Monday, September 25

Toll concessionaires to register rise in volume


KUCHING: The toll concession industry is expected to pick up next year due to gradual rise in traffic volume for most major highways.OSK Research Sdn Bhd (OSK Research) in its investment strategy for 2010 cited that the recovery of the industry is in line with the improving economic situation in the country which will spur greater use of toll road for commercial and leisure reasons.

It projected a 3.7 per cent year-on-year growth in the auto Total Industry Volume (TIV) in 2010, which boded well for toll concessionaires.

According to OSK Research, for intra urban highways, particularly in the Klang Valley, it expects resilient traffic volume owing to an inefficient public transport system.

The research firm observed that in the beginning of 2009, the Government had delayed toll hikes for five highways, namely the North South Expressway, SPRINT Highway, Ampang-KL Elevated Highway and New Pantai Expressway.

It noted that it remained uncertain at the moment if rates will be allowed to revised upwards in 2010 as the delay was indefinite.

As a whole, OSK Research viewed the toll hike delay as positive for the concessionaires as they would be compensated for the revenue shortfall without having to experience the negative impact on traffic volume.

Meanwhile, The Economic Planning Unit (EPU) has appointed Ernst & Young to conduct a study on the toll concessionaires in efforts to restructure the sector.

The results of the study will then be presented to the Cabinet for a decision.

OSK Research however believed that the outcome could involve a permanent reduction in the toll rate schedule along key highways.

The compensation to concessionaires could possibly be in the form of cash, debt repayments, tax credits or a lengthening of the concession timeframe.

It pointed out that a Net Present Value (NPV) neutral solution was in the plan.

On the other hand, it also observed that the public has voiced dissatisfaction over toll rate hikes on concerns over the award of concessions.

The research firm noted that a key problem was the operator of the highway is both the concessionaire and the contractor for the highway.

Under this kind of framework, the research firm highlighted that there was temptation to increase the cost of the highway in order to reap higher construction margins and demanded a higher toll rate.

In an attempt to overcome this issue, OSK Research believed that the Government should require that all concessions projects to be awarded through open tender and the contractor be unrelated to the concessionaire.

Therefore, OSK Research was confident that the awards of the construction of highways and toll concessionaire through open tender will be the new structure for toll concession projects in the future.

For instance, the construction of the Assam Jawa-Templer Park highway was awarded to an unrelated third party contractor.

At the other end, in May 2009, privately held Asas Serba Sdn Bhd (Asas) announced that it intended to acquire all of Malaysia’s 22 toll concessions collectively valued at RM50 billion.

The research firm was sceptical of the acquisition given the huge sum involved.

Further, Asas claimed that it will cut toll rates by 20 per cent which casted more doubts over the economic feasibility of such an acquisition.

OSK Research viewed the news as strange for Asas to publicly disclose its takeover plans as it could potentially drive up the share prices of listed toll concessionaires.

In fact, it stated that the acquirer would prefer the share prices of its targets to be as low as possible and not higher.

To sum up, the research firm favoured PLUS Expressway Bhd and Litrak Holdings Bhd for their resilient business and decent yields of five per cent.

It added that there are better returns in cyclical sectors such as construction, oil and gas and steel sector.

Hence, it was neutral on the toll concession industry citing that risks for the sector include a removal of fuel subsidies which will lead to higher fuel prices, more efficient and wider coverage of public transport facilities for example, Light Rail Transit (LRT) extension in urban areas, a slower than expected economic recovery and unfavourable government policies.