Of Toll Hikes and IPPs

From the International Herald Tribune:

Malaysia's government has reversed its decision to increase toll rates for five key highways following a public outcry amid an economic slowdown, officials said Saturday.

But consumer groups, truck and bus associations as well as opposition lawmakers had slammed the move, saying it would burden Malaysians.

Deputy Prime Minister Najib Razak was quoted as saying the Cabinet decided Friday to defer the hike in toll rates. Under contractual obligations, the government has to pay 287 million ringgit ($78 million) this year to compensate the companies that maintain and operate the routes, he said.

Road Tolls and the IPP contracts have put Malaysia under the microscope as to how investor friendly it is. Until now, I was under the impression that only if the current government loses popularity the risk goes up. But just as well, in economic hard times, the risk goes up as well. While I'm all for the prices of tolls and electricity being more "fair," from an investor's view I have to take into account the risk the government will change the rules midway through.

With the recent instability of the government, we are witnessing exactly how horrific it can be for an investor who bought into the government's promises and word as a sovereign nation. In effect the current government is the nation.

If the government loses power and another one replaces it, anything is up in the air. Even if the current government is losing power but has not yet lost out, it is a liability. They will resort to desperation to keep from losing power. This is the risk when dealing with developing countries that investors should be compensated for.