West Coast Expressway deal breaks new ground for highway privatisation, experts say

The WCE deal is said to be a departure from previous arrangements seen as heavily-tilted in the highway concessionaires’ favour. — File pic

KUALA LUMPUR, Jan 6 ― The 233km West Coast Expressway (WCE) linking Taiping to Banting is changing the way highway privatisation deals are drawn up, a weekly business paper reported.

Citing unnamed industry experts, The Edge business weekly reported that West Coast Expressway Sdn Bhd (WCESB) had agreed with Putrajaya to hand over control of the highway once the operator recoups its investment from toll collection ― even if this occurs before the 60-year expiry of the concession.

“If the highway makes its stated returns in the 50th year, the concession will end and the highway will be given back to the government,” a financial executive familiar with the agreement told the paper.

Apart from the early termination clause, the contract terms have been revised in the government’s favour, the paper reported, pointing to a new revenue-sharing mechanism and the removal of an up to 3 per cent interest subsidy from commercial loans for a period of 22 years.

“The government was of the view that the traffic forecast made by WCESB was too low and this is where the revenue sharing kicks in. If the traffic goes above the forecast, the government gains,” the paper quoted the same executive as saying.

Details of the agreed traffic volume, however, remain confidential.

The project has also been resized after both the government and the highway builder agreed to cut back about 25 per cent of the original plan.

The project now costs RM5.2 billion instead of the RM7.07 billion projected initially.

Putrajaya is also extending RM1 billion to acquire land needed to build the highway, and another RM2.24 billion soft loan to the company to undertake the project. The loan deal comes with an annual interest rate of 4 per cent commencing in 2013.

The Edge weekly cited unnamed political and business analysts saying the WCE is unlikely to be attacked by the opposition or public interest groups now that the terms are favourable to the government.

WCESB’s parent company, Kumpulan Europlus Bhd (KEuro), reported last year that it recorded a net loss of RM7.52 million for its third quarter ended October 31, 2012 compared with a net profit of RM1 million in the previous corresponding period.

The company told Bursa Malaysia that the loss reported in the current quarter was due to a share of losses in associates of RM2.9 million, a provision for doubtful debt of RM1.83 million and a finance cost of RM2.31 million.

“The preceding quarter’s losses were lower mainly due to the reversal of provision for doubtful debt amounting to RM3.51 million and the reversal of rental charges amounting to RM2.37 million, which were over provided in prior years,” KEuro said in a filing last December.

Revenue, however, increased to RM4.08 million from RM3.84 million a year ago.