Risk Management in Transport PPP Projects

In the Islamic Countries

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Box 40 Project design issues: the case of Light Rail Transit (LRT)

The weak project design is one of the reasons contributing to LRT negative performance. In fact, the

poor integration and connectivity between the LRT and other modes of public transport, such as

buses and taxis, imposed difficulties to the passengers to complete their journeys and thus the

incentive to shift from private to public transport means resulted to be too low. Additionally, the

limited parking facilities at the LRT station made it difficult for the passengers to use the service.

Management of risks during construction

After the signature of the contract, a PPP contract management team or Project Management

Committee (PMC) is formed to manage the implementation of the PPP contract, from

construction to start of operation of the infrastructure.

During the construction phase, the procuring authority and/or UKAS periodically carries out

site visits and inspections through its officers in order to check the physical progress of the asset

under construction and ensure that construction occurs in accordance with the project

milestones (APCoP, 2013). In this regard, resource issues have limited this function in the past

for some PPPs (JICA, 2010). In addition to the information collected on site, the private partner

must provide periodic information in order to constantly monitor and follow up on the PPP

contract implementation.

Ahmad et al. (2017) highlight construction cost overruns as the most critical risk for Malaysian

PPP projects, based on a survey of top managers from the public and the private sector. In fact,

concerns over cost overruns in transport PPP projects have been particularly present in

Malaysian public debate (as illustrated in the following Box).

Box 41 Illustrative examples of PPPs affected by construction cost overrun



In the airport rail link “Kuala Lumpur ERL” costs forecasted ex-ante ended up being incorrect

due to the new financial circumstances brought about by the Asian financial crisis of 1997.

Interest rates became higher than expected, reducing the profitability for the concessionaire

and raising the cost of the PPP for the contracting authority (Dehornoy, 2012);



The construction of Kuala Lumpur International Airport 2 (KLIA2) was characterized by

frequent design changes, causing cost overruns which were estimated in 2013 at RM500

million, because of increased labor and consultancy costs

. In 2015, the Transport Ministry

however disputed the claim, stating that, despite the project’s cost having skyrocketed from

expected RM1.7 billion to RM4 billion (and a final delay of over 2 years), no cost overrun took

place. According to the Ministry, the reason was to be found in the additional scope of the new

design

. In 2017, the issue was still present in public debate, being raised for instance by a

Member of Parliament referring to “astronomical cost overruns”

and by the press,

mentioning an “increase in construction work scopes” which brought about inflated costs

;