Construction of the West Coast Expressway expected to take off soon

  • Business
  • Wednesday, 01 Feb 2012

THE road to realising the West Coast Expressway (WCE) - which Kumpulan Europlus Bhd (KEuro) through its subsidiary has the mandate to build - has proved to be a tough journey.

First mooted by KEuro’s controlling shareholder Tan Sri Chan Ah Chye in the mid-1990s, the project hit the first roadblock when the onslaught of the 1997/98 Asian Financial Crisis sent Malaysia’s economy into a sharp recession and many companies in the country into financial difficulties.

KEuro and its associates were among many of such companies. While KEuro was still languishing in financial difficulties, construction stalwart IJM Corp Bhd entered the scene in 2005, with a proposal to buy a 25% stake in the former from Chan.

The WCE concession was the jewel in the crown that attracted IJM’s interest in the ailing company.

But it was not until two years later that the acquisition was completed, following the finalisation of the revised concession agreement for WCE.

In mid-2007, KEuro announced that it had, together with consortium members, signed a concession agreement with the Government for WCE.

Under the arrangement then, the WCE, which was estimated to cost around RM3bil, would be built and tolled by a consortium – comprising KEuro (60%), Kumpulan Darul Ehsan Bhd (20%) and Perak Corp Bhd (20%) – for 33 years before the highway is transferred to the Government.

Construction of the WCE, stretching from Taiping, Perak, to Banting, Selangor, was then expected to start in the first quarter of 2008, and IJM was expected to be the main contractor for the project.

But nothing has materialised.

In an interview in August 2008, IJM Corp, then managing director (now executive deputy chairman) Tan Sri Krishnan Tan told the press that the WCE was facing significant cost escalation as a result of rising raw material prices for steel, cement and fuel.

He also revealed then that banks were shying away from extending finances for the WCE project.

Indeed, the effects of the global financial crisis were already creeping into Malaysia’s economy, and the WCE project was once again delayed.

It was only in mid-2010 that the Government showed more resolve to realise the project after naming the WCE as one of the seven highway projects to be undertaken under the 10th Malaysia Plan spanning from 2011 to 2015.

According to an industry observer, there is a compelling case for the WCE.

Firstly, it is needed to help ease the congestion on the existing North-South Expressway (NSE), which is operated by the recently privatised PLUS Expressways Bhd.

It is estimated that traffic volume on the NSE could reach up to 1.4 million vehicles a day during peak festive seasons.

The analyst explained that such infrastructure project was needed to help boost the economy along the coastal areas in Perak and Selangor.

Last week, KEuro said its 64.2%-owned subsidiary West Coast Expressway Sdn Bhd had obtained the Government’s nod to build the 316km expressway. This time, though, the terms and conditions have changed.

Under the latest arrangement, the WCE would be built at estimated cost of RM7.07bil, excluding the land acquisition cost of up to RM980mil, which would be borne by the Government. Operated on a build-operate-transfer model, the project would come with a 60-year concession period.

A major portion, or 224km, of the highway will be tolled, while 92km will be toll-free.

According to KEuro, the Government would extend a support loan of RM2.24bil for the company to undertake the project. The loan deal comes with an annual interest rate of 4% commencing in 2013, and an interest subsidy of up to 3% from commercial loans for a period of 22 years.

An analyst told StarBiz that the good thing about having the loan deal from the Government was that it would help boost confidence among investors to lend for the development of the project.

The analyst said with the WCE finally expected to take off soon, it would definitely add more excitement to the local construction industry.

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