I s m a i l , R a s h id , P r i v a t e F i n a n c e I n i t i a t i v e ( P F I ) I n M a l a y s i a : T h e N e e d f o r 1 3 7
Ju m al A kuntansi dan K euangan Indonesia
D esem ber 2007, Vol.4, No. 2, hal. 137-154
PRIVATE FINANCE INITIATIVE (PFI) IN MALAYSIA: THE
NEED FOR AND ISSUES RELATED TO THE PUBLIC SECTOR
COMPARATOR (PSC)
Suhaiza Ismail
A s s i s t a n t P r o f e s s o r , D e p a r t m e n t o f A c c o u n t i n g I n t e r n a t i o n a l I s l a m i c U n i v e r s i t y M a l a y s i a
suhaiza@ iiu.edu.m y
Khairuddin Abdul Rashid
P r o f e s s o r , D e p a r t m e n t o f A c c o u n t i n g I n t e r n a t i o n a l I s l a m i c U n i v e r s i t y M a l a y s i a
Abstract
T h e C o n c e p t o f P r i v a t e F i n a n c e I n i t i a t i v e ( P F I ) o r P u b l i c P r i v a t e P a r t n e r s h i p ( P P P ) h a s b e e n i n t e r n a t i o n a l l y i m p l e m e n t e d o v e r t h e l a s t t w o d e c a d e s . I n M a l a y s i a , e v e n t h o u g h t h e i n v o l v e m e n t o f t h e p r i v a t e s e c t o r in a s s i s t i n g w i t h t h e p r o v i s i o n o f p u b l i c s e r v i c e s a n d f a c i l i t i e s is n o t n e w , o n l y r e c e n t l y u n d e r t h e N i n t h M a l a y s i a
P l a n t h e g o v e r n m e n t o f f i c i a l l y a n n o u n c e d t h e i m p l e m e n t a t i o n o f p r o j e c t s u s i n g P F I s c h e m e in o r d e r t o p r o m o t e g r e a t e r i n v o l v e m e n t o f t h e p r i v a t e s e c t o r in d e l i v e r i n g p u b l i c s e r v i c e s ( N i n t h M a l a y s i a P l a n , 2 0 0 6 ) . C o n s e q u e n t l y , a s e r i e s o f P F I p r o j e c t s i s n o w b e i n g i m p l e m e n t e d i n c l u d i n g s o m e a l r e a d y u n d e r c o n s t r u c t i o n . H o w e v e r , l i t t l e is k n o w n o n t h e r e a l n a t u r e o f th e M a l a y s i a n P F I . O n e o f t h e a s p e c t s c o n s i d e r e d c r i t i c a l in t h e i m p l e m e n t a t i o n o f a P F I p r o j e c t i s t h e n e e d f o r a p u b l i c s e c t o r c o m p a r a t o r ( P S C ) to d e m o n s t r a t e t h a t t h e p r o j e c t c a n a c h i e v e v a l u e f o r m o n e y t h r o u g h c o m p a r i n g t h e p u b l i c s e c t o r c o m p a r a t o r ( P S C ) w i t h t h e b i d o r b i d s s u b m i t t e d b y th e p r i v a t e s e c to r . T h e s t u d y b e i n g r e p o r t e d h e r e i n f o c u s e s o n t h e c o n c e p t o f P F I a s p r a c t i c e d in M a l a y s i a a n d t h e c o n s t r u c t i o n o f a P S C . G i v e n t h a t u n d e r th e M a l a y s i a n P F I , t h e P S C is y e t t o b e e s t a b l i s h e d t h e r e i s a n u r g e n t n e e d f o r o n e to b e c o n s t r u c t e d . I n a d d i t i o n , c r i t i c a l i s s u e s c o n c e r n i n g t h e t r a n s f e r o f r i s k s a n d th e d e t e r m i n a t i o n o f d i s c o u n t r a t e a r e a l s o d i s c u s s e d . T h e s t u d y c o m b i n e s l i t e r a t u r e r e v i e w o n P F I a n d i n t e r v i e w s w i t h c i v i l s e r v a n t s i n v o l v e d in t h e i m p l e m e n t a t i o n o f P F I in M a l a y s i a .
K e y w o r d s : P r iv a t e F i n a n c e I n i t i a t i v e ( P F I ) , v a l u e f o r m o n e y ( V F M ) , P u b l i c
1 3 8 J u r n a l A k u n t a n s i d a n K e u a n g a n I n d o n e s i a , D e s e m b e r 2 0 0 7 , V o l.4, N o . 2 , h a l. 1 3 7 - 1 5 4
INTRODUCTION
T h e term s o f P riv ate F in an ce In itiativ e (P F I), P u b lic P riv ate P a rtn e rsh ip (P P P )
a n d P riv a te ly P ro cu red In frastru c tu re (P P I) h av e b e en in c re asin g ly u sed in m a n y
c o u n trie s. A lth o u g h d ifferen t term s are u sed , the c o m m o n g e n eral c o n c e p t is a b o u t
th e c o lla b o ra tio n b e tw e e n th e p riv ate an d p u b lic secto rs w ith th e p riv a te sec to r
h a v in g sig n ifican t re sp o n sib le in d e liv e rin g p u b lic services. T h is p o licy h as b e en
in te rn a tio n a lly im p le m e n te d o v er th e la st tw o decad es. It offers a n a lte rn ativ e to the c o n v e n tio n a l p ro c u re m e n t o f p u b lic serv ice in frastru c tu re an d serv ices.
F o r a ty p ic a l P F I/P P P sch e m e th ere are sev eral u n iq u e c h a ra c te ristic s su ch as:
i. S e r v i c e f o c u s - th e m a in d ifferen c e is in the c h an g e from c o n sid e rin g b u ild in g s a n d in frastru c tu re as ‘a ss e ts ’ to ‘se rv ic e s’ p ro v id e d by th e p riv a te secto r; ii. . O w n e r s h i p - th e b u ild ir gs are ty p ic a lly o w n ed b y the p riv a te sec to r d u rin g th e
p e rio d o f th e c o n tra c t an d le ase d b a ck to the p u b lic sec to r clien t;
iii. . R i s k t r a n s f e r - so m e o f the risk asso c iate d w ith th e p ro je c t m u st be tra n sfe rre d to th e p riv a te sector. T h e d e term in in g facto r o f risk tra n sfe r is to tra n s fe r ris k to
th e p a rty w h o c o u ld b e st m a n a g e it;
iv. I n n o v a t i o n - a n o u tp u t sp ecificatio n is u sed in w h ic h p u b lic secto r c lie n ts sp ecify th e ir re q u ire m e n ts in term s o f th e services req u ired . T h e n , it is u p to th e p riv a te se c to r b id d e r to c o m e u p w ith a d esig n th at m e e ts th e p u b lic s e c to r c lie n t’s
re q u ire m e n ts. T h u s, it g iv es g re a ter flexibility to the p riv ate se c to r p ro v id e r to
a d o p t in n o v a tio n w h ic h leads to v alu e for m o n e y (V F M ) o p tim iz a tio n ;
v. P e r f o r m a n c e - th e p a y m en t to th e p riv ate c o n so rtiu m is b a se d o n th e e x te n t th a t th e re q u ire d serv ice is d e liv e re d and the c lie n t’s sta n d a rd p e rfo rm a n c e re q u ire m e n ts are m e t (B a ll et al. 2001 an d T u rn er & T o w n se n d M a n a g e m e n t
S o lu tio n s 2 002).
In M ala y sia, e v e n th o u g h th e in v o lv e m e n t o f th e p riv ate sec to r in a ssistin g w ith th e p ro v is io n o f p u b lic serv ice s an d facilities is n o t new , o n ly re c e n tly u n d e r th e
N in th M a la y sia P lan th e g o v e rn m e n t h as officially a n n o u n ce d th e im p le m e n ta tio n o f p ro je c ts u sin g P F I sch em e in o rd e r to p ro m o te g re a ter in v o lv e m e n t o f th e p riv a te
s e c to r in d e liv e rin g p u b lic serv ice s (N in th M a la y sia P la n 2 0 0 6 ). E v e n th o u g h th e
first P F I p ro je c t is n o w u n d e r co n stru ctio n , little in fo rm atio n is p u b lic ly a v a ila b le o n th e tru e n a tu re o f P F I in M alay sia. T h is study th e re fo re aim s at e x p lo rin g th e c o n c e p t
o f M a la y sia n P F I by c o n d u c tin g in -d e p th in te rv ie w s w ith th e re le v a n t o fficers w h o
a re in v o lv e d in e x ec u tin g P F I p ro jects.
T h e p rin c ip a l aim fo r im p le m e n tin g P F I is to p ro v id e an im p ro v ed fo rm o f
p u b lic p ro c u re m e n t w h ic h u n d e r rig h t circ u m stan c es co u ld y ie ld im p ro v e d efficien cy
I s m a i l, R a s h id , P r i v a t e F i n a n c e I n i t i a t i v e ( P F I ) I n M a l a y s i a : T h e N e e d f o r 1 3 9
In o th e r w o rd s, fo r a p ro je c t to g o a h ead w ith a PFI o p tio n , it n eed s to d e m o n strate
b e tte r v alu e fo r m o n ey w h en c o m p arin g the p riv a te se c to r b id s w ith a d e ta ile d p u b lic
s e c to r c o m p a ra to r (P S C ) (T reasu ry T ask fo rce 1997). In a sse ssin g V F M o f a p ro ject, P S C is o n e o f th e cru cial elem en ts to be co n sid e re d . F ro m M a la y sian co n tex t,
e v en th o u g h the g o v e rn m e n t ack n o w le d g e s th e im p o rtan c e o f V F M a sse ssm e n t in
im p le m e n tin g P F I p ro jects, a ro b u st P S C fram e w o rk is y e t to b e e sta b lish e d (N in th
M a la y s ia P lan 2 006). R ealizin g the sig n ifican ce o f h av in g a v alid P S C to a cc u ra te ly
asse ss V F M , this study also a ttem p ts to d e v elo p an a p p ro p ria te fra m e w o rk o f PS C th a t su its th e M ala y sian e n v iro n m en t. H o w ev er, at th is v e ry initial stag e th e study
o n ly fo cu ses on the p rin c ip le c o m p o n en ts o f P S C m o d els fo r PFI p ro je c ts e sta b lish e d
in d iffe re n t co u n trie s p a rtic u la rly the U K , A u stra lia, an d C an ad a. T h e in fo rm atio n
w as o b ta in e d th ro u g h a th o ro u g h rev iew th e o fficial d o c u m e n ts o n P S C c o n stru c tio n
o f th e se cou n tries.
T h is p a p e r is stru ctu red as fo llo w s. S ec tio n 2 d isc u sse s the c o n c e p t o f p riv a te
fin an ce in itia tiv e (P F I) in M alay sia. S ectio n 3 o ffers in fo rm a tio n on th e p u b lic sec to r c o m p a ra to r su ch as its d efin itio n , im p o rtan c e a n d also b rie f o f c o m p a riso n P S C ’s
c o m p o n e n ts b e tw ee n co u n tries. T h en , the fo llo w in g sec tio n (S ec tio n 4 ) d iscu sses
th e c o n tro v e rsia l issu es c o n c e rn in g the c o n stru c tio n o f a P S C . A sp ec ia l re fe re n ce w a s m a d e to th e situ a tio n e x p erien c e d by th e U n ite d K in g d o m . F inally, S ectio n 5
s u m m a riz e s and c o n clu d e s th e fin d in g s o f th is study.
THE PRIVATE FINANCE INITIATIVE IN MALAYSIA
PFI is an e ssen tial e co n o m ic p o lic y th at h a s b een g lo b a lly a d o p te d as it is the
c u rre n t tre n d to w a rd s g re a ter p riv a te sec to r in v o lv e m e n t in th e m a n a g e m e n t, d e liv e ry
an d fin a n c in g o f p u b lic serv ice s (D ix o n et al. 2 0 0 5 ). It is a m ean s c f u sin g p riv a te
fin an ce an d sk ills to pro v id e p u b lic serv ices w h ic h w e re tra d itio n a lly p ro v id e d by th e p u b lic sector. In th e p u re st fo rm o f P F I c o n tra c t th e p riv a te se c to r is re sp o n sib le fo r
d e sig n in g , b u ild in g , fin a n c in g a n d o p e ra tin g fa c ilitie s b a se d o n o u tp u t s p ec ific a tio n s
d e te rm in e d by the p u b lic sector. In effect, th e p u b lic se c to r d o es n o t o w n th e a sse ts
b u t h a s th e o b lig atio n to m ak e re g u ia r p a y m e n ts to th e p riv a te se c to r p ro v id e rs fo r th e u se o f facilities th ro u g h o u t the c o n tra c t p e rio d o f n o rm a lly 25 to 3 0 y e ars (H e a ld
1997; H all 1998 an d B ro a d b e n t an d L au g h lin 1999).
T h e in v o lv e m e n t o f the p riv ate se c to r in d e liv e rin g p u b lic facilities an d serv ic e s is n o t n e w in M alay sia. It ex isted sin ce m id 1 9 80s as a re su lt o f th e a d v erse im p a c t
o f th e w o rld e co n o m ic recessio n th a t c au se d g o v e rn m e n t to see k a ssista n c e fro m p riv a te se c to r fo r the d e v e lo p m e n t and e co n o m ic a ctiv itie s o f th e country. M a la y sia n
in c o rp o ra te d and p riv atizatio n are a m o n g the e c o n o m ic p o lic ie s in tro d u ce d to fo s te r
1 4 0 J u r n a l A k u n t a n s i d a n K e u a n g a n I n d o n e s ia , D e s e m b e r 2 0 0 7 , Vol. 4, N o .2 , h a l. 1 3 7 - 1 5 4
P riv a tiz a tio n is o n e o f a v ital co m p o n en t o f th e g o v e rn m e n t’s e co n o m ic p o lic ie s
w h ic h a im s a t red u c in g the g o v e rn m e n t’s a d m in istra tiv e and fin an cial bu rd en s. T he M a la y s ia n g o v e rn m e n t officially e m b a rk e d o n p riv a tiz a tio n in 1983. T h e p o licy w as
a im e d at fo ste rin g g re a ter in v o lv e m e n t o f th e p riv ate sec to r in d e liv e rin g p u b lic
s e c to r p ro jects. G enerally, p riv a tiz a tio n has b e en defined as th e tra n sfe r o f e n terp rise
o w n e rsh ip fro m th e p u b lic to th e p riv a te sector. K ay e t al. (1 9 8 6 , 2) iden tified th re e in te rre la te d p o lic ie s u n d e r the u m b re lla o f th e p riv a tiz a tio n p ro g ram . T h e se in clude: 1.
D e n atio n a liz a tio n : th e sale o f th e p u b lic a sse ts to the p riv a te s ec to r; 2. L ib era lisa tio n
o r d e re g u la tio n - th e o p e n in g o f th e state a ctiv itie s to p riv a te sec to r co m p e titio n and
3 ) c o n tra c tin g -o u t or fra n c h isin g - th e c o n tra ctin g ou t o f p u b lic p ro v isio n to p riv a te
firm . F ro m th e M a la y sian c o n tex t, th e sco p e o f p riv a tiz a tio n is e v e n b ro a d e r (Jo m o a n d S y n 2 0 0 3 ). T h e v a rio u s m o d e s o f p riv a tiz a tio n ap p lied in M a la y sia in c lu d e i)
sa le o f e q u ity ; ii) sale o f assets; iii) le a se o f assets; iv) m a n a g e m e n t c o n tra ct; v)
B u ilt-O p e ra te -T ra n s fe r (B O T ) an d v ii) m a n ag em en t b u y -o u t (E co n o m ic P la n n in g
U n it 2 0 0 6 ).
T h e g o v e rn m e n t re p o rte d p o sitiv e o u tco m es from p riv a tiz a tio n p o lic y in h e lp in g th e g o v e rn m e n t to re d u c e fin an cial an d a d m in istra tiv e b u rd en an d a lso to
im p ro v e e ffic ie n cy in th e p ro v isio n o f p u b lic serv ices (Jo m o an d S yn 2 0 0 3 ; and
S id d iq u e e 2 0 0 6 ). It w as re p o rte d in th e E ig h t M alay sia P lan th a t m o re th a n R M 2 8 b illio n o f th e g o v e rn m e n t’s c ap ital e x p e n d itu re w as sav ed as a re su lt o f p riv a tiz a tio n
(E ig h t M a la y s ia P la n 2 001).
S u b seq u en tly , in stre n g th e n in g th e ro le o f th e p riv ate se c to r as th e e n g in e o f
g ro w th , th e P riv ate F in an ce In itia tiv e (P F I) sch em e w a s u n v e ile d in M a la y sia u n d e r
th e re c e n t N in th M ala y sia P la n (9 M P ). T h e PFI is fo rm ally d efin ed in th e N in th M a la y sia P la n re p o rt (2 0 0 6 ) as:
' t h e t r a n s f e r t o t h e p r i v a t e s e c t o r t h e r e s p o n s i b i l i t y t o f i n a n c e a n d m a n a g e a p a c k a g e o f c a p i t a l i n v e s t m e n t a n d s e r v i c e s i n c l u d i n g t h e c o n s t r u c t i o n , m a n a g e m e n t , m a i n t e n a n c e , r e f u r b i s h m e n t a n d r e p l a c e m e n t o f t h e p u b l i c s e c t o r a s s e t s w h i c h c r e a t e s a s t a n d a l o n e b u s i n e s s . T h e p r i v a t e s e c t o r w i l l c r e a t e t h e a s s e t a n d d e l i v e r a s e r v i c e t o t h e p u b l i c s e c t o r c l i e n t . I n r e t u r n , t h e p r i v a t e s e c t o r w i l l r e c e i v e p a y m e n t c o m m e n s u r a t e w i t h t h e l e v e l s , q u a l i t y a n d t i m e l i n e s s o f t h e s e r v i c e p r o v i s i o n t h r o u g h o u t t h e c o n c e s s i o n p e r i o d ' ( N i n t h M a l a y s i a P l a n , 2 0 0 6 )
In b rief, u n d e r the P F I p ro je c t, the p riv a te sec to r fu n d s an d b u ild s th e a sset,
w h ile it is th e o b lig a tio n o n th e p a rt o f th e g o v e rn m e n t is to p u rc h a se a flo w o f s erv ice s o v e r tim e ra th e r th a n th e cap ital asse t th a t p ro v id e s th e services.
T h e p rin c ip a l o b je c tiv e fo r e m b ark in g o n PFI in M a la y sia is to rev ise a n d
to im p ro v e o n th e im p le m e n ta tio n p ro c e ss o f th e ex istin g p riv a tiz a tio n p o licy
I s m a il , R a s h i d , P r i v a t e F i n a n c e I n i t i a t i v e ( P F I ) I n M a l a y s i a : T h e N e e d f o r 1 4 1
u tiliz e d i f it c o u ld m ak e g o v e rn m e n t p ro je c ts m o re efficien t, w h e re risk s an d re w a rd s are o p tim a lly sh ared b e tw ee n th e g o v e rn m e n t and th e p riv a te sector. S e c o n d ly , PFI
is to b e u s e d w h e re g o v e rn m e n t su p p o rt e n h an c e s th e v ia b ility o f th e p riv a te sec to r
p ro je c ts in stra te g ic or p ro m o ted a reas (N in th M ala y sia Plan 2 0 0 6 ).
In a sp ee c h by th e S eco n d F in a n c e M inister, Tan Sri N o r M o h am e d Y akcop at
th e P riv a te F in a n c e In itiativ e S e m in a r w h ich w as h eld o n th e 10th N o v e m b e r 2 0 0 6 ,
h e said th at:
' .. in t h e M a l a y s i a n c o n t e x t , w e v i e w P F I in t h e b r o a d e s t o f t e r m s , a s c a p t u r i n g a w i d e s p e c t r u m o f o p t i o n s t h a t l i e b e t w e e n t h e t w o e x t r e m e s o f p r i v a t i z a t i o n s a n d g o v e r n m e n t p r o j e c t
F ro m th e in te rv ie w s w ith th e g o v e rn m e n t o fficials c o n d u c te d b y th e research er,
it is u n d e rs to o d th a t th ere are tw o fo rm ats o f PF I sch em es in M alay sia. T h is sim ila r
in fo rm a tio n h a s also b een a n n o u n ce d by th e P rim e M in iste r o f M ala y sia, D a tu k S eri A b d u lla h A h m a d B ad aw i an d w as re p o rted in th e local n e w s p a p e r (T h e S tar O n lin e,
2 0 th Ju ly 2 0 0 6 ).
In th e first fo rm at, th e p riv a te sec to r w o u ld c o n stru ct th e a sse t o r b u ild in g and le a se s it to th e g o v e rn m e n t fo r a specified fixed p e rio d o f tim e. A sp ecial p u rp o s e
v e h ic le (S P V ) n a m ed P F I S dn. B hd. h as b een set u p to ta k e o n th e re sp o n sib ility
fo r im p le m e n tin g th e PFI p ro je c ts u sin g th is form at. T h is S P V is w h o lly o w n e d su b sid ia ry o f th e M in istry o f F in a n c e. T h e P F I Sdn. B hd. is a c c o u n ta b le fo r e x e c u tin g
g o v e rn m e n t’s iden tified p ro jects. E ssen tially , th e p ro je c ts are m a in ly th e in itial 425
p ro je c ts th a t w o rth R M 2 0 billio n w h ic h h av e been id en tified by th e g o v e rn m e n t to b e d e liv e re d v ia th is fo rm a t o f P F I u n d e r th e 9M P.
In te rm s o f fin an ce, th e E m p lo y e e s P ro v id e n t F u n d (E P F ) h a s b e e n re q u ire d by th e g o v e rn m e n t to p ro v id e loan to th e SPV. T h e S P V (i.e. P F I Sdn. B h d ) w ill u tiliz e
th is a llo c a tio n fro m E P F to fin an ce th e sele c ted c o n tra cto rs fo r th e c o n stru c tio n o f th e a sse ts. O n ce th e assets h a v e b e en b u ilt an d re a d y fo r o p e ra tio n , th e S P V w ill
lease th e a ssets to the F ederal L and C o m m issio n e r (F L C ) w h ic h acts as a m id d le m an b e tw e e n th e m in istry w h ic h h as re q u e ste d for the p ro je c t and th e SPV. In re tu rn ,
th e re le v a n t m in istry (i.e. th e g o v e rn m e n t) w ill p a y lease c h arg es to th e S P V th ro u g h
th e F e d e ra l L and C o m m issio n er. T h ro u g h o u t th e c o n tra ct th e S P V w ill o w n th e a sse ts an d w ill serv ice th e loans g iv e n by th e EPF. A fte r th e e x p iry o f th e c o n tra c t
p e rio d s , th e assets w ill b e tra n sfe rre d to th e g o v e rn m e n t a t n o cost.
D u rin g th e in te rv ie w s th e re sea rc h ers w ere in fo rm ed th a t in c o n tra st to th e first
fo rm at, th e se c o n d fo rm at req u ire s th e p riv a te sec to r to id e n tify th e p ro je c ts th a t are
d e e m e d to b e e co n o m ic a lly v ia b le and w o u ld b en efit th e p u b lic to b e e x e c u te d v ia P F I sch e m e s. U n d e r th is fo rm at the p riv a te sec to r co n ce ssio n is fu lly re sp o n sib le fo r
1 4 2 J u r n a l A k u n t a n s i d a n K e u a n g a n I n d o n e s ia , D e s e m b e r 2 0 0 7 , Vol. 4, N o . 2, h a l. 1 3 7 - 1 5 4
fo rm at o f P F I is s im ila r to the p u re st form o f PFI th at w as p re d o m in a te d in the U K
sin ce 1992. A n ex am p le o f p ro je c t c a rrie d ou t u sin g th is form is the S eco n d P en an g
B rid g e p ro je c t w h ich h as b e e n a w a rd e d to U E M G roup. T h e 24 k m b rid g e w h ich
w ill c o n n e c t B atu K a w a n in S e b e ra n g Perai and B atu M au n g on the islan d w ith an
e s tim a te d c o st o f R M 2 .8 b illio n is c u rre n tly u n d e r co n stru ctio n (T h e S ta r O n lin e, 3 A u g u st 2 0 0 6 ). T h e b u lle t train b e tw ee n K uala L u m p u r an d S in g ap o re p ro je c t w h ic h
is c u rre n tly u n d er g o v e rn m e n t c o n sid e ra tio n is a n o th e r ex am p le o f p ro je c t o f this
P F I fo rm at.
O v e rall, PF I in M a la y sia is a n e w a n d u n iq u e m e ch an ism u nlike o th er
c o n c e s sio n s th at h a v e b e en u sed in th e past. A s it is still at th e early sta g e o f PFI
im p le m e n ta tio n , a c o n sta n t re v ie w a n d rev isio n to the cu rre n t PFI a rra n g e m e n t in sh o u ld b e w e lc o m e d to im p ro v e th e g o v e rn m e n t’s ap p ro ach to PFI in a ch ie v in g the
o b je c tiv e o f in tro d u cin g th e b e st o f p riv a te se c to r s'cills an d pra c tice s to c o n trib u te to
a h ig h e r su sta in a b le level o f d e v e lo p m e n t an d eco n o m ic g ro w th o f th e country. A lso , th e g o v e rn m e n t sh o u ld see k ad v ice fro m P F I ex p erts b oth locally o r in tern a tio n a lly
o n th e c ritic a l asp ects o f PF I im p le m e n ta tio n th at are still lack in g su ch as th e p ro p e r
p ro c u re m e n t p ro c e d u re s an d th e c o n stru c tio n o f p u b lic sec to r c o m p a ra to r th at is cru c ia l fo r th e a sse ssm e n t o f v alu e fo r m o n e y o f PF I p ro je c ts since. A s M a la y sia is
y e t to d e v e lo p a P S C , th e fo llo w in g sec tio n p ro v id e s in fo rm atio n a b o u t P S C to g e th e r w ith a b r i e f an aly sis o n the c o m p ariso n o f PS C b e tw ee n th ree c o u n trie s (i.e. U n ited
K in g d o m , A u stra lia an d B ritish C o lu m b ia ). A lso , d e b ata b le issu es on th e re lia b ility
o f P S C a re d iscu ssed in the s u b se q u e n t section.
THE PUBLIC SECTOR COMPARATOR (PSC)
A P S C is d efined as ‘a h y p o th e tic al risk -a d ju sted co stin g , by th e p u b lic sec to r
a s a su p p lier, to an o u tp u t sp ecificatio n p ro d u c e d as p a rt o f a PF I p ro c u re m e n t
e x e r c is e ’. It is e x p re sse d in p re s e n t v alu e term s an d is based o n the re c e n t actu al p u b lic s e c to r m eth o d o f p ro v id in g th e defin ed o u tp u t w h ic h in v o iv e s the e stim a tio n
o f th e c o n stru c tio n co sts, ru n n in g co sts an d m o re c ru c ially th e v alu e o f risk to b e
tra n s fe rre d to th e p riv a te s e c to r (H M T rea su ry 1999).
T h e o b je ctiv e o f a P S C is to p ro m o te full co st p ric in g at an early stag e in th e p ro c u re m e n t p ro cess. A lso , it acts as a b e n ch m ark an d ev alu a tio n tool in e n su rin g
e ffic ie n cy o f the p ro c u re m e n t p ro c e ss. A P S C is re q u ire d fo r th e a sse ssm e n t o f th e
v a lu e fo r m o n e y (V F M ) o f a PFI p ro ject. A p ro je c t n eed s to p ro v e as p ro v id in g b e tte r b e fo re it can b e d e liv e re d v ia PF I. V F M is a sse sse d b y c o m p arin g the c o sts
o f th e p ro p o s e d P F I p ro je c t a g ain st a p u b lic sec to r c o m p a ra to r (P S C ). A p ro je c t is
I s m a il , R a s h i d , P r i v a t e F i n a n c e I n i t i a t i v e ( P F I ) I n M a l a y s i a : T h e N e e d f o r
Jerem y C o lem an , th e A u d ito r G e n era l o f th e U K N a tio n a l A u d it O ffice (N A O ). H e
states that:
‘T h e P u b l i c S e c t o r C o m p a r a t o r ( P S C ) i s a k e y p a r t o f t h e f i n a n c i a l e v a l u a t i o n o f p r o p o s e d P F I p r o j e c t . T h e P S C i s a n i m p o r t a n t g u i d e t o j u d g m e n t o f t h e o v e r a l l
V F M o f a P F I p r o j e c t . ' ( H M T r e a s u r y , 1 9 9 9 ) .
M o re im p o rtan tly , th e d e riv a tio n o f PS C is c o m p le x becau se it ta k e s into
c o n sid e ra tio n th e q u a lita tiv e fa c to rs su ch as risk s in v o lv e d and ty p e s an d q u a lity o f serv ices p ro v id e d ra th e r th a n c o n c e n tra tin g only on th e q u a n tita tiv e fa cto rs (T re asu ry
T a sk fo rce 1999: p ara. 2 .3 .3 ). T h e U K T rea su ry T ask fo rce (1998: p ara. 2 .2 .1 ) c laim s
th a t th e p ro c e ss o f b u ild in g a P S C in e v ita b ly fo cu ses o nly on th e fa cto rs th a t can easily be q u an tified an d e x p re sse d in m o n e ta ry te rm s. O th e r fa c to rs, n o tab ly risk
tran sfer, serv ice q u a lity a n d w id e r p o lic y o b jectiv es a re less e asy to q u a n tify an d
m ay n o t b e fully reflected in th e c o m p arato r. D u e to th e lim itatio n s in v o lv e d , th e T rea su ry T a sk fo rce (1 9 9 8 : p ara. 2 .2 .4 ) h ig h lig h ts th a t a P S C th a t is lo w e r th a n th e
P F I b id sh o u ld n o t a lw ay s im p ly a u to m a tic reje ctio n o f th e P F I bid.
In o th er w o rd s, in s e e k in g fo r a m o re a n a ly tic a lly rig o ro u s V F M a p p raisal m e ch a n ism , V F M sh o u ld n o t b e c o n sid e re d as a p ass o r fail te st b e fo re all o th e r
n o n -q u a n tifiab le fa c to rs w h ic h in v o lv e b o th th e b en efits an d co sts o f th e o p tio n h a v e b een ta k e n into a cc o u n t (T re asu ry T a sk fo rc e 1999). A stu d y on P F I V F M a sse ssm e n t
by M u m fo rd (1 9 9 8 ) id en tified six so u rces o f c o st sav in g th a t co u ld be a c h ie v e d
from P F I c o n tra cts as c o m p a re d to c o n v e n tio n al p ro c u re m e n t p ro je c ts w h ic h m ig h t h elp to a c h ie v e V F M . T h e se in clu d e: i. c lea re r d e fin itio n an d sp ec ific a tio n o f u s e r
n eed s; ii. m o re c a refu l lifetim e d e sig n an d co stin g b y th e c o n stru cto r; iii. sp e e d ie r
c o n stru c tio n and c o m m issio n in g ; iv. M o re effe ctiv e m o n ito rin g o f c o n tra c ts; v. in c en tiv es th a t b e tte r alig n e ffo rt w ith risk and re w ard s; an d vi. d e c isio n m a k in g
th a t b e tte r e x p lo its a ss e t co m p atib ility . M o reo v er, th e study b y A rth u r A n d e rse n and E n te rp rise L S E (2 0 0 0 : 18-19) w h ic h w as c o m m issio n e d b y T rea su ry T ask fo rc e
id en tified six k ey d riv e rs to V F M as fo llo w : risk tra n sfe r, o u tp u t b ased sp ecificatio n ,
lo n g te rm n a tu re o f c o n tra ct, p e rfo rm a n c e m e a su re m e n t a n d in c en tiv es, c o m p e titio n and p riv a te sec to r m a n a g e m e n t skills.
D e sp ite th e n eed to c o n sid e r th e q u a lita tiv e facto rs, P S C re m a in s c ru c ia l in
u n d e rta k in g V F M a sse ssm e n t. In M a la y sia , th e P S C is y e t to b e c o n stru cte d . T h is
w as a c k n o w le d g e d in th e N in th M a la y sia P lan re p o rt as follow s:
“A s t h e e v a l u a t i o n a n d p r o c u r e m e n t p r o c e s s i n v o l v e d in i m p l e m e n t i n g P F I w i l l b e m o r e e l a b o r a t e , p a r t i c u l a r l y t h e n e e d t o b e c l e a r a b o u t o u t p u t s p e c i f i c a t i o n s , m a i n t e n a n c e , p e r f o r m a n c e i n d i c a t o r s a n d d i s t r i b u t i o n o f r i s k s , a n e j f e c t i v e e n a b l i n g f r a m e w o r k f o r i m p l e m e n t a t i o n w i l l b e d e v e l o p e d . I n t h i s r e g a r d , s t e p s w i l l b e u n d e r t a k e n t o e s t a b l i s h t h e p u b l i c s e c t o r c o m p a r a t o r in e v a l u a t i n g t h e p r o p o s a l s a n d d e t e r m i n i n g t h e v a l u e J o r m o n e y a s c o m p a r e d t o t h e c o n v e n t i o n a l
1 4 4 J u r n a l A k u n t a n s i d a n K e u a n g a n I n d o n e s i a , D e s e m b e r 2 0 0 7 , V o l.4 , N o .2 , h a l. 1 3 7 - 1 5 4
W h en c o n stru ctin g a PS C fo r M ala y sian PFI p ro ject, th e g o v e rn m e n t sh o u ld
c o n sid e r in c o rp o ra tin g b o th th e q u a n tita tiv e an d q u a lita tiv e fa cto rs so th a t a m o re
re lia b le V F M a p p raisal o u tc o m e is o b tain ed . In c o n trib u tin g to w a rd s th e p ro c e ss o f e sta b lish in g a m o d el o f P S C fo r PF I p ro je c ts in M alay sia, th is p a p e r briefly an aly se s
th e key c o m p o n en ts o f a P S C w ith re fe re n ce to the P S C e sta b lish e d o th e r co u n tries
p a rtic u la rly in th e U K , C an a d a , an d A u stralia.
A c o m p re h e n siv e re v ie w o f re le v an t d o c u m en ts o n P S C d e v e lo p m e n t in the U K , A u stra lia an d C a n a d a re v e a le d th a t th e re are th re e c o m m o n c o re c o m p o n en ts
o f a PSC . T h e se in c lu d e b a se co stin g , tran sfe rre d risk a n d re ta in e d risk as in d icated
in F ig u re 1. F o r the P S C in A u stra lia, c o m p etitiv e n e u tra lity is ex p lic itly c o n sid e re d a s a n o th e r k e y co m p o n en t. C o m p e t i t i v e n e u t r a l i t y a d ju stm en ts re m o v e any net c o m p e titiv e ad v an ta g e s th a t a cc ru e to a g o v e rn m e n t b u sin ess b y v irtu e o f its p u b lic o w n e rsh ip . T h is is to allo w a fa ir a n d e q u ita b le a sse ssm e n t b e tw e e n a P S C and PFI
p riv a te b id d e rs (P P P V ic to ria 2 0 0 1 ). E x a m p le s o f co m p etitiv e n e u tra lity ad ju stm en ts
a re in su ra n ce co sts fo r a ssets an d serv ices th a t are ty p ic a lly n o t in su re d b y a p u b lic s e c to r e n tity as it w as d e e m e d fro m a risk m a n a g e m e n t p e rsp e c tiv e to s e lf in su re the
fa c ilitie s. F o r P S C in C an a d a , th is is called h id d e n o r a ssu m e d c o st a n d co n sid e re d a s p a rt o f a n in d irec t c o st e le m e n t o f th e b a se co stin g .
B a se d c o stin g is th e e stim a tio n o f th e b a sic p ro c u re m e n t co sts w h ic h co v ers
c ap ital co sts a n d o p e ra tin g costs. C ap ital co sts are co sts n eed ed to c o n stru c t o r b u ild th e facility. T h ese in clu d e co sts in cu rred fo r th e d esig n , c o n stru ctio n , p u rc h a se o f
lan d , m a te ria l, an d p la n t a n d eq u ip m e n t. B asically, c ap ital c o st re p re se n ts a h u g e
Figure 1
Comparison between PSC and PFI
Expected cost ($)
Transferred risk
Based costing
Retained risk
PSC
N et present value o f
service payments
Retained risk
PFI
I s m a il , R a s h i d , P r i v a t e F in a n c e I n i t i a t i v e ( P F I ) I n M a l a y s i a : T h e N e e d f o r 1 4 5
c o st c o m p o n e n t o f a P S C . T h e e stim a tio n o f c ap ital c o st sh o u ld reflect re c e n t actu al
p ra c tic e in th e p u b lic sec to r u sin g ex istin g p la n s fo r a site o r th e lik ely a p p ro ach .
O n th e o th er h an d , o p e ra tin g co sts a re th e co sts o f p ro v id in g the serv ices
sp ecified in th e p ro c u re m e n t o v e r th e c o n tra c t p erio d . T h e se in c lu d e fu ll s ta f f
co sts, ra w m ate ria ls an d c o n su m a b le s, re p airs an d m a in te n an c e an d a d m in istra tiv e o v e rh e ad s. A s th e e ffe ct o f in flatio n th ro u g h o u t th e c o n tra c t p e rio d m ay b e sig n ifican t,
all c o sts sh o u ld be ex p re ssed in th e p ric e s o f th e b ase y e a r o f th e c o m p a riso n (th e
effe cts o f e x p ec te d fu tu re in flation sh o u ld be e x clu d ed ).
A n o th e r c ru cial b u t c o n tro v e rsial c o m p o n e n t o f a PSC is th e risk elem en t. G a llim o re et al. (1 9 9 7 ) state th a t th e d istin c tio n b e tw e e n re a lity a n d p o s sib ility is
a n e sse n tia l e le m e n t o f risk . M o re sp ecifically, fro m a fin an cial p e rsp e c tiv e , ris k
is ta k e n to b e th e v a ria n ce o f re tu rn s a ro u n d th e e x p ec te d retu rn (G a llim o re e t al., 1997). P o llo c k an d V ick ers (2 0 0 0 ) arg u e that risk s p la y a m ajo r ro le in d e te rm in in g
th e V F M o f a P F I p ro ject. F ro u d (2 0 0 3 ) h is a sim ila r v iew o n the im p o rtan c e o f ris k in v e rify in g th e V F M ach ie v e d fro m PF I. B esid e s, he also p o in ts o u t th e s ig n ifican ce
o f ris k in th e a c c o u n tin g tre a tm e n t o f P F I p ro jects.
T h e re are sev e n p rin c ip a l risk s re le v a n t to PF I b e in g id en tified b y the T rea su ry
T ask fo rc e (1997: p ara. 3 .2 1 ) in th e ir p u b lic a tio n , 'P a r t n e r s h i p f o r P r o s p e r i t y
D esig n an d c o n stru ctio n risk ; c o m m issio n a n d o p e ra tin g risk ; d e m a n d fo r v o lu m e /
u sa g e risk ; re sid u al v a lu e risk ; te ch n o lo g y /o b so le sc e n c e risk an d re g u la tio n an d le g islatio n risk. T h e se risk s w e re also c o m m e n te d o n in the P riv ate F in a n c e P a n e l
p u b lic a tio n (1 9 9 6 ), ‘’R i s k a n d R e w a r d in P F I C o n t r a c t s ' . F o r e ac h ty p e o f risk s, th e re are th re e p o ssib le c h o ice s to b e m ade: i) To b e re ta in e d b y th e p u b lic secto r; ii) To b e tra n sfe rre d to th e p riv a te secto r; an d iii) To b e sh ared b e tw ee n th e tw o secto rs.
T h e u n d e rly in g p rin c ip le b e h in d th e d istrib u tio n o f risk a m o n g v a rio u s p a rtie s
u n d e r P F I sch em es is th at th e risk sh o u ld b e ta k e n b y th o se m o st ab le to c o n tro l it, a n d th is w ill re su lt in c o st re d u c tio n s b ro u g h t a b o u t th ro u g h in c re ase s in effic ie n cy
a n d in n o v a tio n s in tro d u c e d b y th e p riv a te sec to r (B all e t al. 2 000). In o th e r w o rd s , a m o re effic ie n t a llo c atio n o f risk b e tw ee n th e p riv a te an d p u b lic sec to r w o u ld y ie ld a
g re a te r V F M in th e p ro v isio n o f p u b lic serv ice s (H all 1998; B in g et al. 2 0 0 5 ).
T ran sfe ra b le risk s are th o se th a t are lik e ly to b e tra n sfe rre d to p riv a te se c to r b id d e rs. T h e ty p e an d n u m b e r o f risk w h ich a re to b e tra n sfe rre d n eed to be a sse sse d
on a p ro je c t b y p ro je c t basis. T h e v alu e o f tra n sfe rab le risk in a P S C m e asu re s th e
c o st g o v e rn m e n t w o u ld e x p ec t to p ay fo r th a t risk o v e r th e te rm o f th e p ro je c t in a p u b lic p ro c u re m e n t scen ario . A lte rn a tiv e ly , re ta in e d risk s are th o se risk s th a t are
m a n a g e d m o re efficien tly w ith in th e g o v ern m en t. F o r pro je c ts w h e re re ta in ed ris k is
in c lu d e d in th e P S C , its v a lu e w ill a lso n eed to be ad d ed to e ac h o f th e p riv a te b id s
1 4 6 J u r n a l A k u n t a n s i d a n K e u a n g a n I n d o n e s i a , D e s e m b e r 2 0 0 7 , V o l.4, N o .2 , h a l. 1 3 7 - 1 5 4
A s P S C is e x p ressed in p re se n t v alu e term s, a n o th er m a in issue in d ev elo p in g
a P S C , p a rtic u la rly w ith th e V F M v a lu a tio n is th e d e te rm in a tio n o f th e h u rd le rate
to u se fo r d isco u n tin g the cash flo w s (P o llo c k and V ick ers 2 0 0 0 ). In o th e r w o rd s, o n c e all th e co m p o n en ts o f the P S C h av e b e e n ad d ed u p , th ey n e ed to b e d isco u n ted
u sin g an acc e p tab le d isc o u n t rate to re a c h a t th e n e t p re se n t co sts b efo re c o m p a riso n
w ith the n e t p re sen t co sts o f the p riv a te sec to r c an b e m ad e. F ro m a re v ie w o f the
o fficial d o c u m en ts, it w as realized th a t d ifferen t c o u n trie s ap p ly d ifferen t d isco u n t
ra te s to w o rk o u t th e p re se n t v alu e o f th e c lash flow s. F u rth erm o re , in A u stra lia and C an a d a , v a rio u s rates are u sed fo r th e d ifferen t se c to rs o f PFI p ro je c ts a v ailab le in
th e ir co u n tries. O nly th e U nited K in g d o m , ap p lie s a u n ifo rm d isc o u n t rate a cro ss
se c to rs th o u g h the rate h as b e en c h an g e d from 6 p e r c e n t in the p a s t to 3.5 p e r c en t
at p re sen t. T able 1 b e lo w in d icates th e d isco u n t rates u se in th e U K , A u stra lia, and
C an ad a.
Table 1
Discount Rates Used in Different Countries
United Kingdom Australia Canada
In the past
Current
6% (real rate) Standard rate for all projects
3.5% (real rate) Standard rate for all projects
8.65% (after tax nominal rate) Standard rate for all projects
Different rates for different projects sector
Different rates for different projects based on private sector’s cost o f capital
G en erally , the sele c tio n o f th e d isc o u n t ra te fo r th e n et p re se n t c o st (N P C ) is
a su b je c tiv e issu e an d it req u ire s an u n d e rsta n d in g o f th e re la tio n sh ip b e tw ee n risk an d retu rn . D u e to th e su b jectiv e ju s tific a tio n s fo r se le c tin g an a p p ro p ria te d isc o u n t
rate, th e re lia b ility o f th e P S C is a lw ay s b e e n a su b jec t o f criticism . T h e k ey issues
I s m a il, R a s h i d , P r i v a t e F i n a n c e I n i t i a t i v e ( P F I ) I n M a l a y s i a : T h e N e e d f o r 1 4 7
CONTROVERSIAL ISSUES ON PUBLIC SECTOR COMPARATOR
O n e o f th e c o n tro v e rsia l areas o f a P F I c o n tra c t lies in the tra n sfe r o f risk to
the p riv a te sector. T h e p ro c e ss o f risk tra n s fe r is c en tral to P F I sch em es b e ca u se
a p riv a te ly fin an ced o p tio n is u n lik ely to re p re se n t v alu e fo r m o n ey b e fo re risk
transfer. T h is is b e ca u se as risk is tra n sfe rre d to th e p riv a te sector, c e t e r i s p a r i b u s ,
th e c o st o f the tra n sfe rre d risk is a d d e d to the P S C (W y n n e 2 0 0 2 ). T h is a d ju stm e n t w ill cau se th e P S C v alu e to be relativ ely m o re ex p en siv e th an a p riv a te ly fin an ced
altern ativ e. F o r ex am p le, a n e v a lu a tio n o f th e N H S h o sp ita ls u n d e r P F I sch em e by
F ro u d a n d S h ao u l (2 0 0 1 ) sh o w s th a t a g re a ter V F M is a ch ie v e d w h en so m e o f th e
risk s a sso c ia te d w ith c o n stru c tio n o f the h o sp ita l an d its su b se q u e n t m a n a g e m e n t
is tra n sfe rre d to th e p riv a te sec to r p rovider. T h e fin d in g fro m A rth u r A n d e rse n an d E n te rp rise L S E (2 0 0 0 , 53) stu d y also rev e als th a t 60 p e rc e n t o f th e a v e ra g e ‘s a v in g ’
is c o n trib u te d b y th e tra n s fe r o f risk.
H o w ev er, th e a m o u n t o f risk to b e tra n sfe rre d is a m a tte r o f am big u ity . T h is is due to th e c o m p le x itie s in v o lv e d in the v a lu a tio n o f risk . R isk s n e ed to be id en tified
and th e ir im p acts on co sts n eed to b e assessed . It also req u ire s the e stim a tio n o f the p ro b a b ilitie s a n d the re -e x a m in a tio n o f th e e stim a te s u sin g sen sitiv ity an aly sis.
M o reo v er, risk s sh o u ld b e a p p ro p ria te ly a llo c a te d b e tw ee n th e p riv a te an d th e p u b lic
sector. A n in a p p ro p ria te ris k tra n sfe r w ill re d u c e th e V F M a ch iev ed as the p a rty
w ill s e e k to allev iate th e im p act o f th e risk b y ch arg in g g re a te r p re m iu m (T reasu ry
T ask fo rce 1999: p ara. 2 .4.9).
A c c o rd in g to N A O (1999e: 52), th e p o lic y o f risk tra n sfe r h as sh ifted fro m an
early re c o m m e n d a tio n o f ‘m a x im u m risk tra n s fe r’ to a n ‘o p tim a l risk tra n s fe r’. A t p re sen t, th e p rin c ip le g o v e rn in g risk tra n s fe r is that;
‘R i s k s h o u l d b e a l l o c a t e d t o w h o e v e r i s b e s t a b l e t o m a n a g e it. A l t h o u g h t h e r e m a y a l s o b e p o l i c y r e a s o n s t o e n c o u r a g e r i s k t r a n s f e r , t h e a i m i s t o a c h i e v e o p t i m u m r i s k a l l o c a t i o n , n o t t r a n s f e r r i s k f o r i t s o w n s a k e '
In p ra c tice , risk is n o t a sim p le u n i-d im e n tio n a l co m m o d ity th a t can be
c o stlessly a ssessed an d co m p le tely tra n sfe rre d to the p riv a te sec to r (M a v sto n
1999). T h e re la tio n sh ip b e tw e e n risk an d V F M is th at as risk s are tra n sfe rre d to the p riv a te sector, V F M m ay rise u n til it re a ch e s th e o p tim u m level, w h e re an y fu rth er
risk tra n s fe r m ig h t cau se a fall in the V F M . T h is is b e cau se risk tra n sfe r b e co m e s
in efficien t sin ce the p riv a te secto r m ay be u n a b le to ab so rb risk p ro p erly (F o rsh a w
1999).
A stu d y by B ro a d b e n t an d L a u g h lin (1 9 9 9 ) arg u es th at th ere are u n c e rta in tie s
in th e issu e o f risk tran sfer. T h e m a in q v ^ries in clu d e the ty p e s o f risk s in v o lv e d
1 4 8 J u r n a l A k u n t a n s i d a n K e u a n g a n I n d o n e s ia , D e s e m b e r 2 0 0 7 , V o l.4 , N o .2 , h a l. 1 3 7 - 1 5 4
d e m o n strate w hen a risk is a c tu a lly resid in g w ith a p a rtic u la r party. S u b seq u en tly ,
the T rea su ry T askforce (1997a: p ara. 3 .23) co n clu d e d th at;
‘A s a g e n e r a l r u l e , P F I s c h e m e s s h o u l d t r a n s f e r t o t h e p r i v a t e s e c t o r r i s k s w h e r e t h e s u p p l i e r c a n i n f l u e n c e t h e o u t c o m e . T h e s u p p l i e r i s a b l e t o i n f l u e n c e t h e l i k e l y p e r f o r m a n c e o f t h e b u i l d i n g a n d i t s s e r \> ic e s b y t h e q u a l i t y o f t h e d e s i g n , c o n s t r u c t i o n a n d r e f u r b i s h m e n t w o r k u n d e r t a k e n . T h e q u a l i t y a n d f r e q u e n c y o f m a i n t e n a n c e a l s o h a s a n i m p o r t a n t b e a r i n g o n o n - g o i n g p e r f o r m a n c e . T h e r e f o r e , r i s k s t r a n s f e r r e d w i l l i n c l u d e d e s i g n , b u i l d , f i n a n c i n g a n d o p e r a t i n g r i s k s
L an d ers (1996) agrees w ith the id ea an d sim ila rly su g g ests th at PFI re q u ire s an
a p p ro p ria te tran sfer o f risk to the p riv ate sector, b oth th ro u g h the d e sig n , p la n n in g
a n d c o n stru ctio n p h ases and in o p eratio n and also th ro u g h a c o m b in a tio n o f p a y m e n t
m e c h a n is m s and specific c o n tra ct c o n d itio n s. W ynne (2 0 0 2 ) also p o in ts o u t th a t th e re are tw o ty p es o f risk often cite d as tra n sfe rre d to th e p riv a te sec to r c o n tra c to r
u n d e r a PFI project. T h ey are risk s related to d elay in c o m p le tin g th e p ro je c t an d risk
o f c o st o v erru n for a project. N e v erth ele ss, a c c o rd in g to M ay sto n (1 9 9 9 ) a larg e p a rt o f th e ris k w h ich the PF I c o n tra ct m ay see k to tra n sfe r to th e p riv a te se c to r rela tes
to d e m a n d risk.
F ro m the p e rsp ectiv e o f th e IP P R , d esig n and co n stru ctio n ris k an d o p e ra tin g
c o s t risk sh o u ld b e b o rn e b y th e p riv a te sector. W h ile p o litic a l risk s w h ic h in v o lv e p o lic y c h an g es should b e b o rn e b y the p u b lic sector. B ut, c ertain risk s w h ic h
a re d ifficu lt to specifically allo c ate b e tw ee n the p arties, su ch as d e m an d risk and o b so le sc e n c e risk, n e ed to b e a p p ro p ria te ly sh ared a m o n g th e tw o p a rtie s (IP P R ,
2 0 0 1 ). L ik ew ise, the re search fin d in g s b y B in g et al. (2 0 0 5 ) su g g est th a t th e p u b lic
s e c to r sh o u ld re ta in p o litical risk s as w ell as site av ailab ility risk s. O n th e o th e r h a n d , risk s w h ic h are d irectly a sso c iate d w ith the p ro je c t its e lf sh o u ld b e tra n sfe rre d
to th e p riv a te sector.
A k in to y e et al. (1 9 9 8 ) c arried o ut a re sea rc h p ro je c t aim e d at o b ta in in g fe e d b a c k fro m three d ifferen t g ro u p s in v o lv ed w ith PF I p ro je c ts (P u b lic sec to r
(c lie n ts), c o n tracto rs, an d le n d ers) o n th e issu es o f risk b u rd e n s a nd risk a n aly sis and th e m a n a g e m e n t o f P F I sch em es. T h e resu lts fro m th e ir q u e stio n n aire su rv ey sh o w
th a t th e re sp o n d en ts ten d to ran k m o st h ig h ly th o se risk facto rs th at w e re h ig h ly re la te d to th e ir ow n b u sin ess o b jectiv es. A lso , the resu lts sh o w th a t all the th ree
p a rtie s a d o p t d ifferen t m e th o d s a n d te c h n iq u es fo r risk a sse ssm e n t a n d a p p ro a ch
ris k s in d ifferen t w ays. H o w ev er, one th in g th ey h av e in co m m o n is th at all p a rtie s h a v e in su ffic ie n t k n o w led g e o f P F I to e n su re its success. S im ilarly, G allim o re et al.
(1 9 9 7 ) p ro v e th a t certain risk s are d ifferen tly p erc eiv e d b y p articip an ts. T h e y also
e m p h a s iz e th a t an attem p t to m e asu re and e x p o se th ese d ifferen c es is a d ifficu lt a re a o f stu d y b e c a u se it in v o lv es th e q u a n tificatio n o f data th a t are freq u e n tly q u a lita tiv e
I s m a i l, R a s h i d , P r i v a t e F i n a n c e I n i t i a t i v e ( P F I ) I n M a l a y s i a : T h e N e e d f o r 1 4 9
F ro u d and S h ao u l (2 0 0 1 ) an d W ynne (2 0 0 2 ) p o in t o u t th a t e v en th o u g h issues
o f risk a n aly sis an d risk tra n s fe r are im p o rtan t in P F I, o fficial g u id a n ce o n h o w to
c a lc u la te the risk tra n sfe rre d is in su fficien t. M o re o v e r, p u b lic ly a v a ila b le e v id en c e is
a lso ty p ic a lly v e ry lim ited. T h e ir e v a lu a tio n o n a n u m b e r o f F B C s su g g ests th at n o
v a lid m e th o d o lo g y fo r risk tra n s fe r h as b een a p p lie d . A s a resu lt, d ifferen t b u sin ess c ase s u se d ifferen t m e th o d o lo g ie s to tra n sfe r risk.
R ecently, a re sea rc h stu d y c a rrie d o u t b y a g ro u p o f re se a rc h e rs c o m m issio n e d
by th e A sso c ia tio n o f C h artered C ertified A c c o u n ta n ts (A C C A ) (2 0 0 4 ) su g g ests th a t
e v e n th o u g h risk tra n sfe r is th e cen tral e le m e n t in ju s tif y in g V F M , th e ir in v e stig atio n in d icates th at risk s hav e n o t b e e n tra n sfe rre d to th e p a rty b e s t a b le to m a n a g e it.
T h e stu d y w h ic h ev alu a te s th e o p e ra tio n al p e rfo rm a n c e o f P F I sch e m e in ro a d s an d
h o sp ita ls also h ig h lig h ts that;
‘. . . r a t h e r t h a n t r a n s f e r r i n g r i s k t o t h e p r i v a t e s e c t o r , in t h e c a s e o f r o a d s D B F O h a s c r e a t e d a d d i t i o n a l c o s t s a n d r i s k s t o t h e p u b l i c a g e n c y , a n d t o t h e p u b l i c s e c t o r a s a w h o l e , t h r o u g h t a x c o n c e s s i o n s t h a t m u s t i n c r e a s e c o s t s t o t h e t a x p a y e r a n d / o r r e d u c e s e r v i c e p r o v i s i o n . I n t h e c a s e o f h o s p i t a l s , P F I h a s g e n e r a t e d e x t r a c o s t s t o h o s p i t a l u s e r s , b o t h s t a f f a n d p a t i e n t s , a n d t o t h e T r e a s u r y t h r o u g h t h e l e a k a g e o f t h e c a p i t a l c h a r g e e l e m e n t in t h e N H S b u d g e t . I n b o t h r o a d s a n d h o s p i t a l s t h e s e c o s t s a n d r i s k s a r e n e i t h e r t r a n s p a r e n t n o r q u a n t i f i a b l e . T h i s m e a n s t h a t i t i s i m p o s s i b l e t o d e m o n s t r a t e w h e t h e r o r n o t V F M h a s b e e n , o r i n d e e d c a n b e , a c h i e v e d i n t h e s e o r a n y o t h e r p r o j e c t s ’ ( A C C A , 2 0 0 4 ) .
In sh o rt, th e p ro cess o f a tte m p te d ris k tra n s fe r its e lf m ay lead to lo n g an d
c o m p lic a te d P F I co n tra cts, a d d in g to th e e v a lu a tio n , tra n sa c tio n s, n e g o tia tio n an d
m o n ito rin g co sts in v o lv ed , w h ic h can sig n ifican tly r e d u c e th e a ttra ctio n s o f p riv a te ly
fin a n c e d p rojects.
T h e se c o n d c o n tro v e rsia l issu e c o n c e rn in g a P S C is th e d e term in a tio n o f th e
d is c o u n t rate fo r th e p u rp o se o f d isco u n tin g the P S C co sts to g e t th e tim e v alu e o f m o n e y o f the costs. In p a rticu lar, th e u se o f a s in g le rate to d is c o u n t b o th p u b lic
a n d p riv a te sec to r sch e m e s w o u ld m e a n th a t th e ris k o f b o th sch em es is eq u al.
B ro a d b e n t e t a l. (2 0 0 1 ) h ig h lig h t th at so m e p e o p le a rg u e th a t this m ay n o t b e th e case. Im p licitly , th e se p e o p le a ssu m e th a t th e p u b lic sec to r has a lo w e r risk. T h e
a n a ly sis b y G ro u t (1 9 9 7 ) rev e als th a t th e p u b lic p ro v is io n is v a lu e d fro m th e c o st s id e th a t is th e p re s e n t v a lu e o f th e cash flow s o f th e c o sts o f th e p ro je c t. W h erea s th e
p riv a te p ro v isio n is fro m th e rev en u e side; th e p re s e n t v alu e o f the cash flo w s o f th e
re v e n u e o f the p ro ject. R ev en u es are g e n erally p e rc e iv e d to b e m o re risk y th a n co sts
a n d th is im plies th a t th e p u b lic se c to r sh o u ld u se a lo w e r d isc o u n t rate.
In ad d itio n , th e tim e pro file o f th e e x p e n d itu re in cu rred by th e p u b lic se c to r
1 5 0 J u r n a l A k u n t a n s i d a n K e u a n g a n I n d o n e s ia , D e s e m b e r 2 0 0 7 , V o l.4, N o . 2 , h a l. 1 3 7 - 1 5 4
p ro je c t is u n d e rta k en , w h ilst u n d e r P F I the co sts are sp re ad o v e r a 25 to 3 0 y e a r
p e rio d . W h en c o m p arin g the PFI ag ain st the P S C to d eterm in e V F M , the u se o f a
re la tiv e ly h ig h d isco u n t rate, p la c e s m o re w e ig h t on th e n e a r fu tu re as c o m p ared w ith th e m o re d istan t fu tu re, and this w ill re su lt in a lo w e r c o st fo r PFI h e n ce a b e tte r
v a lu e fo r m oney. O n the o th er h an d , a lo w rate o f d isc o u n t ten d s to fa v o u r th e PS C
o r th e tra d itio n a l p ro cu rem en t.
A s in th e case o f th e U n ited K in g d o m , W ynne (2 0 0 2 ) claim s th a t th e 6 p e rc e n t
d is c o u n t ra te u sed sin ce 1992 d o es n o t reflect the actu al c u rre n t e co n o m ic situ atio n . T h is is b e ca u se the sam e rate has b een used d e sp ite th e sig n ifican t fa ll in g en eral
in te re st ra te s o v er the last few y ears. T h ere are v ario u s arg u m e n ts th a t h a v e b e e n p u t
fo rw a rd w ith reg ard to th e d isc o u n t rate issue. W ynne (2 0 0 2 ) in h is an aly sis sh o w s th a t n o n e o f the first 11 PF I sch em es in th e N H S w o u ld be c o n sid e re d to p ro v id e
V F M i f th e d isco u n t ra te u sed h a d b een ch an g e d to 5 p e rc e n t in stead o f th e n o rm a l
ra te o f 6 p e r cent. Sim ilarly, G affh ey e t al. (1 9 9 9 ) u se th e c ase o f C a rlisle h o sp ita l to p ro v e th e sen sitiv ity o f V F M to th e d isco u n t rate used. T h e ir stu d y in d icates
th a t at a 6 p e rc e n t d isc o u n t rate, th e P F I sch e m e is slig h tly c h e a p e r th a n tra d itio n a l
p ro c u re m e n t. H ow ever, w hen the d isc o u n t rate is re d u c ed b y o n ly 0.5 p e rc e n t, the o u tc o m e o f the a p p raisal is rev ersed to fav o u r the tra d itio n a l m e th o d o f p ro c u re m e n t.
In o th e r w o rd s, b o th G affh e y e t al. (1 9 9 9 ) and W ynne (2 0 0 2 ) d e m o n stra te th at sm all c h a n g e s in the d isco u n t rate ap p lied w ill v ary the o u tc o m e as to w h ic h sch em e o ffers
th e b e st V F M
C o n c e rn in g this d isco u n t ra te issu e, G ro u t (1 9 9 7 ) an d S m ith (1 9 9 9 ) c o n sid e r w h e th e r th e u se o f m o re so p h istica te d m o d els su ch th e C a p ita l A ss e t P ricin g M o d e l
o r th e A rb itrag e P ricin g M ode! co u ld p ro v id e a b e tte r b a sis fo r d e c id in g a p p ro p ria te
d is c o u n t ra te . S u ssex (2 0 0 1 ) claim s th a t fo u r p e r c e n t d is c o u n t is a b e tte r re fle c tio n o f th e tim e p re fe re n ce ra te. S u b seq u en tly , in Jan u a ry 2 0 0 3 , th e T rea su ry h ad a g re ed
to re d u c e th e d isco u n t ra te fo r the p u rp o se o f e co n o m ic a p p ra isa l to 3.5 p e rc en t. H o w ev e r, th e re are still d eb ates o n th ese issues a t p resen t.
In lig h t o f the a b o v e critics o f P S C , fu n d a m e n tal lesso n s sh o u ld b e le arn ed
fro m th e ex p erien c e s o f o th e r c o u n trie s an d serio u s c o n sid e ra tio n m u st b e g iv e n o n th e m a tte rs co n cern ed w h en d e v e lo p in g a P S C fo r th e P F I p ro je c ts in M alay sia.
CONCLUSIONS
T h e in tro d u ctio n o f P F I in M alay sia u n d e r the 9 M P is the c o n tin u a tio n to th e e x istin g p riv a tiz a tio n p o lic y w h ich h as b een im p le m e n te d sin ce th e early 1980s. A s
th e im p le m e n ta tio n o f P F I in M ala y sia is still at the in fan cy w ith o n ly se v e ra l p ro je c ts
I s m a i l, R a s h i d , P r i v a t e F i n a n c e I n i t i a t i v e ( P F I ) I n M a l a y s i a : T h e N e e d f o r 1 5 1
fram e w o rk and m e c h a n ism fo r p ro c u re m e n t an d e v a lu a tio n p ro cess. To be specific,
a PSC w h ic h is a c ru c ial e lem en t in V F M a p p ra isa l is y e t to be e sta b lish e d . H o w ev er,
in d e v elo p in g a P S C fram ew o rk fo r PFI p ro je c ts in M ala y sia, m a n y fa cto rs n eed to
be scru tin iz ed to e n su re its su itab ility to the M a la y sian c o n tex t. A lso , a sp ecial PFI
re g u la tio n b o d y is e ssen tial to be set up to re g u la te an d m o n ito r th e p ro g re ss o f the sch em e.
M o reo v er, sin ce a PFI a p p ro a ch is re q u ire d to p ro v e b e tte r V F M b e fo re it c a n
g o a h ead , a g reat re lia n ce w ill be p la ce d on the te c h n ic a l ju d g m e n ts u n d e rp in n in g
th e P S C costings. T h e c o m p le x ity in v o lv e d in th e d e v e lo p m e n t o f th e PSC h a s led
to a g re a te r in h eren t u n c ertain ty and su b jec tiv ity a sso c ia te d w ith a sp e c ts o f th e PS C e stim a te s (A u d it S co tla n d 2 0 0 2 an d A u d it C o m m issio n 2 0 0 3 , 34). W y n n e (2 0 0 2 )
h ig h lig h te d the v alu e o f risk tra n sfe rre d to the p riv ate se c to r as o n e o f th e key su b jec tiv e a re a in d e v e lo p in g th e PSC . R ese arch b y P o llo c k et al. (2 0 9 2 ), A u d it
S co tla n d (2002, 68) and A u d it C o m m issio n (2 0 0 3 , 35) p ro v e d th a t a b e tte r V FM
o f PFI o p tio n w as o n ly ach ie v e d w h en a d ju stm e n t fo r risk tra n sfe r h a s b e e n m ade. T h is is b e c a u se th e c o st o f th e risk tra n s fe rre d to th e p riv a te se c to r is a d d e d to th e
c o st o f th e PSC an d cau se it to b e hig her. In a d d itio n , it w a s a lso c la im e d th a t th e P S C has o v e re stim ate d th e fin an ce c o st o f p u b lic fu n d in g (A u d it C o m m issio n 2 0 0 3 ,
34). S u b seq u en tly , th e re liab ility , a cc u ra cy an d re le v an c e o f th e P S C h a v e b e en the
su b jec t o f c o n sid e ra b le d e b ate (A u d it C o m m issio n 2 0 0 3 , 37).
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