Malaysian PFI Implementation - are we ready yet?

Since 2005, the Malaysian Government’s ambitious policy in the 9th Malaysian Plan for implementing PFI has had mixed responds. The government has yet to make public the details of procurement strategy and framework process for the commission of PFI schemes. Also little is known about exactly how Malaysian PFI will be used to drive the Construction and Property Industry.

Questions may linger about the government’s level of comfort with its first stage investment in the public infrastructure and facilities through PFI, and the availability of private sector finance to support a long term project risk. In this case, I believe we should bring both public and private sectors together – planners, funders, developers and politicians – to establish a practical PFI model for Malaysia.

It is important for us to clearly understand the impact of large-scale investment and to ensure the PFI schemes would be able to raise aspirations and standards of public infrastructure and facilities as well as improve the quality of life.

There are some concerns about why some PFI schemes succeed and others fail and how PPP can offer the public to control over their affairs to create more sustainable PFI schemes. Also we need to look at how the government’s PFI policy can enhance the performance of public infrastructure and facilities? Is there anything we can learn from successful overseas PFI schemes i.e. UK and Australia?

Of course, with the current climate, the government does not want their PFI schemes grind to a halt mainly because of the Banks are not lending money or their PPP are struggling to raise the private capital needed to take part in the PFI schemes. I think the banks may be interested in lending for the PFI schemes if the government can guarantee its commitment on public spending for PFI schemes or provide an alternative source by providing direct funding to support the PFI schemes and avoiding problems with liquidity in the banking system.

However we need to review the much criticised planning and tendering processes, blamed by most of the PFI Bidders in the UK because it takes too long to reach the financial close on contracts and it costs the Client and the Bidder too much.

One must understand that PFI route is quite different than Privatisation route. As we know, most of the privatisation projects in Malaysia were awarded by the government to private sector companies or project consortia either on Build-Operate-Transfer (BOT), Build-Lease-Transfer (BLT) or Build-Lease-Maintain-Transfer (BLMT) basis. However, PFI will be delivered through PPP between government and private companies which normally selected in an open competition using two stage tendering process. It will be a joint SPC focused on delivering specific public infrastructure and facilities investment through Finance-Design-Build-Maintain-Transfer (FDBMT) linked with Payment Mechanism and Performance Index.

As such, PFI route is complex because of the general requirement for the government to transfer risk solely to the private sector through the terms of the contract. The determining factor with risk transfer is that the PPP best placed to manage the risk should be responsible for it. It should be noted that some risks are normally shared or capped so the deal remains affordable to the government and fundable by banks and other financial institutions.

A balance should be sought between ‘incentivising’ the PPP to perform and ‘sharing’ the burden of including the heightened risk that attached to the contract price. This is because the risks to be transferred not only affect the initial provision of assets and services, but also continue to affect payment streams throughout the contract period. This may create a lot of hassle on the particular issues pertinent to that contract which is not generic traditional contractual issues.

I think the government may need to challenge the entire industry to think differently about the practical way we approach the design, procurement, construction and maintenance of public infrastructure and facilities based on PFI model. Do we need to focus on risk or opportunity? Will PPP reform end the marginalisation of Architects and Designers within PFI schemes? Do they know what the public want or expect from our public infrastructure and facilities? Most ultimately whether or not our Construction and Property Industry is ready for PFI?