Highway woes

It could take 20 years before north-south link of toll road starts to make a profit

Senior staff reporter

Thursday, May 04, 2017

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IT could take at least another 20 years before developers of the north-south link of Highway 2000 starts making a profit as they are spending an estimated US$30 million annually on debt servicing, almost twice its revenues of US$18 million, a House committee was told yesterday.Managing director of the National Road Operating and Constructing Company (NROCC) Ivan Anderson outlined the losses the developer, Jamaica North South Highway Company (JNSHC), was making at yesterday's meeting of the Public Administration and Appropriations Committee (PAAC) at Gordon House.

“The debt service alone is significantly more than the revenues being generated, and that's why the project sought to provide some additional land development incentive for the developer. We don't estimate that in the next 20 years the developer will make any profit at all. If you take the US$18 million and US$30 million of debt servicing, and US$15 million operating cost, you're in a no-win situation for a very long time,” Anderson stated. China Harbour Engineering (CHEC), JNSHC's parent company, constructed the highway — which significantly cut the travel time to the north coast — at a cost of US$730 million.

At the same time, Anderson revealed that NROCC has racked up US$439 million in debt since the start of Highway 2000 project in October 2003. He said that since 2010 the Government has been paying US$40 million per annum from the Consolidated Fund to reduce that liability.

He explained that in the case of the east-west corridor, the Government and the consortium have a 50 per cent stake each in TransJamaican Highway's net revenues. “The way it works is you get revenues, you deduct the operating costs, debt servicing, and whatever is left is shared between NROCC and that consortium. Whenever the debt begins to fall to a point where there is free cash flow, then we will get 50 per cent,” Anderson outlined, stressing that no dividends have been paid to any of the parties yet.

Under an agreement between NROCC and French contractor Bouygues Travaux Publics, the contractor bore US$283 million of the US$390 million it cost to build the highway, without any guarantee from the Government, and NROCC loaned the developer the remainder of the funds, raised by a bond issue.

“So NROCC has continued to service the debt that we took on as a result of the funds that we provided (for the project),” he explained to the committee. However, he said that by 2023 those debts would have been shaved down.

Meanwhile, Anderson said the volume of traffic on the north-south highway remains significantly lower than the east-west corridor at 12,000 vehicles daily, because traffic tapers off as it gets further away from Kingston and other urban areas. However, he noted that volumes had picked up by some 45 per cent for the Mount Rosser leg since it opened in 2014. Meanwhile, the Portmore leg of the east-west highway registers 35,000 vehicles daily, the highest volume of all the segments, or more than half of the traffic the entire highway facilitates daily.

Anderson also clarified what he said was a popular misunderstanding that the Government of Jamaica had guaranteed the developers revenues on their investment. “There is no guarantee that the Government provides to any of the operators. No guarantee for rates of return, no guarantee for traffic, no guarantee for traffic. All the risks associated with revenues are a hundred per cent the developer's obligation. So if the developer loses money, it doesn't impact the toll cap,” he emphasised, pointing out that only the US dollar inflation and the exchange rates can affect the toll cap.

The 50 kilometres which make up the east-west leg of the highway was built under a 35-year concession agreement with Bouyes, while the 66-kilometre north-south link of Highway 2000 was constructed under a 50-year concession agreement with CHEC, through its local subsidiary, JNSHC. The Government agreed to transfer 1,200 acres of lands contiguous to the highway in lieu of financing for the project.

In the meantime, construction is to start by the end of this fiscal year on the remaining 28 kilometres linking May Pen, Clarendon, to Williamsfield, Manchester, for the east-west section of the highway. That project is being financed by a US$188-million loan from the China Exim Bank. Public consultations on this segment are to begin next week, Anderson informed the House committee.




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