The Jamaican government is considering another amendment to the Highway 2000 concession agreement amid plans to possibly divest the current portion of the toll road known as Phase IC to TransJamaican Highway Limited, TJH.
TransJamaican initially had the right to build and operate the IC – a 28-kilometre stretch of roadway from May Pen to Williamsfield – which lapsed more than a decade ago in January 2011. It was partly reinstated under an amendment to the highway concession agreement in January 2020 that gave the highway company first right of refusal to “manage and operate” the toll leg, two months before it was privatised and listed on the stock market.
It meant that National Road Operating and Constructing Company, NROCC, which holds the largest block of shares in TransJamaican Highway and functions as its parent, had to find another contractor to build the IC leg. The job was given to Chinese company CHEC, which is expected to complete the construction of IC by March 2023.
TransJamaican already operates a total of 50 kilometres of toll roads under the Highway 2000 concession agreement that are known as the East-West T1 and T2 corridors, all of which it built, over time, at a combined cost of US$387 million.
Phase IC will, therefore, be the exception to how the toll network agreement has functioned since it was inked two decades ago in November 2001 between state-owned NROCC and TransJamaican, which was initially French-owned and operated. The former owners, Bouygues Travaux and its partners, sold the toll company to the Jamaican government in 2019, and it was subsequently listed on the market in the largest IPO in the history of the Jamaica Stock Exchange that raised $14 billion.
As grantor of the highway concession agreement, NROCC, whose core functions include overseeing the design, construction and maintenance of highways and related facilities, plans to lead the negotiations for the adjustments to the TransJamaican contract and is in the process of recruiting a financial adviser to present it with “two negotiating alternatives”, so that the amendments don’t end up being “fiscally destabilising” to the government.
Essentially, NROCC will be negotiating with a company it controls. At least two NROCC directors, Stephen Edwards and Ventley Brown, are seated on TJH’s eight-member board. Edwards is also managing director of NROCC.
Although TransJamaican is not investing in the construction of IC, under the Highway 2000 agreement, which encapsulates a corridor from Kingston to Mandeville to Montego Bay, it “has the exclusive right over the highway revenues that are collected in the toll roads,” NROCC said.
TransJamaican has decided to exercise its right to operate IC, leading to the decision by NROCC to divest the leg to its connected company.
NROCC is pouring US$188 million into the construction of the May Pen-Williamsfield toll road, but it’s unclear how much TransJamaican Highway will end up paying to take it over.
“TJH has had the opportunity to prepare for this transaction. As such, we have accumulated funds in our accounts which will be used to finance the purchase,” said representative Lesli Williams, in response to Financial Gleaner queries when asked about the purchase.
TJH’s capital was estimated at US$51 million, or about $77 billion, in September. It holds cash of US$65 million in reserve accounts, the use of which is restricted to specific and special purposes.
The tender document for recruitment of the financial adviser did not outline the value of the 1C leg, and TJH referred the Financial Gleaner back to NROCC for comment.
“It is important to note that the toll rates at each of our toll plazas are so designed that commuters are only charged for their usage of the length of the particular roadway. This will continue to be so if we are successful in acquiring Phase 1C. Other benefits that commuters will experience if TJH operates Phase 1C include the seamless movement from Kingston to Mandeville, as the same electronic tags will be used on all sections running from Mandela Highway to Williamsfield,” said Williams.
“TJH owning and operating Phase 1C would also mean a lower cost of operating, compared to any other interests.”
TransJamaican Highway Limited is yet to fully demonstrate its earning potential as a listed company, having come to market as the COVID-19 virus was sweeping Jamaica and the world into chaos, but the toll operator is reporting progress on its recovery. For example, as of September, traffic levels were up seven per cent above pre-pandemic levels, it said, and projected that the trend would be sustained for the full year.
“After more than two years of navigating the effects of the COVID-19 pandemic and abiding by the measures implemented under the Disaster Risk Management Act, the impact of COVID-19 is now behind us,” said Anderson in the preface to the financials. “The lifting of the COVID-19 measures has resulted in a significant rebound in traffic, with traffic now exceeding the pre-pandemic levels for eight of the nine months of 2022,” he said.
Toll revenue climbed from US$37 million to US$47 million over nine months ending September, and is on track to outperform the near-US$53 million collected for all of 2021; while nine-month profit at US$4.1 million has already eclipsed the US$3.99 million reported for the full year in 2021.
The last piece of toll road constructed by TransJamaican was commissioned in 2012. Once it acquires the IC leg, the toll routes under its control will span 77.9 km. The toll operator initially had rights to build and operate the final leg of the highway running 80 km from Williamsfield to Montego Bay, referred to as 2B, but that right has also expired.
Under the Highway 2000 concession agreement signed in November 2001, TJH will own the East-West toll roads for 35 years.
CORRECTION: This story has been updated to reflect that Ivan Anderson is managing director of TransJamaican Highway only and to correct the name of the current managing director of NROCC to Stephen Edwards.