MP SPEAKS If you have taken a flight out of KLIA or KLIA 2 recently, did you know that you paid RM1 if you took a domestic flight and RM5 if you took an international flight to Express Rail Link (ERL) Sdn Bhd, the company which operates the high speed train from the airport to KL Sentral?

These ERL charges, which started in 2002, have cost passengers a total of RM583.66 million, as of June 2015.

Did you also know that under the existing concession agreement, the price of a one-way ticket from KL Sentral to KLIA would increase to RM97 in 2019 and RM126 in 2024?

The four-fold increase in the initial starting price of RM31 in 1999 to RM126 in 2024 translates to an annual increase of 5.8 percent (at a compounded rate), which is far higher than the annual inflation rate of approximately three percent.

Finally, would it surprise you that ERL Sdn Bhd sent a bill to the federal government for RM2.9 billion in 2015 - as compensation because of deferred ticket price increases?

These are some of the reasons that led the auditor-general to conclude that the government did not get the ‘best value for money’ for the lopsided concession agreement with ERL Sdn Bhd.

Almost all of the problems with the pricing of and compensation to ERL have to do with the fact that the concession agreement was negotiated in secret and without any scrutiny and transparency.

The concession holder can then negotiate for steep price increases in the ticket price, knowing that the government won’t feel any public pressure when the concession is initially signed since this information won’t be disclosed publicly.

The only reason why I was able to obtain the schedule for the ERL’s ticket price schedule from 1999 to 2027 was because it was disclosed in the Auditor-General’s Report! (See Figure 2 below)

There may be little to no justification for the ticket price increases in the concession agreement, e.g. what is an acceptable internal rate of return (IRR) for the concession holder, what KPIs they have to meet before the ticket price increases are approved, and so on.

There is another dirty little secret involving concession agreements that was revealed in the AG’s report. The concession holder has a perverse incentive to inflate the projected number of passengers, which leads to a higher projected revenue.

This is because a higher projected revenue means the government has to pay a higher level of compensation to the concession holder in the event that government does not give approval for the concessionaire to increase its ticket prices.

For example, according to Figure 3 above, ERL’s projected revenue in 2014 was RM905 million, while its actual revenue was only RM124.3 million or 13.7 percent of the projected total.

The concession holder will then use the shortfall between actual and projected revenues as the basis to ask for government compensation. This is the reason why ERL Sdn Bhd has an outstanding claim of RM2.9 billion on the federal government.

The federal government has a unique opportunity to renegotiate the terms and conditions of the ERL concession agreement. The government paid for the entire construction cost of the ERL extension from KLIA to KLIA2, worth RM100 million.

The KLIA extension to KLIA2, which started in May 2014, resulted in a 43 percent increase in ERL’s ridership from 6.44 million passengers in 2013 to 9.23 million passengers in 2014.

The AG’s report states that the government has, in principle, agreed to sign an extension to the ERL concession agreement for another 30 years, which means the deal will expire only in 2059. This extension is supposed to be signed this month, September 2016.

This is an excellent opportunity for the government to not only sign an extension that is fair and transparent but also presents the government an opportunity re-negotiate the existing agreement, which is supposed to last until 2029.

Indeed, what the government should do now is to re-negotiate for a new concession agreement, given that the projected number of passengers should increase significantly as a result of the extension from KLIA to KLIA2.

The new concession agreement must ensure that ticket price increases are reasonable and justified, that the methodology for projecting passenger and revenue growth is accurate and profits to the concessionaire must be capped at an agreed-upon rate.

The passenger service charge should also be scrapped, since not all outbound passengers use the ERL to get to the airport.

To ensure the public that the government, as well as the consumers/users, are getting a fair deal out of this new concession agreement, I call upon the government to disclose the concession agreement by publishing it on a government website and also for the minister in charge of re-negotiating the concession agreement to explain the new agreement at a press conference.

ONG KIAN MING is the Member of Parliament for Serdang.