Highway projects at a crossroads?

PETALING JAYA: Of the highway projects mentioned in Budget 2025, the West Ipoh Span Expressway (WISE) and the extension of the West Coast Expressway (WCE) have raised some questions.

In the case of WISE, concerns revolve around its viability, both financially and operationally.

This is partly due to the fact a little-known company called East Coast Road Sdn Bhd (ECR) will be undertaking the RM6.2bil project.

The cost of WISE has increased by almost half-a-billion ringgit from RM5.75bil estimated before.

At RM6.2bil for a stretch of 60.88km, this translates to roughly RM101.8mil per kilometre.

According to sources, expressways typically cost RM30mil to RM40mil per kilometre, although this may vary according to project specifications, the type of terrain as well as land acquisitions.

For elevated expressways, the cost will be higher at RM50mil to RM60mil per kilometre.

“At RM6.2bil, the total cost of constructing the 60km WISE is higher than the initial costs of the 233km WCE at RM5.94bil before it was delayed for several years.

“But, you should note that the WCE’s 60-year concession agreement (CA) was signed more than a decade ago in 2013,” says an industry player.

By the time of completion in 2026, the cost of the WCE is expected to exceed RM8bil, according to an earlier report by RAM Ratings.

The WCE, which is 94% completed, connects Banting in Selangor to Taiping, Perak.

As for WISE, it starts from the North-South Expressway (NSE) in Gopeng, bypasses the accident prone-Menora Tunnel section and then re-joins the NSE in Kuala Kangsar.

Industry insiders also question the traffic projections for WISE after Works Minister Datuk Seri Alexander Nanta Linggi recently said it would reduce congestion along the NSE by up to 40%.

A source from a leading concessionaire also pointed out that the average daily traffic (ADT) economics for WISE does not seem to work out.

This is considering WISE’s relatively short distance where traffic volume may not be significant.

“There is already a better alternative – the WCE – for those who want to bypass the Menora Tunnel from NSE, especially heavy vehicles.

“Commercial vehicles heading from the North to Port Klang or industrial areas like Banting can actually connect to the WCE from the NSE at Changkat Jering and head down south.”

Typically, commercial vehicles represent about 10% to 15% of NSE users. WISE looks to capture a significant portion of this traffic.

In its website, WISE mentions that it will be the first highway in Malaysia equipped with a specially designed transportation hub for heavy vehicles.

“On a normal non-peak season day, the Gopeng to Kuala Kangsar route on the NSE is largely smooth. So, there is no reason for passenger and commercial vehicles to use a bypass like WISE, unless there is congestion or accidents,” the source says.

Overestimating traffic projections may result in toll concessionaires failing to meet their break-even targets.

One such example is the Senai-Desaru Expressway (SDE), a 77km toll route linking the towns of Senai and Desaru in Johor, with a connection to Pasir Gudang.

“The ADT of SDE has been significantly below what was originally projected. By not being able to hit the projected traffic volume, this has put SDE in a tight financial position, including in servicing its bonds,” a source says.

It was recently reported the government, represented by Works Ministry secretary-general Datuk Seri Azman Ibrahim, signed a 55-year CA for WISE with ECR on Sept 5.

Interestingly, Azman was transferred from the Prime Minister’s Department to the Works Ministry on the same date.

The CA stipulates a fixed toll rate of 23 sen per kilometre throughout the concession period. This is more than double the NSE’s rate of 11 sen per kilometre, set to remain until the end of its concession.

The rate for the WCE, on the other hand, is 16 sen per kilometre, which will be revised every three years based on a step-up formula.

According to its website, WISE will be fully financed by ECR, without federal and state government assistance.

Checks by StarBiz 7 revealed that ECR is controlled by the children of Zainal Abidin Awang Kechik.

Based on filings with the Companies Commission, ECR is 52.8% owned by 33-year-old Any Arope Zainal Abidin, Ahmad Sahill Zainal Abidin (10.7%), Zurich Capital Sdn Bhd (13.7%) and Zurich Headquarter Sdn Bhd (22.8%).

Ahmad Sahill, 31, also appears on the shareholding of Zurich Capital and Zurich Headquarter.

Ahmad Sahill is ECR’s deputy executive chairman.

He is also the managing director of Zurich Infrastructure Sdn Bhd, the turnkey contractor of WISE, based on StarBiz 7’s checks.

His brother Any Arope is the managing director and chief executive of ECR.

Also sitting on ECR’s board are former Malaysian Highway Authority director-general (DG) Datuk Aziz Abdullah and former Public Service Department DG Tan Sri Borhan Dolah.

ECR – the financier of WISE – made a loss after tax of RM484,630 in its financial year ended Oct 31, 2023 (FY23).

It also sits on retained losses of RM2.27mil. Net assets stood at RM6.5mil.

Both Zurich Capital and Zurich Headquarter also had retained losses.

ECR will surely rely on external funding in the absence of equity injection by its owners to undertake the project.

Efforts to get a response from ECR management were unsuccessful as of press time.

“ECR can use the CA as a basis to seek funding from lenders, but the terms and projections must convince the lenders. Typically, you have about a year to secure financing after signing the CA.

“In the case of WISE, bankers that I spoke to are quite concerned with the project’s financial viability. There are concerns whether the expressway can be sustained by maintaining reasonable toll charges and without government bailouts later on.

“That said, any highway can also make non-toll revenue if it can structure land-related deals along the alignment such as property developments and billboard advertising,” the source says.

WISE is not the first attempt to divert some traffic away from the NSE.

For example, a company called BMT Jelas Sdn Bhd had, in the past, proposed the Jelapang-Selama-Batu Kawan Expressway, as an alternative, linking Perak to Penang. The 116km highway was supposed to cost RM6.4bil, with a proposed concession period of 50 years.

The WCE, which is set to be completed in 2026, is also an alternative route to the NSE, connecting Taiping, Perak, to Banting, Selangor.

In his Budget 2025 speech, Prime Minister Datuk Seri Anwar Ibrahim announced the expressway will be extended from Banting to Gelang Patah, Johor.

While the extension was briefly mentioned in the Public-Private Partnership Master Plan 2030 released in September, it hardly garnered media attention then.

After the announcement by Anwar, investors are wondering whether the concessionaire – WCE Holdings Bhd – will be undertaking the extension.

With WCE yet to turn profitable, the company may not have the financial muscle to undertake the project without additional equity injection from its shareholders.

Shareholders originally injected RM1.2bil into WCE Holdings, including the single-largest shareholder IJM Corp Bhd, which controls a 26.7% stake.

However, due to project delays, the equity injection has ballooned to RM1.9bil so far.

WCE Holdings also had to sell its 40% stake in the Bandar Rimbayu development to raise cash to meet the funding needs of the coastal expressway.

Interestingly, a source close to WCE Holdings tells StarBiz 7 that the news about the extension to Gelang Patah caught the company by surprise.

“At this juncture, WCE Holdings is not funding the extension. Details are scarce. The government will likely do a request for proposal to identify interested parties for the development.

“By that time, there will be more details provided. If the terms are favourable, WCE Holdings may consider taking part in the extension, assuming there is green light from IJM,” says the source.

The project extension, assuming it is undertaken by WCE Holdings, may extend the break-even period for the expressway.

Previously, WCE Holdings chief executive officer Lyndon Alfred Felix said WCE may take five to seven years to break even. This is not inclusive of the proposed extension.

Even if the concessionaire is not involved in the extension, the expressway will likely benefit from the additional traffic from Gelang Patah heading north, including those seeking connection to the NSE via the Changkat Jering interchange.

Industry sources indicate WCE Holdings has begun a restructuring exercise with the government and the company’s existing lenders to raise the capital required to complete the project by 2026. — GANESHWARAN KANA