Risk Management in Transport PPP Projects
In the Islamic Countries
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that the usually adopted KPIs (especially those linked to the operation phase) are too general,
difficult to understand and difficult to be measured.
Remuneration
In Malaysia, remuneration schemes of transport PPPs are based on user-pay mechanisms. For
road and rail sectors, the government usually provides guarantees either on traffic or revenues.
Failure to achieve a minimum threshold specified in the contract entitles the concessionaire to
received compensation from the government. In many contracts, however, the minimum
threshold is often complemented with an upper limit above which the revenues are shared
between the government and the concessionaire.
Box 39 Remuneration scheme of North South Expressway (PLUS) project
The PLUS expressway is a toll road. The private party is remunerated through tolls collected from
users. However, the PPP contract also foresaw:
 A guarantee (for the first 17 concession years) in the form of a loan when actual traffic
volume is lower than forecasted traffic volume. (the guarantee was never activated because
traffic has been always higher than forecasts);
 A toll Revenue Sharing system in case the actual toll revenue exceeds the threshold toll
revenue. The contract also specifies the percentage of government’s entitlement over the
years (20% for 1998-2008; 25% for 2009-2020; and 30% for 2021-2030.
Two problems are found in the literature with respect to the guarantee approach adopted by
Malaysian transport PPPs. First, the issue of quality of traffic forecast which negatively affects
the decision on traffic thresholds. Second, the strong correlation between traffic growth and
economic growth/recession (see previous box on the impact of the Asian financial crisis on the
allocation of risks). If not properly managed the risk associated to poor forecasting capacity and
economic downturn can have very negative consequences for the state budget.
5.6.5. Construction
Management of risks during design phase
The design of the project falls under the responsibility of the private partner which is obliged to
produce a detailed design which meets project specification prepared by the public sector. The
detailed design is generally undertaken by a Malaysian qualified consulting engineering firm at
the cost of the private partner. This detailed design is also subject to the review of the technical
committee and approved by the public authority.
However, JICA (2010) reported the lack of manpower within the public authorities to adequately
perform the design review and approval as one of the main issues rising the risk of poorly
designed projects.