Friday 21 September 2012

Malaysian government to take over highway concession heading for bankruptcy

According to IFR Asia the Malaysian federal government has decided to take over the Eastern Dispersal Link (EDL) road in Johor Bahru from concessionaire MRCB (Malaysian Resources Corporation Berhad).

Why?  Well this is the case of the concession granted to build and operate a toll road, followed by a law passed to prohibit tolls being charged on the road at all.

The EDL expressway is an 8.1km long road which opened on 1 April 2012.  Johor Bahru is effectively the border town between Malaysia and Singapore, and the highway provides an enhanced link within the border region.

Eastern Dispersal Link, Malaysia - official map

However, the Malaysian Government decided when the road opened that it would not permit tolls to be collected on it, so the concessionaire has faced the past few months negotiating with the government a compensation deal to make up the difference, and meanwhile has been servicing the debt for the road without any revenue.

The report notes as regards the concession there is :

only M$21m in the company’s cash reserves, hardly sufficient to meet a M$47m cumulative interest payment due December 21 on its M$1.04bn senior and junior sukuk, as well as on a M$220m syndicated bank loan. The shortfall is a reason Ram Ratings downgraded the long-term ratings on the M$845m senior bond to BB3 from A2 and the M$199m junior sukuk to C1 from BBB2.

(A sukuk is essentially an Islamic financial instrument with some parallels to bonds).

Curiously, the owner of the concession, MRCB, which is no small company, has indicated that it doesn't intend to contribute funds to meet the shortfall, threatening a default - a first for Malaysian toll (or rather highway) concessionaires, which is perceived as likely to embarrass and disrupt plans for ongoing private investment in infrastructure in the country.   However, the Malaysian Federal Government has previously supported concessionaires more widely in other sectors through extending concession periods or buying bonds to restructure their debt.  It is not shy about interfering in what it deems to be the public interest.

The result of negotiations appears to be a government takeover of the concession, although the article suggests that tolls may yet be imposed, but probably at a price lower than the M$6.20 (US$2.01) per trip suggested.   One controversy is apparently that all users of the new Customs/Immigration/Quarantine complex located near the end of the expressway will pay a toll to contribute towards the road's costs, whether or not they actually use the road.

Overall it implies a conflict between seeking private finance to build and manage roads with tolls, and then taking relatively ad-hoc decisions around abandoning or discounting tolls for political reasons. Elections are due in the coming months, whereby the ruling UMNO party is expected to win (as it always does), but is facing ever growing pressure from growth in support from opposition parties.  It would appear Malaysia is not immune from concerns over opposition to tolling in certain situations.

No comments:

Post a Comment