PUBLIC-PRIVATE AND PARTNERSHIP (PPP)
In many countries worldwide, the provision of a public infrastructure and related services are undertaken using a Public-Private Partnership (PPP) approach. This public-private and partnership (PPP) are more focus on the issues such as, decision-making, the value for money in adopting this, the benefits and the costs that are to be shared by the parties which is in the interests that will developed between the government and private sectors. This PPP also serves as the means to achieving the government’s needs towards the public’s needs.
Other than that, the public-private partnership (PPP) has been introduced which makes the government’s work as in an effort to reduce the financial and administrative burden of managing the governmental sectors as well as encourage the involvement of the private sector in the development of the country.
In addition, Public-private partnership (PPP) involves the transfer to the private sector the responsibility to finance and manage a package of capital investment and services for more specified which are the construction, management, maintenance, refurbishment and replacement of public sector assets such as buildings, infrastructure, equipment and other facilities, which creates a business. In these PPP projects, there is a contract for the private party to deliver public infrastructure-based services over a long period of time. The private party will raise its own funds to finance the whole or part of the assets that will deliver the services based on agreed performances. The public sector, in turn, will compensate the private party for these services. In some PPP projects, part of the payments may flow from the public users directly. Though ownership of assets plays a less important role in PPPs, nevertheless many of the modalities see a transfer of the assets to the public sector as a matter of course. There are some PPP projects where the assets are not transferred to the public sector at the end of the concession period. These usually relate to facilities or projects that have little value at the end of the period due to their technological obsolescence.
In Malaysia, it is also a common method that has been used by the government ever after this method has been introduced. This Public-private and partnership (PPP) will make the government works become easier. In the other meaning, , PPP works as an institutionalized form of cooperation of public and private sectors, on the basis of their own indigenous objectives, work together towards a joint target in which both parties accept investment risks on the basis of a predefined distribution of revenue and costs.
This Public-private and partnership (PPP) is also a model varies from simple commercialism to full privatization and a very complex approach.
In this Private-Public Partnership (PPP) it has three (3) methods that are commonly used in the construction industries to construct a project. These three (3) methods are build, operate and transfer (BOT), private finance initiative (PFI) and build, lease and transfer (BLT). For our case study we have choose a build, operate and transfer (BOT) project that has been done doing the construction process and are now in the process of using it. The project that we have chosen is KLIA Transit and KLIA Express that has been constructing in Kuala Lumpur. This project is using a method of combination between built, operate and transfer (BOT) and joint venture (JV) which is the government appoint some other parties to do the project and to maintain it.
BUILD, OPERATE AND TRANSFER (BOT)
Build Operate Transfer (BOT) is a kind of legal mechanism of privatisation. It is a business venture between the government and the concessionaire, with the ownership of the project asset transferred to the government at the end of the concession period. In Malaysia, a decade after the beginning of privatisation was marked by the emergence of capital market which consisted of conventional and Islamic capital market. Both Islamic and conventional capital markets facilitate the privatisations and infrastructure projects by the issuance of bonds, equity financing securities and Islamic securities. Islamic BOT financing is a new type of contract in contemporary Islamic law, and it is resulted from the modern infrastructure development needs. Although the financing of BOT is new to the Islamic law, the specific contracts used in the structure are common to the Islamic principles transactions like sale, partnership and lease contract. On the other hand, the contract provides an alternative to the project since both structures are in the form of business venture and lease-based financing which exploit the beneficial interest of an asset.
In addition, Build, operate and transfer (BOT) are means of project financing falls under the general heading of concession financing. It means that project are totally financed, built and operate by a private developer or contractor and finally the project are transfer back to the client after a substantial time period. Other than that, the cost of the project will be high due to financing charges imposed by the developer or contractor. After that, the developer or contractor is given a number of years of positive revenue to lay back any investment before the client take over the project which it is normally for 20-30 years of concession period.
JOINT VENTURE (JV)
Private Finance Initiative (PFI) is the means of an arrangement where a government agency on the one hand and a private sector enter into a long term relation with a significant degree of risk sharing. The transfer to the private sector which the responsibility is to finance and manage a package of capital investment and services including the construction, management, maintenance, refurbishment and replacement of public sector asset which creates a business. Then, the private sector will create the asset and deliver a service to the public sector client. In return, the private sector will receive payment with the levels, quality and timeliness of the service provision throughout the concession period. Other than that, the structure of the lease rental payment for PFI projects will guarantee a total return to the concessionaire’s capital investment expenditures including financing cost repayment and profit to investment which is then the asset and facilities will be transferred to the public sector at the expiry of the concession period.
In addition, there are three (3) types of PFI which are service sold, financially free standing and joint venture. So, in the project that we have chosen there are some kinds of joint venture method that have been used by the government to reduce the risk of financing of the project.
So, joint venture is mean of cooperation or partnership between two (2) or more companies that covering building mechanical and electrical or other specialists services for the purpose of tendering. Each participants company are having joint and several liabilities for the contractual obligation to the employer. The needs for joint venture in a project is because the arrangement for the building procurement, which has developed out of the increasing complexity of construction project. Other than that, joint venture is applicable to a large scale or complex project where the higher than normal proportion of engineering or specialists’ services are needed in constructing the project.
KLIA TRANSIT AND KLIA EXPRESS
BACKGROUND OF THE PROJECT
Express Rail Link Sdn. Bhd (ERL) which is the company that introduced high-speed rail services to Malaysia. Incorporated in 1996, ERL overcame the challenges of the Asian Financial Crisis of 1997-98 to design, finance and construct Kuala Lumpur’s first air-rail link. Express Rail Link Sdn. Bhd (ERL) is a company that owned and operated airport rail link that connects Kuala Lumpur International Airport (KLIA) and the Kuala Lumpur Sentral (KL-Sentral) transportation hub, 57 kilometers apart. The company operated two different train services which are the KLIA Express and KLIA Transit.
The KLIA Express and KLIA Transit which commenced operations in 2002 is daily high speed, non-stop air-rail connection between Kuala Lumpur International Airport (KLIA) and Kuala Lumpur City Air Terminal (KLCAT) and the city center. Under the built, operate and transfer (BOT) model, the high speed rail train is designed, financed, constructed, operated and maintained by Express Rail Link Sdn.Bhd (ERLSB) for a concession period of 30 years which is then the concession agreement was signed between ERLSB and Ministry Of Transport in August 1997. So, the employer for this project was Express Rail Link Sdn.Bhd (ERL) which is using the financiers from the financed of equity mergers, loans of development and infrastructure bank of Malaysia, soft loan from government and import credit from German financial institutions to built up this project. Meanwhile, the contractor of the construction of the project was Express Rail Link Sdn.Bhd and then for the contractor of operations and maintenance it was ERL Maintenance Support Sdn.Bhd (E-MAS) which has cooperation between other parties as joint venture of the project.
So, those who are involved in this project as the joint venture of the project between Express Rail Link Sdn.Bhd (ERL) were YTL Corporation Berhad, Lembaga Tabung Haji, Trisilco Equity Sdn.Bhd and SIPP Rail Sdn.Bhd with each partner holding 45%, 36%, 10% and 9% of the company respectively. On the 25th of August 1997, the Malaysian government presented the company with a 30-years concession to finance, operate, build, maintain and control the operations of the railway.
The construction of KLIA Express and KLIA Transit began in May 1997 and was completed 5 years later. Later, it was handed over to SYZ Consortium, which is a joint relations consortium between German and Malaysian companies consisting of Siemens AG, E-MAS. After that, ERL later set up ERL Maintenance Support Sdn Bhd (E-MAS) in 1999 to manage the operations and maintenance of ERL trains. Initially a joint venture between Express Rail Link Sdn Bhd and Siemens AG, E-MAS has been wholly-owned by ERL since June 2005.
ERL Maintenance Support Sdn Bhd (E-MAS)
ERL Maintenance Support Sdn. Bhd (E-MAS) was established in 1999 as a joint venture between Express Rail Link Sdn Bhd (ERLSB) and Siemens AG In 2005. Express Rail Link Sdn Bhd that have became the sole owner of E-MAS which is then E-MAS has do the operation of operate and maintain the Express Rail Link Services.
The operation of the KLIA Express was on 14th April 2002 and KLIA Transit service was on 1st June 2002. Both services of KLIA Express and KLIA Transit have a current total ridership of about 11,000 – 12,000 passengers per day. The first 1 millionth passenger was recorded in December 2002, the 30 millionth passenger in June 2010. Both services offer airline check-in facilities at the Kuala Lumpur Sentral station. This operation went smooth because E-MAS have successful and consistently operated Express Rail Link Services so that it will runs under the right schedule of time and the trains are in a good condition.
The projects starts after the ERL was incorporated on 29th January 1996 with following a successful bid for the airport express rail link project and issuance of a Letter of Intent by the Government on 25th November 1995 which is Dr. Aminuddin Adnan was appointed as its first Chief Executive Officer.
After that, the company signed a concession agreement with the Government on 25th August 1997 to finance, design, construct, operate and maintain the KLIA Express and KLIA Transit and other ancillary activities related to railway services for 30 years.
ERL’s current shareholders are YTL Corporation Berhad, Lembaga Tabung Haji Bhd, SIPP Sdn.Bhd and Trisilco Equity Sdn Bhd with 45%, 436%, 10% and 9% shareholding respectively work as the private investors of the project including the financiers from the financed of equity mergers, loans of development and infrastructure bank of Malaysia, soft loan from government and import credit from German financial institutions to built up this project
Then, the construction was handle by ERL begins and it was completed after 5 years of construction with a little difficulty.
KLIA Transit services commenced on 24th June 2002.
Up until this year, the maintenance and operation of the KLIA Transit and KLIA Express are on a right tracks which it is handle by E-MAS which makes so many improvements to make the public works become easier especially for the transportation at the KLIA.
YTL Corporation Berhad
One of the shareholder’s project of KLIA Transit and KLIA Express is YTL Corporation Berhad which is an integrated infrastructure developer with core activities in power generation, supply of water and the treatment and disposal of waste water, merchant multi-utility services, communications, construction contracting, property development and investment, manufacturing of industrial products and supplies, hotel development and management, restaurant operations, and the provision of consultancy, incubating and advisory services for internet businesses.
It is one of the largest companies listed on Bursa Malaysia and was also the first Asian non-Japanese company to be listed on the Tokyo Stock Exchange. So, this large company has been one of the shareholders of KLIA Express and KLIA Transit and are holding the biggest percentage which is 45% of the share of the project investments.
Lembaga Tabung Haji (TH)
The second one of the shareholders is Lembaga Tabung Haji (TH) which is a Government-Linked Investment Company whose principal activities include hajj management, savings and investment. For information, TH’s vision is to function as the pillar of the economy for the Muslim community and provide excellent hajj management services. TH strives to render the best services to Malaysian pilgrims and give competitive and halal returns on depositors’ savings through its diversified Shariah compliant investments. Among its core investment sectors are plantation, property, construction, banking, oil and gas, tourism, services and halal food. Other than that, TH also participates via equity holdings in public-listed, joint ventures and privatisation projects which is TH has been one of the share holders for the KLIA Express and KLIA Transit holding 36% of the project investment.
Next, Trisilco was incorporated in Malaysia on 10th July 1996 with its principal activity as an investment holding and the provision of consultancy services which is involved in this KLIA Transit and KLIA Express and holding 10% of the project investment.
SIPP Rail Sdn. Bhd
The last shareholder for the project was SIPP Rail Sdn Bhd which is a company incorporated in Malaysia on 14th August 2014 in the business of construction, operation, improvement, maintenance and management of railway or railway transport. So, all of these company have been registered and cooperated as a joint venture or partnership in constructing the KLIA Express and KLIA Transit in Kuala Lumpur.
The type of KLIA Express is a non-stop direct airport rail link on 57-km journey on KLIA Express between the airport and KL Sentral Station in the city which only takes 28 minutes. The system used for this operation is ERL system which it is located in Kuala Lumpur –KLIA and the operation is on the line number 6 (purple). The trains run at 15-minute intervals during peak hours and every 20 minutes during off-peak. It can cruising at a top speed of 160 km/h, which make it as a South East Asia’s fastest train with a 99.7% on-time service performance.
KLIA Express opened on 14th April 2002 which is 17 years ago and it is owned and operator by Express Rail Link. The system is using the conduction system which is using the driver to control it. KLIA Express serves three (3) stations which are KL Sentral, KLIA and KLIA 2. This KLIA Expree runs non-stop from KL Sentral to KLIA and KLIA2, skipping the three KLIA Transit stop in between. For information, at KL Sentral, the two (2) side platforms of the ERL are accessed from different parts of the stations. The KLIA Express platform is accessed from the KL City Air Terminal (KLCAT) while the KLIA Transit platform is accessed from the main Transit Concourse at Level 1. At KLIA and KLIA2, both KLIA Express and KLI Transit use the same island platform, with each service serving only one side of the platform.
A 2.14km extension to the KLIA2 terminal was complete in 2013. Commercial service began on 1st May 2014, when KLIA2 opened. Inter- terminal travel time from KLIA main terminal to the new terminal is 3 minutes.
The KLIA Transit service, which shares the line or track with the KLIA Ekspres, stops at three intermediate stations which are Bandar Tasik Selatan, Putrajaya or Cyberjaya and Salak Tinggi. The total journey time is 35 minutes at 30-minute frequencies. A new schedule with more services to cater to the morning and evening peak-period traffic is being introduced in August 2012.
All passengers that are taking the KLIA Ekspres and KLIA Transit trains can enjoy broadband internet service while onboard. Meanwhile, at KL Sentral, passengers can connect easily via public transportation to their final destinations.
The overview for these type of project is commuter rail (Airport rail link) which using the ERL system. It is located in Kuala Lumpur- Bandar Tasik Selatan- Putrajaya-KLIA. In this project there are 6+ 2 reserve stations which consist of line number 7 (teal) and have been
Figure 1: KLIA Express
Figure 2: KLIA Express
Figure 3: KLIA Express
Figure 4: KLIA Express
PRINCIPLES OF PUBLIC-PRIVATE PARTNERSHIP
A public-private partnership proposal will only be considered if there is a need on the part of the government for the project after taking into account the benefit or probity as a whole. In this KLIA Express and Transit project, it is very large amount of cost to develop and construct. So, the government is use the built, operate and transfer (BOT) to plan this project. The government is use the privatization in this public project to the private sector that the risk of financing, designing, construction, operating and maintaining the KLIA Express and Transit project. There is principles that required for the build, operate and transfer of the express rail link (ERL).
Aimed at the satisfaction of collective needs
A BOT generally occurs in the context of the provision of a public service (in other terms a service of general interest), or the construction and management of a public infrastructure, which is intended for the use of the population. Examples include public utilities and transportation services for the former and roads, airports, generation plant, hospitals, prisons and water and wastewater treatment plants for the latter. Due to its public purpose, there are obligations and principles of public service that must be respected and enforced in order to achieve a successful PPP. Principles such as universality, continuity, equality of treatment (fairness in both the process and in outcomes), high quality of service, existence of reasonable profits (returns are commensurate with the risks borne by the private party), and transparencies of the activities carried out are important requirements for services directly provided to the citizens and their assurance is fundamental when they are delegated to the private sector.
In KLIA Express and KLIA Transit project, the government want to fulfil the needs of the peoples in Kuala Lumpur area. This is because the traffic road in Kula Lumpur is very busy all of time especially at morning from 6.00 a.m. to 8.00 a.m. because in this time peoples go to the works. Besides, the afternoon also the traffic will jam from 6.00 p.m. to 7.00 p.m. because the peoples want go back home. In initiative to decreasing the traffic jam, the government want provide the public transport in Kuala Lumpur area and give benefit to the peoples. It is also to give easier to the peoples that want to go Kuala Lumpur International Airport (KLIA) or want go back from the KLIA.
Often involve long term arrangements
Often, BOT implies a long term relationship, comprising various phases of the infrastructure project or its provision (design, construction and operation). When the activities of construction and financing correspond to a significant part of the contract value, the projects should be designed in a whole-life costing perspective, assuring their economic and financial balance, and enabling an effective transfer of risks to the private sector and promoting the project’s financial self-sustainability. For example, a PPP for a dam which has long-life should have a contract duration corresponding to a long-term.
In KLIA Express and Transit project is involve long term arrangements include the design, construction and operation. The project is large and need longer time to finish. After the project finish, the private sector must control the operating system and must provide cot maintenance for the ERL for better experience and safety to the passenger.
Involve the total or partial financing of the project
PPPs involve, almost always, the partial or total funding of the project by the private partner. Financing and the arrangements associated with financing are very complex and difficult to standardize. Although there might be PPPs without private financing, the fact that the private partner participates with its own capital provides incentives for good performance. Therefore, a financing structure of the PPP which includes equity from the private sector is considered a good practice.
Therefore, the KLIA Express and Transit project is a joint venture project. Express Rail Link Sdn. Bhd. (ERL) is a joint venture company between YTL Corporation Berhad, Lembaga Tabung Haji, SIPP Rail Sdn. Bhd. and Trisilco Equity Sdn. Bhd. with each partner holding 45%, 36%, 10% and 9% of the company respectively. On the 25th of August 1997, the Malaysian government presented the company with a 30-year concession to finance, build, maintain and control the operations of the railway. Construction began in May 1997 and was completed 5 years later. It was then handed over to SYZ consortium, a joint relations consortium between German and Malaysian companies consisting of Siemens AG, Siemens Electric Engineering Sdn. Bhd and Syarikat Pembenaan Yeoh Tiong Lay Sdn. Bhd (SPYTL), a wholly owned subsidiary of YTL Corporation Bhd. ERL Maintenance and Support was set up in 1999 and is responsible for the operations and maintenance of trains owned by ERL. The company was initially a joint venture between Express Rail Link Sdn. Bhd. and Siemens AG, but since June 2005 it has been wholly owned by Express Rail Link Sdn. Bhd
Unlike traditional public procurement, where an input-based payment system is often adopted, PPPs are remunerated according to the results and performance obtained. This approach towards results consequently leads to a clear incentive for the private partner to be efficient and innovative in the contract management, enabling higher profits if it outperforms the initial performance targets. These productivity earnings sooner or later will be transferred to the public partner (generally in the form of lower prices to customers, better quality or minor charges for the tax-payer). PPPs also target the achievement of pre-specified goals.
The private partner bears a significant number of risks
The various risks associated with the contract must be allocated to the party best able to manage them, that is, the party able to mitigate the risk. As a rule, the risks relative to the infrastructure operation and service provision should be allocated to the private partner, as well as the project and construction risks. It is more difficult to determine who is best able to mitigate consumption/demand risks (for example in the case of a toll road where the private sector only has limited influence over traffic volume) and these, as well as foreign exchange risks and political risks are often retained by the public sector. The adequate risk transfer and allocation is a condition sine qua non for the success and effectiveness of the PPP.
PPP is a public procurement model in which the value for money is optimized through efficient allocation of risks, whole life service approach, private sector innovation and management skills as well as synergies from inter-linking the design, finance, construction and operations. BOT projects have unique characteristics that distinguish them from other project delivery methods. The following are some of their unique characteristics which is the first one is, the BOT projects are financed on a project finance basis with limited recourse. Typically in limited recourse financing, the lenders provide debt to the concession company solely based upon expected cash flow/revenue generating capacity of the project. Financing is provided on the merit of the revenue generating capacity of the project rather than the assets of the concessionaire company.
In KLIA express and Transit project, the Express Rail Link Sdn Bhd as the private sector to manage the financing of the project. Before the project begins, the private sector gets the loan of money to cover the cost of the project. In the concessions period that take 30 years, the contractor manage the cash flow that get from consumer until the contractor get the profit. That will cover the cost project and other cost like maintenance of the ERL. Then, it will give back the project to the government after contractor pay back any investment.
Second, the key for characteristic of BOT projects is rising of finance entirely by the private sector without the involvement of government. The private sector is fully responsible for a design, construction, finance and operation and maintenance. So, the KLIA Express and Transit is fully responsible to the Express Rail Link Sdn Bhd (ERL) for the design, construction, finance and operation and maintenance.
Although the project is owned by ERL, there is joint venture with YTL Corporation Berhad, Lembaga Tabung Haji, SIPP Rail Sdn. Bhd. and Trisilco Equity Sdn. Bhd. with each partner holding 45%, 36%, 10% and 9% of the company respectively. ERL Maintenance and Support was set up in 1999 and is responsible for the operations and maintenance of trains owned by ERL. The company was initially a joint venture between Express Rail Link Sdn. Bhd. and Siemens AG, but since June 2005 it has been wholly owned by Express Rail Link Sdn. Bhd
Third, the BOT projects are typically large-scale infrastructure projects. Transaction costs amount on average 5 to 10% of total project cost. Along with a 30-year extension that ERL is seeking from the government in lieu of RM2.9 billion in compensation owed to it, the company is also said to be restructuring about RM2.8 billion in debts owed to Bank Pembangunan Malaysia Bhd (BPMB).
Furthermore, sources tell The Edge ERL is seeking higher collection from the passenger service charge (PSC). Currently, ERL collects RM5 and RM1 from outbound international and domestic passengers respectively. PSC collected from passengers in KLIA and klia 2 is shared between Malaysia Airports Holdings Bhd and the government based on a formula. ERL gets a share of the portion that the government receives. In short, the extension of concession alone might not be enough for ERL to turn profitable. It will also need to defer the bulk of its debt payments while boosting its non-fare PSC income.
Note that YTL Corp Bhd owns a 45% stake in ERL and Lembaga Tabung Haji, 36%. SIPP Rail Sdn Bhd, which is linked to the Sultan of Johor, owns a 10% stake and the balance of 9% is held by Trisilco Equity Sdn Bhd. Currently, the company is negotiating with the Public Private Partnership Unit under the Prime Minister’s Department to settle the RM2.9 billion it is claiming from the government for not being able to raise fares according to the concession agreement. Meanwhile, filings with the Companies Commission of Malaysia in December 2016 show an increase in “liability secured under a charge” from RM940 million to RM4.08 billion by ERL.
Next, the BOT projects transfer the risk to the private sector. The KLIA Express and Transit project is own risk by the Express Rail Link Sdn Bhd. One of the risks is Interest Rate Risk In contrast; interest rate will affect the project in terms of borrowing and debt payments. Any fluctuation in the interest rate will definitely affect the lenders. An appropriate interest rate should be agreed upon the project. The lenders have to pay extra cost if the interest rate is far high or benefit them if the interest rate is low. More foreign investors or private sector could be attracted by providing interest rate guarantee by the host government in a BOT project. This approach has been adopted in Indonesian BOT toll road whereby the government has guaranteed on maximum interest rate, minimum revenue guarantee, debt guarantee, tariff guarantee and minimum tariff guarantee. Besides, Economic Risk mostly related to the facility’s operation which consists of materials supply, labour supply, equipment availability, inflations, tariffs, fiscal policies and exchange rates. Project cash flow is affected by any financial aspects that relate to the economic parameters. Increment in the supply and maintenance cost, eventually will increase the operation cost, thus reduce the revenue. This could be seen as a threat to the promoter.
STRUCTURES OF PUBLIC-PRIVATE PARTNERSHIP
ERL was incorporated on 29th January 1996 following a successful bid for the airport express rail link project and issuance of a Letter of Intent by the Malaysian Government on 25th November 1995. Dr. Aminuddin Adnan was appointed its first Chief Executive Officer. The company signed a concession agreement with the Government on 25th August 1997 to finance, design, construct, operate and maintain the KLIA Express and KLIA Transit and other ancillary activities related to railway services for 30 years.
The 1997 financial crisis that hit Asia caused a brief setback to the project but due to strong governmental support, the project went on to completion. The project raked up a costs of RM2.4 billion which 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. The charge was originally lodged in late 1998 as a soft loan provided by the government to help ERL finance a portion of the RM2.4 billion cost to build the KLIA Express. So, the money from the financiers does help in the construction of the project which make the financiers of the projects are one of the most important characters in this structure of project.
Currently, the company is negotiating with the Public Private Partnership Unit under the Prime Minister’s Department to settle the RM2.9 billion it is claiming from the government for not being able to raise fares according to the concession agreement. Meanwhile, filings with the Companies Commission of Malaysia in December 2016 show an increase in “liability secured under a charge” from RM940 million to RM4.08 billion by ERL
Other than that, after operating for almost 15 years and now enjoying record-high passenger volumes, many would expect that KLIA Express to be a commercially viable project that can stand on its own. Unfortunately, that does not appear to be the case. Express Rail Link Sdn Bhd, KLIA Express’ operator, is actually under financial stress and is looking for a way out. Along with a 30-year extension that ERL is seeking from the government in lieu of RM2.9 billion in compensation owed to it, the company is also said to be restructuring about RM2.8 billion in debts owed to Bank Pembangunan Malaysia Bhd (BPMB).
Furthermore, sources tell The Edge ERL is seeking higher collection from the passenger service charge (PSC). Currently, ERL collects RM5 and RM1 from outbound international and domestic passengers respectively. PSC collected from passengers in KLIA and KLIA 2 is shared between Malaysia Airports Holdings Bhd and the government based on a formula. ERL gets a share of the portion that the government receives.
In short, the extension of concession alone might not be enough for ERL to turn profitable. It will also need to defer the bulk of its debt payments while boosting its non-fare PSC income. Note that YTL Corp Bhd owns a 45% stake in ERL and Lembaga Tabung Haji, 36%. SIPP Rail Sdn Bhd, which is linked to the Sultan of Johor, owns a 10% stake and the balance of 9% are held by Trisilco Equity Sdn Bhd which makes them as the one of the structure of the project which is known as private investors for the project.
In addition, KLIA Express and KLIA Transit were constructed by Express Rail Link (ERL) because ERL was the construction contractor for this project. The construction began in May 1997 and was completed 5 years later. It was then handed over to SYZ consortium which is a joint relations consortium between German and Malaysian companies consisting of Siemens Ag, Siemens Electric Engineering Sdn. Bhd and Syarikat Pembinaan Yeoh Tiong Lay Sdn. Bhd (SPYTL), a wholly owned subsidiary of YTL Corporation Bhd.
At the first, Express Rail Link (ERL) has to operate and maintenance the KLIA Express and KLIA Transit. But later, in the past 10 years, E-MAS have managed to develop the skills and expertise of its employees to successfully operate and maintain both the KLIA Express and KLIA Transit with an impeccable on-time service performance. E-MAS are fully owned by ERLSB and is located at Kompleks Rel Udara in Bandar Baru Salak Tinggi in the district of Sepang, Selangor Darul Ehsan. ERL Maintenance Support Sdn Bhd (E-MAS) in 1999 to manage the operations and maintenance of ERL trains. Initially a joint venture between Express Rail Link Sdn Bhd and Siemens AG, E-MAS has been wholly-owned by ERL since June 2005. So, E-MAS have become the construction maintenance and operation for this project since the past 10 years.
KLIA Express and KLIA Transit was operated in 14 April 2002 which is 16 years ago. The conduction system is with the driver and the character of KLIA Express is fully subsurface meanwhile KLIA Transit is mostly subsurface surface. The rolling stock of the KLIA Express is Siemens Desiro ET 425 M Articulated Electric Multiple Unit and for the KLIA Transit is 4-4-car Desiro ET 425 M Articulated EMU.
The maintenance consists of track maintenance and train maintenance. Track Maintenance is the track work is essential to ensure the safety and integrity of the track. They sometimes need to restrict access to parts of the track to carry out maintenance and upgrading works. By closing sections of track to normal activity, they can get the work done much quicker and in a safe environment.
Train Maintenance ERL keeps the safety of its train operations at the highest priority. Its operations and maintenance (O&M) subsidiary, ERL Maintenance Support Sdn Bhd or E-MAS has skilled staff working 24 hours to ensure its rail system is in excellent and reliable condition. Its trains have collectively clocked more than 66 million kilometres to date, with an average of 6,500 trips made per month. It is noteworthy that ERL has managed to keep cancelled trips, due to unforeseen circumstances, to an average of two or less in a month.
DIFFERENCES BETWEEN PUBLIC-PRIVATE PARTNERSHIP AND TRADITIONAL PROCUREMENT
Public-private partnership (PPP) is typically do not include service contracts or turnkey construction contracts, which are categorized as public procurement projects, or the privatization of utilities where there is a limited ongoing role for the public sector.
Public-private partnerships between a government agency and private-sector company can be used to finance, build and operate projects, such as public transportation networks, parks and convention centers. Financing a project through a public-private partnership can allow a project to be completed sooner or make it a possibility in the first place.
Public-private partnerships have contract periods of 25 to 30 years or longer. Financing comes partly from the private sector but requires payments from the public sector or users over the project’s lifetime. The private partner participates in designing, completing, implementing and funding the project, while the public partner focuses on defining and monitoring compliance with the objectives. Risks are distributed between the public and private partners according to the ability of each to assess, control and cope with them. Although public works and services may be paid for through a fee from the public authority’s revenue budget, where payment is made that is collected by users.
Traditional Procurement Method (TPM)
This is a common method that has been usually used in construction industry. Traditional method is a procurement method that the design work will separate from construction. The developer or client would appoint an architect to complete the design and produce specifications of the building. The consultant team is appointed to take control of design and cost. Upon the completion of the design, client will appoint a main contractor to carry out the works through bidding. The contractor prepares the tender documents base on the specifications and drawings or the bill. The lowest tenderer usually will be awarded the contract. The contractor need to take responsibility to all the workmanship and materials which including all works by the sub-contractors.
Based on the chart that had been shown above, the client has contractual relationship with all parties. In this way, the client would have the closer control of the works. However, this may bring risks in control of works of the project since the client need to deal with many points of responsibility. Firstly, client will appoint a consultant team which included architect, quantity surveyor and engineers to come out with the drawings and specifications of the building. The quantity surveyor in the consultant team will come out with the bills of quantity base on the drawings that have been provided by the architect and engineer. The employer appoints the contractor team to be in charge of the construction works only. Therefore, the contractor team does not need to take responsibility for the design works. Then, the contractor may appoint other subcontractor to undertake specialize works.
Difference between Private-Public Partnership & Traditional Procurement Method
Procurements are funded directly via public budget. Funding via private financial resources without public sector’s explicit guarantee.
Immediate impact on public sector financial position. Impact on public budget spreads over the duration of the concession.
Risks are entirely borne by public sector. Risks are allocated to parties which can manage them most efficiently
Extensive public sector involvement at all stages of project life. Public sector’s involvement is through enforcement of pre-agreed KPIs.
Relationship with private contractor is short term. Long duration of relationship with private contractors.
Applicable for projects with high socio-economic returns and those justified on strategic considerations. Applicable for projects with commercial viability.
ADVANTAGES AND DISADVANTAGES OF PUBLIC-PRIVATE PARTNERSHIP
ADVANTAGES OF BOT
Better value for money.
The Build, Operate and Transfer (BOT) use of private sector financing to provide new sources of capital, which reduce public borrowing and direct spending and which may improve the host government’s credit rating.
The project that used this method is ability to accelerate the developments of projects that would otherwise have to wait for and compete for sovereign resources.
More innovative and efficiently managed projects.
The use of private sector capital, initiative and know how to reduce project construction costs, shorten schedules and improve operating efficiency.
Less risk burden on public sector.
The BOT allocation to the private sector of project risk which is the burden would have to be home by the public sector.
More private sector involvement.
The involvement of private sponsors and experienced commercial lenders, which ensures an in depth review and is an additional sign of project feasibility.
Government strategic control.
In contract to privatization, government retention of strategic control over the project, this is transferred to the public at the end of the contract period.
DISADVANTAGES OF BOT
Not suitable for smaller projects.
The Build, Operate and Transfer (BOT) is used when the companies want to propose large projects. It is not suitable for smaller projects.
The project that used this method is expensive where the transaction costs are high, they amount to 5-10% of total project cost.
The success of Build, Operate and Transfer (BOT) project depends upon successful raising of necessary finance. Various costs such as cost construction, equipment, maintenance should be committed during the life of project.
Build, Operate and Transfer (BOT) projects are successful only when substantial revenues are generated during the operation phase.
This is also one of the disadvantages in BOT is where the differences objectives between the constructors and operators which may have an influence in several issues, including the quality of the civil work.
Difficulties of relations
The difficulties of relations between the different parties which it is can be hard for both parties because they cannot communicate well when working together to propose any projects. Particularly the assignment of responsibilities is a major issue.
ADVANTAGES OF JOINT VENTURE (JV)
Increase the business growth.
A major Joint Venture (JV) advantage is that it can help the business grow faster, increase productivity and generate greater profits.
Joint Venture (JV) is the combine’s resources of participating companies’ results in greater economy in the use of specialist manpower, design and equipment.
Short communication and easy to understand.
The project that used this method used Lines of communicating between the employer’s professional adviser and the building contractor and specialist contractor are shorter and better defined.
Integration of work sequences.
It also improved integration of work sequences results in a shorter contract time and fewer management problems.
Share the costs of failure.
In case the joint group project fails, the companies are not alone when bearing the costs of its failure. It is because the companies and the partners had volunteered to share the expenses, they both will also support the losses.
Long-lasting business relationships.
When using this Joint Venture (JV) method, it also enables to create long-lasting business relationships with the partnerships even after their projects done proposed.
DISADVANTAGES OF JOINT VENTURE (JV)
Takes time to build business relationship.
Partnering with another business can be complex. The disadvantages of Joint Venture (JV) can be significant, especially if the form of a relationship business whose abilities or resources do not match or complement with the partners. It takes time and effort to build the right business relationship and even the joint venture risks cannot be entirely avoided.
If one Joint Venture (JV) withdraws, the remaining partner must accept total liability to complete the projects.
Many accounts and separate insurance to manage.
A separate, unified Joint Venture (JV) back account must be arranged and maintained by all the partners. Separate insurance policies must be taken out on behalf of all the Joint Venture (JV) partners, especially for the proposed project.
In this project that used Joint Venture (JV) method, there is a great imbalance of expertise, assets, and investments because of the different companies are working together. This can have a negative impact on the effectiveness of the joint venture.
A clash of cultures and management styles.
It may result in poor co-operation and integration. People with different beliefs, tastes, and preferences can get in the way big time if left unchecked.
PROBLEMS ENCOUNTERED AND SOLUTIONS
It is difficult to make an accurate forecast of transport demand for a specific transport infrastructure due to behavioral change of passengers, excessive expectations and other reasons. If actual transport volume fall short of the forecast, income will be smaller than expected and revenue may not cover the cost of operation.
Operational cost is dependent on performance of transport operation as well energy and wage inflation. In particular, it is not easy to predict and wage inflation in long term. Sometimes, the cost can be shifted on to the price of transport. If it cannot be shifted, it will reduce business profit. Performance improvement is also essential for reducing the risk of traffic accidents and providing higher quality service.
Initial cost of transport infrastructure such as building roads, rails and stations tends to be large. Therefore, such large initial cost may not be able to financed as planned and interest may be a huge burden on management. Appropriate measures and low interest long term loan should be considered.
Land Acquisition Risk
Transports infrastructure such as roads, railways, seaports and airports require broad land area. Sometime land acquisition may be opposed by residents and may lead to social problems which take a longer time to solve. Once a land acquisition problem occurs, project managers are forced to reconsider the initial plan and total cost will be increased in the worst case, projects may be interrupted.
In order to successfully conduct transport projects through PPP which are economically viable while solving social issues , it is crucial to have legal institutional frameworkfor PPP at the government level , careful planning with substantive research and discussion among related parties and management and allocation which is necessary for the rpoject level.
By setting legal and institutional framework for PPP at the government level is necesarry to secure transperancy and fairness of the process for PPP transport project. Also ,the framework contribute to provide stability of the governmental commitment. It is found that the framework help foreseethe future and calculate the risk of PPP projects in advance. The legal and institutional framework defines the PPP scheme including the responsibility of governmental organizations in charge of PPP promotion, the procedures of approval and the target of PPP projects and their budgets. Government support based on the legal and institutional framework is introduced into PPP framework to keep economic viability of transport PPP projects, by managing risks including transport – inherent risk.
Planning feasibility and visibility is crucial for successful PPP projects. To ensure this important point, careful planning including appropriate management and allocation of risks is necessary in drafting PPP projects. If feasibility and visibility of the project is not clear, it will be very difficult to find private partners to initiate the project. Sometimes political risk impedes project feasibility and visibility. The private sector hopes to avoid sudden policy changes since it may harm the credibility of the project. Therefore the private sector examines past political changes carefully.
It is necessary to clarify appropriate role division and risk allocation between the public and the private sector in implementing specific PPP projects. Role division and risk allocati on among participants in specific PPP projects depend on the form of PPP such as BOT. Therefore the ‘decision of the form of PPP is crucial in risk management. If the role division and risk allocation between the public and private sector cannot be agreed and therefore finding an appropriate private partner becomes difficult, then additional government support may be considered as a way to reduce private risk. When unexpected change surrounding the project harmed its economic viability, appropriate government support was considered in order to recover feasibility in some projects compiled.
If an inappropriate private partner is designated, the project will be badly organized and managed. Therefore, selection of the private partner is very crucial. In general, is necessary to invite many candidates to ensure competitiveness in order to select a parrticular candidate with high capabilty and many experiences to manage the project. With transperancy and fair procurement should be introduced to increase the incentive of the private sector to be involved in PPP project. Plus , it can also provide appropriate specification to reduce risk.
If management and supervision over the PPP project is not appropriate, the project will not succeed. Appropiate management and supervision is essential throughout the implementation of PPP project. If it becomes difficult to achieve goals expected in the planning stage, the public sector should instruct the private partner to change the plan based on the project.CONCLUSION
In conclusion, public-private partnership is a long term of relationship or contract between one or more private parties and government which is for providing a public asset or service, in which the private party bears significant risk and management responsibility, and remuneration is linked to the performance. Other than that, there is few method in public-private partnership (PPP) which is built, operate and transfer (BOT), built, least and transfer (BLT) and private finance initiative (PFI) which can be used in making an agreement between parties before constructing a project. So, in our case study we have chosen the BOT project as our case study which is KLIA Express and KLIA Transit.
In addition, as presented from the case study, private sectors also play a significant role in infrastructure provision and development. Though some of these projects may have difficulties in different stages of implementation, it could be said that without the partnership with the private sector, the project may have not been in operations yet. Looking at the number of projects implementations under the BOT scheme, it could be said that Malaysia has been reaping the benefits of this strategic approach.
So, in our case study we find out that there are some benefits that the parties get which are increase the business growth, value for money, government strategic control, less burden on public sector, more involvement on private sector, combines resources, short communication and easy to understand, integration of work sequences, share the costs of failure and long-lasting business relationship when they were using the method approach. But, at the same time there were also some disadvantages when using this approach but it cannot be put aside.
Other than that, the profit has been the common issues of most of the rail projects in whatever country which construct it including Malaysia. Then, policies should have been made by the government to integrate the service of the future enhance the use of public transport. The BOT scheme to be used should also be carefully selected. For example, when considering the government’s limited resources and the huge amount of investment stake, management of risks associated in all stage of implementation it is should be given critical focus by both the government and the private parties to ensure the successful of the BOT projects. Other than that, the risks allocation should be stated in the contract to divide and ensuring the roles and responsibilities of each party for each risk.
Last but not least, if the government wants to have a successful project, it is important to apply all the principles and characteristics of the method used so that the organization and the project will flow and run smoothly without any problems arise. Other than that, the structures of the project must also in a good conditions and relationship so that the employer and employee can work without any problem which then will not affected the project growth. Meanwhile, the good bond between the parties which is from private sectors and public sector who are normally government must also be considered and take care to make sure that the benefits and risks arise in the project are shared together.
Lastly, while the emergence of BOT in Asia especially in Malaysia particularly in the rail sector is still on its early stage which it gave developing countries the opportunity to shift forward project financing while addressing the infrastructure need of the economy. So, experiences on the utilization of BOT should then be constantly revisited for further better policies governing this strategic approach.
https://en.wikipedia.org/wiki/Build%E2%80%93operate%E2%80%93transferhttps://en.wikipedia.org/wiki/Joint_venturehttps://en.wikipedia.org/wiki/KLIA_Ekspreshttps://en.wikipedia.org/wiki/KLIA_Transithttps://www.kliaekspres.com/about-us/corporate/https://www.kliaekspres.com/about-us/maintenance/https://www.kliaekspres.com/about-us/train-maintenance/https://www.kliaekspres.com/2016/10/erl-unveils-new-klia-transit-train/https://www.kliaekspres.com/2016/07/erl-e-mas-supports-frog-classroom-makeover-project/https://www.kliaekspres.com/2017/09/prasarana-erl-launch-enhanced-kl-travelpass/http://waset.org/publications/5772/risks-and-mitigation-measures-in-build-operate-transfer-projectshttps://www.kliaekspres.com/about-us/the-erl-story/https://www.edgeprop.my/content/1050850/express-rail-link-facing-financial-woesArticle – The Edge Malaysia on Jan 23, 2017