A PROPOSAL to take over four inter-city highway concessions linked to Gamuda Bhd is on the table again, but this time through a highway trust mechanism.
Unlike the RM6.2bil deal proposed by the Finance Ministry (MoF) under the then Pakatan Harapan government in June 2019, this is a private sector deal that can “save some RM5.3bil in compensation payout, with no cost and risk to the government, ” sources say.
Last month, Works Minister Datuk Seri Fadillah Yusof said the government is reviewing a revised offer by Gamuda on a takeover of four highways.
He said the government had initially rejected a proposal by Gamuda but the infrastructure and property development group came back with “a new proposal for a new scheme similar to an arrangement reached with PLUS Expressways Bhd previously, where the concession will be extended, with a fixed rate”.
This is now under review, the minister had said, adding that the government wants a uniformed solution for all highway concessions in the Klang Valley.
Gamuda, directly and through 43.2%-owned Lingkaran Trans Kota Holdings Bhd (Litrak), controls Lebuhraya Damansara-Puchong (LDP), Sistem Penyuraian Trafik KL Barat (Sprint), Lebuhraya Shah Alam (Kesas) and the Smart Tunnel.
Paying compensation to concessionaires for no toll hikes is an expensive exercise.
This year’s toll hike freeze for major highways in the country, which were supposed to take effect on Jan 1, is expected to cost taxpayers RM2.25bil.
With the government saddled with a budget deficit, yet needing to juggle competing priorities arising from the pandemic, the money could go towards assisting the B40 group, small and mid-sized entrepreneurs, or to procure more vaccines to contain the pandemic, some contend.
Moving forward, it would be hard for the government to defend the continuous policy of postponing toll hikes, and in turn the long extension being granted to concessionaires.
“This (highway trust) is a golden opportunity for the government as there is no public money involved, it is absolved from paying compensation and the rakyat benefits with toll rates unchanged, ” says a source.
Under this scheme, shareholders will exit with the acquisition of the four toll concessionaires financed by way of bond issuance to investors, offering a yield of more than 4%.
“Tolls will be maintained at the current rate in return for a slightly longer (concession) period.
“There is no government guarantee. Similar to issuance of bonds as in any other concessions, they would be backed by the cashflows of the concessions, ” the source says.
To freeze toll rates on the four highways until the conclusion of their respective concessions agreements, the total compensation payout is estimated at RM5.3bil.
As for the acquisition price, it is expected to be lower because two years have passed since the last MoF offer and cashflows already taken by the stakeholders during that period would be reflected.
Unlike PLUS’ recent toll restructuring that required a 20-year extension, an extension of five years is envisaged, coupled with an option to extend by another two to three years to cover any insufficiencies in cashflow to repay the bonds.
On the other hand, any surplus will shorten the debt tenure and end the concessions earlier.
Of the four highways, the remaining term of Kesas’ concession is the shortest as it is scheduled to expire in 2028. As for the LDP and Sprint Highway, the concessions would expire in 2034, while the Smart Tunnel ends in 2042.
The scheme has taken into consideration a modest urban traffic growth forecast of 1%-2% per year for the next 15 to 20 years.
If this modest forecast turns out correct, concessions would end before 15 years from today, sources say.
However, for this plan to work, it would need approval from the government on concession agreements.
Unlike a business trust or REIT, which are profit motivated, the highway trust would be a not-for-profit enterprise to be overseen by a board of trustees.
Sources say a group of non-political trustees have been identified, comprising former professional corporate luminaries who are willing to do this as service to the nation.
Operationally, everything would remain the same.
The concessionaires would be taken over intact with all its and present staff management team going across to highway trust. They will carry out the maintenance work as they have been doing for the past 20 years, say sources.
To ensure it is sufficiently catered for, a tax waiver must be given so that all cashflow goes to service and repay the bonds, says a consultant.
He estimates that the tax forgone would come to less than RM900mil.
According to him, at current low interest rates, the plan is feasible as it reduces the funding cost of bonds.
“There is a window of opportunity, but it is closing fast.
“This may not be workable three to four months down the road with interest rates already rising 70 basis points from end-January to mid-March 2021, ” says the consultant.
If long-term interest rates trend above 5%, he reckons that concessionaires’ free cashflows are insufficient to pay the higher cost of funds, making fundraising impossible.