Friday, 18 November 2011

Less toll increase but slightly longer concession period

  • New Deal is less of a burden on users and Government
  • Penang Bridge toll to remain at current rate until end of concession
  • All highway concessions under Plus will end together with North South Expressway on Dec 31, 2038 

UEM and the Government recently announced that they have come to an agreement regarding toll increase and the duration of the concession as well as the compensation that the Government owes the concession holder as a result of holding back toll increases and it is rather good news all around.

In short, the existing toll rate increase of 10 per cent every three years have been slashed by half to five per cent every three years and this is done without imposing any compensation on the Government. In short it means that the people have successfully negotiated a lower rate of toll increase without any hidden extra through Government compensation.

The Government owed UEM RM2.9 billion in terms of compensation for holding back the current scheduled toll incraese but the company had agreed to waive the compensation in return for streamlining the different concession periods to end at 2038.

Kudos to the Government and UEM.

Penang bridge users are the biggest beneficiaries, the toll will remain at the existing rate (ie RM7 for cars) for the remaining of the concession period until 2038.

The full Press Release from UEM is after the jump


KUALA LUMPUR, November 16: UEM Group Berhad and the Employees Provident Fund Board (EPF) today unveiled a balanced revised terms of supplementary toll concession agreements on five expressways operated by PLUS Expressways Berhad (PEB) and Penang Bridge Sdn Bhd.
Following negotiations with the Government of Malaysia (Government), both parties have agreed on the revised terms that are considered fair to the Government, users of PEB’s expressways and Penang Bridge, rakyat in general and the capital markets.
“We entered into the negotiations with the aim to realise four goals – to minimise the toll rate hikes and achieve a reasonable toll structure, mitigate the Government’s burden on toll compensation, ensure lenders’ interests are protected and avoid any impact to the debt capital markets, all the while ensuring a fair deal for equity stakeholders,” said Dato’ Izzaddin Idris, Group Managing Director/Chief Executive Officer of UEM Group.
Details of the revised terms are as follows:
 Toll freeze to continue until 2015 – as announced by YAB Dato’ Sri Mohd Najib Tun Abdul Razak, Prime Minister of Malaysia, there will be no toll hike on four expressways until 2015. The four expressways are – North South Expressway (NSE), NSE Central Link, Malaysia-Singapore Second Crossing (Linkedua), and the Butterworth-Kulim Expressway (BKE).
 No compensation – to reduce the Government’s financial burden, UEM Group-EPF has agreed to waive PEB’s current outstanding compensation balance totalling RM2.9 billion and no compensation will be accorded to PEB for the five years toll freeze, which would otherwise cost the Government an additional RM3.6 billion.
 Cuts in toll rate increase – starting 2016, toll rate increase on the four expressways will be fixed at 5 percent every three years, while the toll rate for Penang Bridge will remain as per current charges (for example, RM7 for Class 2 vehicles) until the end of the concession period.
Comparison of the current and new toll structure are as follows:

The modest toll rate increase of 5 percent every three years for the four expressways is effectively 1.7 percent per annum and is lower than the Malaysian three-year average inflation rate of 2.6 percent per annum.
 No extension to concession period for NSE and Linkedua – there will be no extension to the concession period for NSE and Linkedua, which will end on 31 December 2038 as scheduled. However, the concession period of NSE Central Link, BKE and Penang Bridge (2030, 2026 and 2021 respectively) will be aligned to NSE and Linkedua.
“We are preserving the NSE, which is a key national asset that forms the ‘backbone’ of Peninsula Malaysia's road infrastructure. Collection from the modest increase in toll rate (post 2016) and the limited extension will allow us to maintain the current standard of roads and services.
“Maintaining expressways is a costly affair. In 2010 for example, PEB spent RM829 million for routine, heavy maintenance and upgrading works, up from RM764 million in 2009. From a capital expenditure point of view, Penang Bridge spent RM786 million to widen the Bridge from two lanes to three lanes each way. The widening initiative, which commenced in 2005 and completed in 2009, was undertaken to accommodate the increase in traffic volume,” explained Izzaddin.
“We believe the negotiation with the Government has resulted in a fair outcome for all parties. The investment in PLUS is expected to generate a stable and sustainable yield, which fits well into EPF strategic asset allocation,” said Rohaya Mohammad Yusof, Head (Capital Market Department) of EPF.
Following the novation agreements signed last week, the revised concession agreements and concession assets of the five expressways will be placed under Projek Lebuhraya Usahasama Berhad (PLUS Berhad), a wholly owned subsidiary of PLUS Malaysia Sdn Bhd, the latter being the investment vehicle of UEM Group and EPF (51 percent and 49 percent, respectively).
Izzaddin said there will be no changes to the employees and management structure of the company and that the day-to-day management and operations will continue to be led by Dato’ Noorizah Abdul Hamid, the current Managing Director of PEB.
Last week also saw UEM Group-EPF agreeing for PEB to pay an additional dividend totalling RM106.6 million to all shareholders of PEB – this is in addition to the purchase consideration of RM23 billion, less interim single tier dividend of RM0.15 per PEB Share or RM750,000,000 paid by PEB on 29 July 2011. There will be no adjustment to the purchase consideration in consequence to this RM106.6 million dividend.
With the revised concession agreements agreed upon, PLUS Malaysia will now proceed to complete the acquisition of assets and liabilities of PEB. Upon the completion of the acquisition, PEB shall undertake the distribution of funds to its shareholders via the Proposed Special Dividend and Selective Capital Reduction and subsequently commence the delisting of the company from Bursa Malaysia.

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