Risk Management in Transport PPP Projects
In the Islamic Countries
210
to a stable investor base (composed mainly by long-term focused institutional investors) and an
advantageous tax treatment (Hanifah Hashim, 2018).
Moreover, raising money in the form of Sukuk is much easier compared to traditional finance as
they are Sharia-compliant whereas the latter requires the concepts of beneficial ownership 55
which is against the principles of Sharia. Therefore, the use of conventional finance would
require more time and resources to structure transaction involving complex infrastructures in
Islamic Countries.
As regards Islamic financial intermediaries, Islamic banks contribution to infrastructure
projects was instead smaller as compared to other financial channels (only 4% according to
COMCEC, 2019). Within this type of financing, transport is the sector which benefited of the
highest share.
The small share of financing from the Islamic banking sector can be attributed to many different
causes such as banks balance sheets structure and capital requirements that discouraged banks
to invest in long-term projects such as transport infrastructures. However, this limitation has
been mitigated by the introduction of the Islamic Financial Services Act (IFSA) 2013 in Malaysia
which relaxed capital requirements separating deposit and investment accounts to potentially
unlock infrastructure investment through intermediaries.
However, generally Islamic banking sector tends to finance the infrastructure sector indirectly,
by investing in financial instruments, such as Sukuk, rather than directly financing
infrastructure projects, as the risk of the infrastructure project is higher than other projects.
5.6.3. Pre-tendering decision process
Screening for PPP suitability
The PPP guidelines are rather generic and do not provide specific procedures or tools
(e.g. checklists) to screen projects which are most suitable for PPP rather than conventional
procurement. However, practice is that as a first step a government ministry (e.g. Ministry of
Transport) identifies the reasons and the need for involvement of private sector in certain
project and submit the project details to UKAS. If UKAS experts and the ministry officials
approve the proposal, a “Need statement” is developed (Ahmad et al., 2018).
According to PPP guidelines the “needs statement” should demonstrate that there is a need on
the part of the government for a certain PPP project. The UKAS decision is based on the benefits
in terms of:
 Socio-economic impacts;
 Value-for-Money and cost savings to the government;
 Quick delivery of the project and service enhancement;
 Increased level of accountability, efficiency and effectiveness.
55 A beneficial owner is anyone who enjoys the benefits of ownership of a security or property, without being
on the record as being the owner.