Saturday, October 17, 2015

Increase in rates a necessity, say concessionaires



KUALA LUMPUR: Toll increases are a necessity, according to concessionaires of several tolled highways in the country.
They pointed to the complexity of financing and pricing their products, having to meet shareholder expectations for a reasonable rate of return and enduring many early years of losses as the reasons.
Lingkaran Trans Kota Holdings Berhad (Litrak) chief operating officer Richard Lim said several highways even operated at a loss and had their operating expenses subsidised by other more profitable highways.
He said Litrak’s Sprint Expressway incurred losses amounting to RM440mil for 14 years and had only started making profit this year.
He said that it cost RM40mil to operate the expressway, with the largest portion being financing expenses.
Lim said the rates for tolls usually started low and increased gradually to account for depreciation.
“A single toll rate could be used over the 36-year period, but that would mean having to start at a higher rate, for example RM2.50 instead of RM1,” he said.
Lim added that none of the investors of the Sprint Expressway had received any returns since the highway started operations.
“Being a public-listed group, the shareholders expect a reasonable rate of return on their investments.
“Otherwise, we might as well leave the cash in the bank to earn interest,” he said.
Litrak is the highway concessionaire which built and manages the Damansara-Puchong Expressway and the Sprint Expressway.
The Sprint Expressway saw an increase of RM1 for all its toll gates starting yesterday.
Ekovest Berhad managing director Datuk Lim Keng Cheng said a gradual increase in toll rates at DUKE highway was necessary, as the financing of the project had been structured in a manner where bonds were raised in tranches with different maturity dates.
He added that the project financing under Ekovest Bhd – which operates the Duta-Ulu Klang Expressway (DUKE) – was done in a way where there was a need to match the toll revenue collected with the maturity of these debt instruments.
“Without a toll rate increase, this may impact the toll concessionaires’ short-term cash flows. As such this could affect their ability to service their debt obligations as well as to maintain certain required debt service coverage ratios in order to maintain the ratings of their debt issuances,” he said in a statement yesterday.
Lim also noted that there hadbeen no increase in the toll rate since it opened in 2009, which presented financing risks to the concession.
The DUKE project, said Lim, had not reached its break even point since it started operations in 2009. It is in a cumulative net loss position of RM190mil.
“Although these risks are partly mitigated by receipt of compensation from the Government, it is not wise to freeze the pre-planned toll rate revision.
“The sanctity of contracts must be maintained to ensure that the investing public have confidence to further invest in Malaysia,” said Lim.

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