This article first appeared in The Edge Malaysia Weekly on December 26, 2022 - January 1, 2023
WITH cost of debt on the rise and shareholders of Gamuda Bhd rewarded with a RM1 billion special dividend, it is not hard to see why the takeover by Amanat Lebuhraya Rakyat Bhd (ALR) of Gamuda’s entire equity interests in concessionaires holding four highways — Shah Alam Expressway (Kesas), Western Kuala Lumpur Traffic Dispersal Scheme (SPRINT), Lebuhraya Damansara-Puchong (LDP) and Stormwater Management and Road Tunnel (SMART) — is being touted as a sweet deal for the latter even though it is not the only winning party.
The government will reportedly save some RM4.3 billion in toll subsidies or compensation by extending the highway concessions — which had a total enterprise value of RM5.48 billion at end-2021 versus RM6.2 billion at end-2019. The money could be channelled towards easing the people’s burden elsewhere in a targeted manner.
The government also does not need to directly take on debt to acquire the toll concessions or spend money for maintenance because ALR is the purchaser that will return the highway assets to the government once the concessions end and debt is fully repaid.
And because the private, government-friendly, not-for-profit special purpose vehicle is essentially buying the highway concessions using securitised cash flow from the concessions, there is no issue of ALR defaulting on payments to creditors or needing any government guarantee for the debt papers issued to make the purchase. After all, it is clear that the government has to honour the concession agreements.
While the concession assets are now parked under ALR, these assets have to be returned to the government once the concessions end.
According to its website, ALR is overseen by a board of highly experienced and respected individuals who are equal shareholders — Tan Sri Azlan Mohd Zainol, Datuk Idrose Mohamed, Datuk Soam Heng Choon, Datuk Nirmala Menon and Datuk Mohamed Sharil Tarmizi — who will be assisted by the existing capable management team of the highway concessionaires. ALR’s website also says its shareholders cannot extract any dividends because it is “not-for-profit” and the concessions will be shorter if there is more traffic on the highways.
In April this year, former prime minister Datuk Seri Ismail Sabri Yaakob was able to tell the people the good news that there would be no more rate hikes at those four tolls until the end of the respective concession periods.
The then works minister Datuk Seri Fadillah Yusof — now deputy prime minister — hoped other concessionaires would follow suit to reduce the people’s burden.
Indeed, consumers benefit from not having to go through any more toll hikes until the end of the respective tolled highway concessions. Toll hikes would have added to the rise in cost of living in the Klang Valley, with possible knock-on inflationary effects.
What’s left unsaid is that consumers would have seen those tolled roads becoming toll free earlier if compensation had been paid instead of the concessions being extended to make up for not raising toll rates.
Given the tight fiscal conditions, however, money to compensate toll concessionaires would have had to be taken from somewhere else if the government had chosen to pay to keep toll rates from rising instead of extending the concessions.
Even though these concessions will end when they are supposed to, if the government had paid compensation instead of extending the concessions, the impact on consumers would have been delayed versus an immediate hit from a toll rate hike or relief from a toll rate freeze.
When toll collection ended in January 2003 in Jalan Kuching in Kuala Lumpur after 16 years, for example, there were probably more people who celebrated the toll removal than those who remembered that the concession signed in 1987 was supposed to have been for only nine years but was extended by seven years in 1996.
Among those who remember are the ones who provide checks and balances. Long-serving DAP leader Lim Kit Siang’s blog post on the Jalan Kuching toll removal dated Jan 6, 2003, is available online today, two decades on.
Also available online is his blog post dated Feb 10, 2007, detailing how information on toll concessions — which were at the time classified under the Official Secrets Act 1972 (OSA) and thus unavailable to opposition leaders seeking to protect public interests — were found on four project financing notes dated October 2003 to October 2006 issued by a credit rating agency for the consumption of bondholders as toll concessionaires sought financing from the market.
The country took a step towards greater transparency on these highway concessions in January 2009 when 16 out of 22 highway concession agreements between the government and the highway operators were declassified, and physical copies could be viewed by the public by applying at the library of the Ministry of Works within office hours.
Transparency in favour of checks and balances matter when it comes to concessions with long-term commitments as anyone who takes Putrajaya would have to honour what had been signed and, ultimately, the people and the country would need to pay extra for a longer period if calculations had been more favourable to concessionaires from the start.
Anyone familiar with how toll concessions work would know that the value of these concessions had been largely determined at the point of signing — which is why it is important that the parties in government who hammer out the details and sign these concessions have the people’s interests in mind first and foremost. The numbers, in this case, would not lie.
With the relevant details such as traffic volume assumptions, agreed toll rates and compensation schedules, anyone familiar with discounted cash flow can price these concessions.
Rather than winning The Edge’s Best Restructuring Deal for 2022 — there is no winner this year — the ALR structure gets a special mention as consumers still have to pay toll for a longer period of time.
Though there is still room for improvement on transparency, it is a structure that can be replicated for future nationalisation of highway concessions.
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