Govt’s public-private partnership reforms quicken development, reduce costs

 

When Anwar Ibrahim announced that the economic reform agenda would begin in earnest this month he was not joking.

Major reform of statutory bodies has been quickly followed by a significant reform of public-private partnerships (PPP) to push momentum into development projects and help save costs.

PPP projects are an important way for the government to implement development projects at lower cost than taking in the project alone.

If they are implemented effectively the costs and benefits are shared with the private sector and the development infrastructure is provided quicker and cheaper for the benefit of the rakyat.

So the new PPP Master Plan 2030 (Pikas 2030) is timely and the reforms are learning lessons from the past.

Historically the impact of PPP was small, with only 510 projects creating around 1,200 jobs each on average. The contribution to GDP of RM50.5 billion is also small at less than RM100 million each over many decades since the start in 1991.

So the prime minister is right to be cautious about the potential impact but he is also right to emphasise that better designed PPP projects can add more value.

The expected RM78 billion increase in private investment, RM82 billion contribution to the GDP and the creation of 900,000 jobs by 2030 is ambitious but achievable, especially if it includes both federal and state level projects.

It will help state level development proportionately more because states have greater challenges with development investment.

The prime minister has also highlighted that any privatisation project must have a social dimension taking into account fair wages, housing and the education of workers’ children. These are features of responsible privatisation adding social issues to financial considerations in privatisation policy.

It also appears that the private sector will take the lead in PPP projects, which is important to allow projects to be market-driven and subject to commercial management incentives and constraints.

Good governance is the key to better projects because in the past PPP projects have suffered from wastage, leakages and corruption, or have failed, requiring government bail outs. So these lessons have been learned and are clearly there in the Pikas Master Plan 2030.

New PPP models such as redevelop/regenerate-operate-transfer (ROT) and build-redevelop/regenerate-operate-transfer (BROT) to be introduced under Pikas 2030 mean that projects need not be fully new but can rejuvenate existing infrastructure in priority areas such as health, education and social protection as well as infrastructure and housing.

This is a good strategy because it avoids building projects from scratch and makes implementation quicker. It also avoids dreaming up new projects when existing priority projects are already available.

To maximise social and economic impact quickly it is better to look at smaller projects and avoid mega projects because the financing, risks and management pitfalls are lower. The social and economic impact is therefore higher especially at the local level where it matters most.

For example, using PPP with a local builder to renovate a local school, clinic, hospital or public housing project is much more impactful than building a new township with a private property developer from scratch. As we have seen in the past many of these types of projects were not completed or remain unoccupied.

The key is to focus on small projects at the local level and not mega projects like high-speed rail (HSR).

Leave the mega projects to the large private sector companies and multinationals if they are feasible but help smaller companies join PPP projects at the local level to address immediate issues, supporting local companies that will employ local workers, keeping the value-added in local communities more effectively. - FMT

The views expressed are those of the writer and do not necessarily reflect those of MMKtT.