Saturday, 7 March 2009

Malaysian PFI Approach - are we promoting rationalisation or pulverisation?

It's business not as usual for many PFI projects in the UK as it is in danger of grinding to a complete halt due to lack of finance. The current banking crisis and their reluctance to make long-term loans to investment consortia threatens to delay large scale PFI projects, many for schools and hospitals. This also means the readily available funds of recent years have now shrivelled up.

The British Government looks likely to have to step in and fill the breach, in short term at the very least, with some sort of bridging loan facility. They are about to bring forward a big-money rescue package for stalled PFI projects as long term banking finance dries up just to get the projects which are already in the pipeline for the next 18 months up and running. In response to questions from the Commons Liaison Committee, British Prime Minister, Gordon Brown sais that "the Treasury is working on measures by which existing PFI projects that some people think may be at risk can be secured."

Some prominent peoples had voiced their criticisms on this issue. For example, Phillip Hammond, shadow chief secretary to the Treasury, said "If the private sector cannot raise the finance, if the public sector cannot assume the risk, then the government needs to go back to more traditional forms of procurement." Furthermore, Stirling University's Professor Rob Ball, a published author on PFI, said "The whole justification of PFI is the transfer of risk - financial risks, spiralling costs - to the private sector. This move undermines the whole rationale for PFI."

There were some bad experiences as well. Outsourced public facilities and services provision should be seen as being in a key position to effectively manage cost and risk as well as reducing the internal head count and off balance sheet within the public sector, something useful in today's economic climate. However, poor supply chain performance and lack of influence had challenged the British Government to consider in bringing back those facilities and services in-house.

Although these continuous to be very challenging times, however, 2009 has started much more positively particularly for some PFI schemes like BSF, Procure21 and LIFT than many had predicted, with more than half a dozen banks indicating they are in the market to finance senior debt. But, why these schemes have been unaffected in the nature of the downturn is all pervasive? It is in my opinion that this is due to the schemes have been characterised by the following elements;

a. highly complex delivery arrangements requiring buy in from a whole host of public and private sector parties but through one stop shop project delivery.

b. programme that has to beset by realistic target since start and continuously in small bundle.

c. whole life cost of the programme offering efficiency through sampling and market testing.

d. strategic partnerships with government, investors, suppliers and stakeholders characterised by honesty, openness, mutual support and shared values, to help each other.

Managing these elements are the key risk and we are entering an era of high risk management. Hence we need the availability of strategic expertises with procurement, project management and whole life cost skills, which are in short supply at present in the UK and I believe also in Malaysia. Particularly in these tough times, where things can go badly wrong, no matter what aspect of PFI a person is involved. I would expect if we not guarded against, a blame culture can develop resulting in a downward spiral of innovation, motivation and trust.

Through PFI, the Government wants to cut corners to save money and in fact they would be gambling with their asset. But, what we need now is a more dynamic PFI approach through difficult times and I think it is important for the Government to understand the reality and promoting rationalisation, not pulverisation. It is one thing to re-visit those assumptions of best value for money in line with design quality and end-user aspirations. We may question about the solid need for a sustainability and carbon footprint in the business case and consider it a frivolous expense, a feel good spend. We also need to be careful about cutting costs too quickly as the Government would be left with the facilities or services that the public can't optimise when we are out of the recession.

That's just a couple of examples of the sort of revolutionary recession-think that we should consider and do. There's more, but I don't want to get too technical and I hope this recession is going to shake everything up, make us start doing things right.