6. Transition Economies
6.1 Malaysia
Written material on the Malaysian experience with PPPs is difficult to obtain. One reason is that the terms involved in contracts between Government and the private sector are regarded as commercial in confidence.
From what is known, the main applications with PPPs are in the transport and water and waste water sectors, in common with other international experience. In order to reduce the burden on government funds, most of the PPPs follow the Build Own Operate Transfer (BOOT) models.
The Government process for PPP schemes normally involves selection of at least two potential consortia from the private sector – Government selects the consultants, contractors and financiers to be involved. The Government provides a specification of its service needs, and allows the consortia to develop proposals to meet these needs.
As far as is known, there is no Public Sector Comparator (PSC) developed by Government16. Consequently the BOOT proposals that have come forward are often quite different in terms of the infrastructure proposed to meet the same service delivery requirements. Comparison of costs with traditional implementation models and between alternative PPP proposals is therefore difficult.
The Malaysian Government experience with their version of PPPs is mixed. Toll roads have been developed under the model, apparently successfully. Water supply schemes that were privatised have met with community rejection when the private sector dealt directly with the customers.
In terms of value for money, a complicating factor is the practice of successful concessionaires to float the investment company immediately on winning the contract. Fund flows are therefore influenced by the nature of the public offer and market response, and may bear little relation to the original financial arrangements.
The process has however led to considerable innovation in competing proposals. Success seems to be accompanied with high returns on investment, and there has been strong private sector interest.
It is not clear whether the investments made represent value for money from a national viewpoint, but in effect the concessionary aspects of the arrangements represent capture of revenue streams from users, with little alternative to bypass the services, because of local circumstances.
To manage this situation, the Government was investigating (in 2001) appointment a Regulator in the essential services area.
6.2 Asian Development Bank
The Asian Development Bank (ADB) provides finance to developing member country states for infrastructure developments. ADB has been the debt financier for many PPP schemes, particularly in the water supply, waste water and transport sectors.
The borrower for the ADB loan is the Government. The process followed involves a number of stages:
- the Government and ADB agree a development programme in line with country objectives and ADB policies and investment strategies.
- ADB carries out a series of investigations at its cost resulting in a detailed feasibility study that prepares a specific investment project in terms of the technical and economic features in a form suitable for assessment for investment – this work is done by ADB-recruited consultants.
- ADB appraises the investment from a number of standpoints – economic viability (IRR of at least 12 percent), environmental and social sustainability, and technical efficiency. Detailed implementation modalities will be defined. In the case of water supply and transport sector projects, this often involves D&B and BOOT models. User pay components are incorporated with the objective of covering all operation and maintenance costs and some proportion of capital cost recovery – in some cases 100 percent.
- If approved, the loan terms are negotiated and the ADB monitors the implementation progress of the project and the investment at regular intervals and in detail.
- After project completion a review is undertaken to audit all aspects and formalise lessons learned.
Discussion with ADB private sector staff indicated that the PPP model has been more cost-effective than traditional D&C methods in situations where local institutions are weak and annual budgets for adequate O&M were inadequate.
16 PSC is the total cost over the life of the project if the State followed a traditional D&C process to provide the service, and is a key requirement of the UK and Victorian processes.
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