Monday, June 20, 2011

Private Finance Initiative in Malaysia - The Concept and Philosophies.

by Ismail SYUHAIDA Md Yusof AMINAH, Faculty of Civil Engineering, University of Technology Malaysia, Johor, Malaysia.

a. Philosophies

PFI in Malaysia is defined as “involving the transfer of the responsibility of financing and managing capital investment and services of public sector assets to the private sector including the construction, management, maintenance, refurbishment and replacement of public sector assets, in return for lease charges that commensurate with the level, quality and timeliness of service provision as well as an amount sufficient to ensure returns on investment where the asset and facilities will be transferred to the public sector at the expiry of the concession period” (EPU, 2006). The level, quality and timeliness of service provision are assessed via the implementation of key performance indicators (KPIs).

Although the aforementioned definition of PFI conceptually demonstrates that PFI stands under the umbrella of concession based on Merna, and Smith (1993) who suggest concession as “an agreement based on granting a concession by a principal, usually a government, to a promoter, sometimes known as the concessionaire, who is responsible for the construction, financing, operation and maintenance of a facility, at no cost to the principal, a fully operational facility where during the concession period, the promoter owns and operates the facility and collects revenues in order to repay the financing and investment cost, maintain and operate the facility and make a margin of profit”, (Abdullah, 2006) in Yong, and Chew (2006) claims that PFI that Malaysia promoting today is a different animal from the concessions of the past. Nevertheless, the differences conferred are subjected merely on the implementation processes, not on the conceptual and philosophical of PFI.

In terms of the PFI evolution, PFI in Malaysia is rooted from the privatisation of the Forth Malaysia Plan (4MP) Incorporated Policy, the Fifth Malaysia Plan (5MP) Privatisation Policy 1985 and the Sixth Malaysia Plan (6MP) Privatisation Master Plan 1990 (Syuhaida and Aminah, 2007) before being streamlined as the Public Private Partnership (PPP) in the Eighth Malaysia Plan (8MP). Then, in the Ninth Malaysia Plan (9MP), PPP, the broader ownership structure of PFI (Yong, and Chew, 2006) is re-branded as PFI given that PFI is the most frequently used initiative of PPP (Khairuddin, 2007) that specifies a method in providing financial support for PPP (Infrastructure,2007). Based on the fact that PFI is originated from privatisation, PFI in Malaysia context is also perceived as the extension of the previous privatisation implementation (Abdullah, 2006) although theoretically privatisation focuses on the utility and transport sectors as well as on selected services of local governments whilst PFI serves wider economic sectors of utility and transport, education, health, office accommodation, housing, defense equipment and other types of public buildings and infrastructures (Khairuddin, 2007). Nevertheless, the terminology of “extension” here means that PFI continues in providing the on-going privatisation projects where the procurement method and financing tool (if any) of privatisation are concurrently changed to PFI during the transformation period. In addition, the most important is that the continuation of privatisation projects via PFI retransforms the private monopoly from initially public monopoly in the traditional procurement approach to the increased competition of private enterprise (Jomo,1995) especially the Bumiputera participation.

Having conferred the PFI as a procurement method which is referred to by many e.g. (Construction Industry Council, 1998; Duffield, 2001; Leiringer, 2003; Broadbent and Laughlin, 2000; Syuhaida and Aminah, 2008), procurement method as defined by (Duffield, 2001) is “a method selected to achieve the creation of, or improvement to, an infrastructure asset, which includes, but is not limited to, the arrangements adopted for the design, construction and commissioning of the asset”. It is apparent that there is a strong correlation between PFI as a procurement method and infrastructure asset as the mechanism created or improved by the procurement method, thus the deliberation on the features and characteristics of infrastructure provided via PFI is significant.

b. Concepts

PFI in Malaysia is currently preferred in delivering all kinds of work for the public sector although other countries around the globe have initiated the implementation for other individual’s, private sector’s and semi-government’s projects. Despite providing services of financing, constructing, managing, maintaining, refurbishing and replacing the public sector assets to the government as the client, PFI also provides the associated operational services at no cost to the government. In return, the private sector receives payment from the end-users, above the price that the public sector could have achieved the work, linked to its performance in meeting the agreed standards of provision (Syuhaida and Aminah, 2008). Therefore, in achieving these win-win situation advantages between the private concessionaire, government as well as the members of the public as the end-users, a detailed and transparent procurement process with competitive tenders that demonstrates value-for-money (VFM) is crucial in increasing the healthy competition among the Malaysian private enterprises.

In attracting the participation of private concessionaires especially Bumiputera, the fair allocation of risks to the party best able to manage and bear which is one of the fundamental features of the archetypical PFI has been revised. Most of the risks including the construction risks are borne by the government or other third parties e.g. EPF as the financier as the government came out with the idea of utilising the EPF in attracting private constructors undertaking public projects although under the pressure of curtailed expenditure. Nevertheless, given that the EPF refuses to expose themselves to any construction risks whilst at the same time provide financial assistance to the private enterprise in carrying out PFI projects, the status of whether the Malaysian employees’ money in the EPF will be used or vice versa is vague until the establishment of the PFI guidelines by the EPU.


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Salak said...

Malaysia's PFI is AliBaba vodoo bisness !