Risk Management in Transport PPP Projects

In the Islamic Countries

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In a recent study from Sarvari et al. (2019), which collected extensive feedback from experts

involved in risk management of PPP projects in Malaysia

, the authors detected that

risk

identification tools

are rarely used by Malaysian companies. The most common way to identify

and allocate risk relies on the insight and experience of experts within the company and review

of documents, similar case comparisons, and historical risk data. Concerning potential factors

limiting risk management in the company undertaking PPPs, internal factors constitute the

bigger issue compared to external ones. The three major barriers are the lack of experts familiar

with the tools and techniques of risk identification, the human and organizational resistance,

and the difficulty in seeing the benefits of adopting risk identification practices.

Performance Metrics

The level, quality and timeliness of project performance should be measured via the

implementation of key performance indicators (KPIs) both during the construction and

operation phase. The importance of a performance-based approach which clearly stipulates

output specifications and performance indicators for private entities has been stressed in the

framework of the Ninth Malaysian Plan. Strengthening the monitoring framework to ensure

successful implementation of projects and adherence to contractual obligations, as well as the

role of performance-based payment mechanism was highlighted also in the Tenth Malaysian

plan.

Nevertheless, the implementation of an effective performance measurement appears to be still

lacking. In fact, performance measurement guidelines and tools are not available in Malaysia

and the formulation of performance metrics is basically left to the Special Purpose Vehicle. The

public sectors simply validate them.

Nor Suzila Lop et al. (2018) performed a semi-structured interview to PFI practitioners aimed

at identifying the importance and challenges of KPIs implementation in the Malaysia PFI

projects. They found that the importance of the KPIs for measuring and monitoring the PFI

projects performance is well recognized by respondents. However, it also emerged that there

are several challenges related to KPIs implementation. These challenges relate mainly to the fact

Almost 23% of the respondent were involved in the transport sector.

Box 38 The impact of the Asian financial crisis on the allocation of risks: the case of KLIA

Express

In the KLIA express PPP project, the private sector borne a significant amount of risk (the risk of

financing, designing, construction, operating and maintaining the KLIA Express are borne by

ERLSB). However, since the Asian financial crisis of 1997 hit prior to contract closing,

the

government was forced to grant the concessionaire appropriate loan guarantees to

mitigate the risk of financing

. In the end, the project (total cost of USD 768 million) was financed

through equity mergers (RM500 million), loans from Development and Infrastructure Bank of

Malaysia (RM940 million) and the remainder through import credit from four German financial

institutions (Howling Pixel, 2018). Loans from Malaysian and German banks had very favorable

conditions and public guarantees. This project is also an example of the public party retaining

global economical risk. (J. Dehornoy, 2010)