The Administrative Supreme Court has ruled that a new selection process shall choose a company for the freeway electronic toll collection (ETC) system because the original process was flawed.
The most urgent task is to find a way to complete the selection process -- not to debate whether the government should handle the project by itself, find another firm to run the ETC system, reopen the bidding process or abandon the project.
The Far Eastern Group's decision, however, to give its shares in Far Eastern Electronic Toll Collection Co (FETC) to the government opens up new possibilities for the ETC project.
From a corporate perspective, the donation was a good way for the Far Eastern Group to limit the damage to its image from the flap over the ETC project. Whether the government should accept the donation remains to be seen. This involves questions of legality, nationalization, sustainable operations and the fairness of the selection process -- all of which must be handled with care.
Some worry that if government shares in FETC exceed 20 percent, then this will violate the Law for Promotion of Private Participation in Infrastructure Projects (促進民間參與公共建設法). Article 4 of the law states that if the government or a government-owned enterprise makes an equity investment in, or donation to, a private institution, the total amount of the investment or donation must not exceed 20 percent of the institution's total capital or assets.
Since FETC is not a government-owned company, its donation should not violate the law. But if the government directly accepts a 55-percent share in FETC, the company would become a government-owned firm -- raising the question of whether it would still qualify as a bidder for the ETC project.
Questions have also been raised about the nationalization of FETC. From a policy perspective, the government should make clear whether nationalization of FETC would change the policy that the ETC project be a private sector endeavor. Since the project has had a major impact on private participation and investment in infrastructure projects, the government must clearly explain its policy and its stance on public participation.
As is common with transport companies, FETC sustained heavy losses during the start-up period. It will also need to make a big investment in replacing its systems in the future. If nationalized, FETC would be restricted by the government's budget procedures. What impact this would have on the company's ability to raise capital should be taken into account.
If the issues raised by nationalization are too complex, nothing is stopping the government from entering into negotiations with the Far Eastern Group to set up a public benefit fund or some other legal entity in order to accept the donation of shares. As long as that fund or entity does not accept government donations above a certain percentage, the nationalization issue would be irrelevant, and there would be no risk of violating the law.
Having a public interest institution take over the shares would also fulfill the Far Eastern Group's initial purpose, so chances are good that it would accept such a solution.
But turning FETC into a public institution would still leave the problem of raising the capital needed for sustainable operations.
How many public institutions have the ability and the financial credibility to participate in FETC's fundraising activities? Could FETC raise the necessary capital by finding new shareholders?
The Ministry of Transportation and Communications (MOTC) must quickly decide if it will accept the share donation and, if so, how and when it will do so. Dragging this decision out would only create more uncertainty about the selection process, raising more questions about the fairness of the process. It would also violate the Administrative Supreme Court's suggesion.
The ministry must deal with all the issues that may affect the selection process and find a way to win the trust of participants if it is to avoid creating a whole new controversy.
Huang Yu-lin is an associate professor in the department of civil engineering at National Chiao Tung University.
Translated by Perry Svensson
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