For whom Malaysia’s highways toll

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Malaysian expressways are famous for their eye- catching acronyms: Elite, Sprint, Dash, Kidex, Skip and Duke are some of the more memorable ones. Penang Monthly goes beyond that to nd out who owns what in the highly lucrative highway business.

Malaysia has come a long way since its rst tolled expressway or highway, the 33km Tanjung Malim-Slim River route (then known as Federal Route 1) was completed in 1966. Today, there are 31 operational highway concessions, and all but one are collecting toll 1. With the exception of one tolled bridge in Kuching, all the privatised highways are found on the peninsula, and slightly more than half of the concessions are based in the Klang Valley.

The 31 highway concessions are owned by 20 di erent owners. These concessionaires are a mixed bunch, ranging from pension and government funds to public listed corporations, private companies, individuals, state governments and the federal government. Five groups control the lion’s share: highway owner and operator Plus, Bumiputera fund manager Permodalan Nasional Berhad (PNB), and construction giants IJM, Gamuda and MTD, which cumulatively control two-thirds or 20 of these 31 concessions.

Today Plus is by far the largest highway operator in Malaysia whether measured by assets, length of highways (973km) or even number of concessions (eight), which includes the first Penang Bridge2. Of the eight, the NSE alone generates about 80% of Plus’s total revenue. All of Plus’s highways have posted healthy profits, with the exception of the Second Causeway due to high financial costs and low toll intakes3. All its concessions started in the mid to late 1990s and are due to expire in 2038.

The next largest concessionaire is the IJM construction group, which has stakes in four toll concessions. IJM wholly owns two of these – the Sungai Besi Expressway (be er known as Besraya Highway) and the New Pantai Expressway (NPE), and has stakes in two other expressways: the Kajang- Seremban Expressway (or Lekas) and the Butterworth Outer Ring Road (BORR).

As is to be expected, the Klang Valley- based highways, the NPE and Besraya are all pro table, having been operating since the 1990s and being based in affluent and densely populated areas. In contrast, both Lekas and BORR are still in the red due to high amortisation costs. These are still in their early years of operation and being in the urban outskirts, service low traffic volume.

IJM’s close rival, Gamuda4, owns three highway concessions and a tunnel motorway. All of them are joint ventures with other corporations and state and pension funds. The best known of them is the Puchong-Damansara Expressway, be er known as LDP.  The LDP is owned by public listed Litrak5 which in turn is a 45% associate of Gamuda. It is highly pro table, boasting revenue of RM369mil and a profit before tax of RM180mil in 2013. This is hardly a surprise as it has been operating for almost two decades and snakes thru heavily populated and posh areas in the Klang Valley.

Litrak also owns 50% of another KL- based tolled highway, the Western KL Traffic Dispersal System6 or Sprint Highway. Unlike its parent, the Sprint concessionaire is still posting losses despite a government compensation of RM60mil in 2013 for deferring toll hikes. The red ink is due to high financial costs from the government support loan and lower traffic volume, but it is expected to break even this year.

The final expressway Gamuda owns (together with PNB, Amcorp Properties and Selangor state) is the Shah Alam or Kesas Expressway. Like the LDP, Kesas is also highly profitable, which could explain why Gamuda wanted to buy out its three other partners. Both Amcorp Properties and PNB have since sold their stakes but the Selangor state government has refused its offer, leaving Gamuda with 70% of Kesas.

Gamuda’s last concession is the Smart tunnel, which it co-owns equally with MMC Corporation Bhd. It is the rst and only tunnel to combine a storm water tunnel and a dual-lane motorway. The cost was borne by the government to the tune of RM2bil, while the motorway was privatised under a 40-year concession to the Gamuda-MMC joint venture. More than 11 million cars plied through it in 2012 but despite this, Smart made a loss of RM4.7mil.

The fourth-largest toll operator, PNB is a government-linked fund manager which wholly owns and operates three highways besides being a substantial shareholder (more than five per cent) in IJM and Gamuda. The three concessions PNB owns are all in the Klang Valley, but only one is profitable – the Ampang-Kuala Lumpur Elevated Highway, better known as Akleh. Its two other expressways, the Shah Alam-Kuang (or Guthrie Corridor) Expressway and the Kemuning-Shah Alam Expressway, are yet to break even due to low traffic volume and high nancial and amortisation charges. Despite its chequered experience, PNB is negotiating for two more Klang Valley concessions.

The fifth largest concession is the MTD group, whose three highways make it the second largest toll operator by length (228km). The group, which was taken private by its founding chairman and chief executive in an RM3.25bil exercise in 2011, operates the 8km-long KL-Seremban Expressway, the 60km KL-Karak highway and its extension, the 160km East Coast Expressway Phase 1 linking Karak to Terengganu. The KL- Karak highway has the distinction for being a rural highway with the highest traffic volume at 36.9 million vehicles passing through in 20127.

As for the remaining nine expressways, they are either owned by listed and unlisted corporations, a foreign fund or Johor state, but none of them possess more than a single concession. Profit-wise, two trends can be witnessed for this group: it appears that the rule of thumb is to wait at least 10 years before a highway concession breaks even (although there are exceptions), and during this period, profitability suffers from high depreciation losses, financial costs and low traffic volume. The two pro table highways in this group are the Cheras-Kajang Expressway (Grand Saga) and the KL-Putrajaya Expressway, or MEX. Grand Saga has been operating since 1999 and has been so profitable that a foreign fund has bought a slice of it while the MEX commenced tolling in 2008 and, despite initial fears, has been in the black since 2012 with exceptional traffic and novel accounting.

The way north, on the North-South Highway

However, the Kajang Dispersal Link (or the Silk Highway) and the New North Klang Straits Bypass (NNKSB) are still bleeding red ink despite having been in operation for more than a decade. Both concessionaires have been in trouble with creditors, and the last that was heard of the NNKSB was that it had been put under the hammer. Silk Highway appears to have turned the corner. Although it has yet to register a profit, losses have halved from RM37mil in 2009 to RM16mil in 2013. A clear sign that it is out of the woods is construction giant IJM’s recent proposal to splash out RM400mil to purchase it.

The last five – the Duta-Ulu Klang Expressway, Senai-Desaru Expressway (SDE), Eastern Dispersal Link (EDL), South Klang Valley Expressway and KL- Kuala Selangor Expressway – are all less than ve years old and are yet to break even. The odd one of this group is the RM1.37bil SDE which has restructured its debt due to lower-than-projected traffic and cost overruns. The SDE has also the ignominious distinction of being sued by its main contractor, which shares the same majority owner as its concessionaire. 

Highway concessions in Malaysia have a chequered history, but despite this, there seems to be no shortage of bidders for new concessions. Why any corporation would want to bag a highway concession costing billions of ringgit, knowing the break-even period would be after 10 or more years is mystifying. Cash-strapped Malaysian Resources Corporation Bhd (MRCB), for example, has decided to return its RM1bil EDL to the government and is currently negotiating a sales price8.

Perhaps by looking at the WCE, we can glean why these concessions are so popular. The project cost of RM7.07bil will be financed by shareholders of the WCE – in this case Kumpulan Europlus and their shareholders, such as IJM. Also, the government will provide support in the form of land acquisition, a government loan of RM2.24bil at an interest rate of four per cent per year and a subsidy of nearly three per cent on interest from commercial loans for more than two decades. In the past, the government has also provided other forms of support such as tax breaks, compensation and stretching concession periods for deferring toll hikes.

But the biggest carrot of all appears to be the construction contracts. Analysts recently upgraded IJM’s stock price in anticipation of it being awarded the bulk of the RM4bil-RM5bil of construction contracts for the WCE, of which it owns 40%. A second example is that of MRCB which sold its 30% stake in Duke to Ekovest for RM228mil – it surmised that the main bene ciary of the construction contracts would not be itself but the highway’s 70% owners, Ekovest. Is it any wonder then that construction companies such as UEM, Ekovest, IJM, Gamuda, Ranhill, MRCB, MTD and Binapuri are shareholders and prime movers of privatised highways?

The LDP Highway.

I am sure Penangites would be ecstatic if the toll on the second bridge was abolished, but that would only cannibalise traffic on the first bridge. A better idea might be for the first bridge to be returned to the government and its toll rate slashed to allow a lower toll on the second bridge. That way, the collection on the rst bridge would cross-subsidise the second bridge. is can be done if both bridges are in the same hands – right now the first bridge belongs to UEM and the second to the government.

The problems of privatised highways re ect the problems of privatisation itself in Malaysia. They may have been started off with good intentions, but their implementation has deviated from the intended aim. Let’s just hope that one day the cost of paying tolls will not be greater than the cost of burning fuel.

1 The MRCB-owned Eastern Dispersal Link in Johor is the exception.

2 The Second Penang Bridge is owned by the federal government.

3 Prior to its privatisation in 2011, four of Plus’s concessions, NSE, NKVE, FHR 2 and the Seremban- Port Dickson Highway, were consolidated under a single company and thus their individual nancials are unavailable. The four that are available are Elite, the rst Penang Bridge, Linkedua and BKE. After privatisation, all eight concessions were novated to Plus which acquired the assets and liabilities of each concession rather than the equity. Thus, individual nancials for each concession (after privatisation) are unavailable.

4 PNB, EPF, KWAP and Socso collectively own about one- fth of the shareholding, larger than the founder.

5 The second largest shareholder group of Litrak is KWAP, EPF and PNB who own a combined 20%.

6 Gamuda (30%) and Selangor state (20%) own the rest.

7 Since the privatisation, all three highways were consolidated into a single company and as such, individual pro t numbers for each highway are not available. However, it is understood that all three highways are pro table

8 In the meantime, the government is compensating MRCB to the tune of RM11mil a month and no tolling has commenced.



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