UPDATE 2-Malaysia PM wants toll highways to freeze or cut fees
* MTD proposes toll freeze on two highways; terminates concession on a third
* Move seen to be politically beneficial for ruling party ahead of polls
* MTD and PLUS likely candidates for new toll concessions (Adds details on bid by MTD Capital's chairman and CEO)
By Min Hun Fong
KUALA LUMPUR, Jan 28 (Reuters) - Malaysia's private sector toll road operators were asked to freeze, cut or abolish tariffs by the country's prime minister on Friday after the country's number two operator, MTD Capital proposed a toll freeze on two of its highways without compensation.
Prime Minister Najib Razak, who is expected to call elections either later this year or next, well ahead of the 2013 due date, told a press conference that the government would solicit industry views.
"I have asked concession holders to retain toll rates or to reduce or abolish them. So they have come up with various suggestions. Whichever we can accept, we can go ahead first," Najib said.
"Apart from that, I have asked that the period of concession not be extended and that there will be no compensation from the government for suspended toll collections."
Najib also announced that the toll concession on a third highway belonging to MTD will be abolished in May, ahead of its expiry in 2018.
An analyst, who cannot be identified as he was not authorised to speak to the media, said that MTD's proposal to freeze rates was similar to the proposal by PLUS Expressways , Malaysia's largest toll operator.
Both MTD and PLUS are presently the targets of a buyout from their respective shareholders, and both buyers of the companies are promising to implement toll freezes should the deal go through.
MTD has so far received two offers, both of which involve the company's executive chairman Nik Hussain Abdul Rahman.
The first offer was an $830 million takeover offer from a consortium of local firms linked to Nik Hussain. The second, which came from Nik Hussain and MTD Capital CEO Azmil Khalid on Friday, was an offer to buy MTD's concession-holding subsidiaries, MTD Prime and Metramac, for $1.15 billion, also from .
The proposed toll freezes were included as part of the second offer and not in the first offer.
Meanwhile PLUS is being targeted by a joint venture between its largest shareholder UEM Group and the Employees Provident Fund. .
"PLUS and MTD will likely remain in the government's good books by promising a toll freeze should their respective privatisations take place, which will be an asset when the government decides to award the new concessions announced in the budget last year," the analyst said.
In the 2011 budget presented in October last year, Prime Minister Najib Razak had announced the establishment of at least five new highways and the freezing of toll rates on four highways owned by PLUS Expressways for five years. .
POLLS AND SUBSIDIES
Najib's action on the tolls is also politically motivated ahead of a general election as it hits on two heated topics, namely subsidies and toll rates.
Malaysia's government spends billions of ringgit a year on subsidies for road tolls and its bill for subsidising food, transport and fuel runs at 24.9 billion Malaysian ringgit ($8.2 billion) annually.
A government policy think-tank recommended that toll subsidies be cut and prices raised in a bid to rein in Malaysia's budget deficit which is expected to be 5.6 percent of gross domestic product this year. It identified savings of 240 million ringgit from price hikes in 2010 and 693 million in 2011.
However, the government baulked at radical cuts to the subsidy budget and has implemented gradual price hikes for petrol, sugar and cooking gas, adding around 0.2 percentage points to December's consumer price inflation index which recorded a rise of 2.2 percent year-on-year. ($1 = 3.053 Malaysian Ringgit) (Additional reporting by Royce Cheah; Editing by David Chance and Miral Fahmy)