Putrajaya extends MAHB operating agreements by 35 years to 2069; terms open up private sector participation

Putrajaya extends MAHB operating agreements by 35 years to 2069; terms open up private sector participation
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KUALA LUMPUR (April 12): The government has extended the tenure of Malaysia Airports Holdings Bhd (MAHB) to run the Kuala Lumpur International Airport (KLIA) and klia2 in Sepang and 38 other airports in the country by another 35 years to Feb 11, 2069 from 2034.

The government has also entered into four new operating agreements (OAs) with the airport operator, which include terms that open up opportunities for private sector's participation in the country’s airport development activities.

“Based on this decision, the existing two OAs (one to govern KLIA and klia2 and another for the other 38 airports) signed on Feb 12, 2009 will be cancelled,” the Ministry of Transport (MoT) said in a statement this morning.

“The old agreements will be replaced with four new OAs, namely for KLIA, designated airports in Peninsular Malaysia, Sabah airports and Sarawak airports. All these OAs will be finalised and signed between the government and MAHB based on fundamental principles fixed by the government. In line with this, a new lease agreement [for the airport lands] which is co-terminus with the OAs will be signed,” it added.

MoT said the approval to extend the OA period will enable MAHB to execute its commercial development plan that is more viable and sustainable moving forward, while increasing the government’s income through a profit sharing mechanism on the land owned by the government, but developed by MAHB. As a result, the government will also receive more tax revenues and more jobs will be created for Malaysians.

“The new OA framework provides flexibility for the government and MAHB to prepare allocation for airport development projects through several financing models such as the Regulated Asset Base (RAB), Airport Real Estate Investment Trust, Airport Development Fund (ADF) or other mechanism determined by the government in the future.

“This will boost airport development funding by using different financing methods to attract investors from the money market, subject to the government’s agreement whenever a capital expenditure is to be funded by the private sector,” it said.

“The new OA framework with a longer period is expected to open up more opportunities to the private sector to invest in the country’s airport development activities and subsequently contribute to Malaysia economic growth through the tourism industry and foreign investments. In line with this decision from the Cabinet, the ministry is in the midst of finalising all the new agreements with MAHB and other government agencies,” MoT added.

In an immediate response, MAHB group chief executive officer Raja Azmi Raja Nazuddin said a major difference between the previous OAs and the new ones are the clustering of airports according to regions.

"This is to ensure that the operation and management of airports in Malaysia can be made more sustainable in the long term. On top of which, the framework of the new OAs will also provide greater flexibility to MAHB in undertaking the necessary development projects or initiatives aimed at improving airport infrastructure and services while providing the government with better revenue," he said in a separate statement.

Raja Azmi added that plans are already in place to replace ageing assets, improve inter-terminal connectivity, increase and optimise airport capacity and digitalise the airport environment to provide better operational efficiency and improve service levels. For example, it has committed to making all the 39 airports Quality of Service-ready by 2020. 

"There will be several financing models that may be considered for the various airport development initiatives and I am confident that these will be attractive propositions for the capital markets," he said.