NROCC expects Highway 2000 to start making money in another 5 years

Senior staff reporter

Wednesday, February 14, 2018

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HEAD of the National Road Operating and Constructing Company (NROCC), Ivan Anderson, has defended the viability of the loss-making entity, which he said should begin to see returns from the east-west leg of Highway 2000 in another five years, when the developer's debt servicing is significantly reduced.

“The debt service as a percentage of the overall revenue is going to decline, and we expect that by then that surplus cash will be generated; there will be surplus cash which will be shared, even before the entire loan is paid up,” Anderson explained at yesterday's meeting of the Public Accounts Committee (PAC). He said NROCC should be able to sustain itself for another two years.

Under the 35-year concession agreement, which the Government signed in 2001 with French developer Bougyes, income from the toll is transferred to concessionaires TransJamaican Highway for debt servicing, capital expenditure, and maintenance.

The surplus cash is then to be shared evenly with NROCC, but Anderson said this will not happen until 2024 when the developers' existing loans are expected to be paid up. He assured that this income will not to go towards maintenance of the highway as there is a cash reserve set aside for major works, which means that NROCC would be assured of its full share of revenue. The managing director pointed that NROCC should start generating revenue based on this arrangement, by 2023 or before.

The concession agreement which started in 2001 with French construction company, Bouygues is for 35 years, which means that in another 18 years the Government is to take control of the east-west highway as set out in the deal. Trans-Jamaican Highway Company Limited operates as the project company for Bouygues.

When the highway started the projection was that by 2009 the developers should break even, but this has not materialised, Anderson said yesterday.

But while NROCC awaits the dividends from its loan conversion agreement with TransJamaican Highway to start rolling in, the company continues to bleed, making consistent losses between 2009 and 2015 (except for 2011/12), amounting to $7.3 billion.

According to the main findings of review of the company's financials for 2009 to 20015, which was carried out by the Auditor General's Department, NROCC's solvency position was significantly weak, and the entity continually had negative equity, indicating that it is accumulating more debt that assets.

At the same time, the developers remain unconvinced that a reduction in toll rates would be beneficial to revenues. “That's an issue we have been discussing with the operator... so if (for example) you reduce tolls by 10 per cent, you have to get more than 10 per cent traffic to compensate for the reduction in the toll rate,” he said.

St Catherine Southern Member of Parliament (MP) Fitz Jackson said he was again appealing to the operators to adopt a model of adjusting rates for low volume periods. “You guys have been adamant that you will keep the highway empty during those periods. I'm renewing my plea with your finance model people to even test it for a period to see what the difference is,” he said.

The NROCC managing director pointed out that this year had seen the strongest growth of use of the highway — a seven per cent increase. This is compared to the 2007 to 2011 period when there was a general decline in traffic.

Manchester MP Mikael Phillips argued that perhaps it was time for NROCC and the developers to review the financial model for the highway, given that the increase in the use of the toll remains way below what was projected and the break-even deadline having already been missed.

The company's borrowings are guaranteed by the Government of Jamaica.

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