmetic.

Everyday for 6 days a week my wife and I pay a minimum RM10.60 toll to Plus to get to work and back.  

That's RM63.60 a week. 

Lets keep it simple and multiply by four weeks, round it up, and get RM255.00 per month. 

So for one year I pay RM3,060.00 to Plus just to drive to work and back.

This means for the remaining 18 years until 2038 I will pay Plus  = RM55,080.00

Now Guan Eng says I get an 18% discount. 

But Guan Eng has extended the toll by another 20 years which becomes 38 years.

So lets take (1 year's toll minus 18% x 38 years)  :

(RM3,060.00 - 18%) x 38 yrs = RM95,349.60 !!

So my choice is between 

i.  paying a total RM55,080.00 over the next 18 years (the No Changes Option)
ii. paying a total RM95,349.60 over the next 38 years !!  (with 18% discount)

I am actually paying Plus 94% MORE TOLL  over 38 years !!

Guan Eng certainly will have used the Net Present Value method to discount the future cashflows of Plus. 

But the ordinary citizen with a wife, three kids, car and housing instalments to pay does not do any Net Present Value calculations when he stops at the Toll Gate. It is simply got money or no money in the pocket.  

But Guan Eng's arithmetic says :

• would save govt RM42bil in long run
• govt will save RM28b
• saves the people and govt RM42bil to RM43bil

"Saves the government, saves the government" but the people have to pay more.

This is a Concession Agreement. 

The Concession company is not the Social Welfare Department. 

When the government reduces their toll collection WITHOUT compensation payments it simply means they will demand that the Concession period be extended.  

Because they must recover the full toll collections. 

They are not the Social Welfare Department.

This is what has happened. 

Someone else has to pay.

That someone is the public.

Which now has to pay Plus for 18 + 20 = 38 years. 

In this case the No Changes option is better than what Guan Eng has done.

They know this. 

This scheme actually burdens the people for a longer period.

So why do they do this?

Here is some basic finance. From a financial point of view, Plus is a company with a 38 year Concession Period that collects billions of Ringgits in cash every year. This is an all cash business. The cashflows are huge. Without a doubt this makes Plus very saleable - maybe to another suitor somewhere down the road.  

Just discount the cashflows again lah. 

NPV = Net Present Value again lah.