Public Private Partnershipsin Malaysia

12 September 2012

www.pwc.com

Background of PPP in Malaysia

“One form or another of PPPexisted since the 1980s as aresult of the world economicrecession that caused theGovernment to seek assistancefrom the private sector”

Under the 9th Malaysia Plan, the Government officially announced the implementation of public projects using the Public PrivatePartnership (PPP) or Private Finance Initiative (PFI) scheme. In 2009, a new unit under the Prime Minister’s Department knownas Privatisation and Private Finance Initiative Unit –PFI (currently known as Public Private Partnership - 3PU) was established .3PU is the core agency with the responsibility to coordinate the Privatisation and the Public-Private Partnership (PPP) projects

TheMalaysian

IncorporatedPolicy (1981)

PrivatisationPolicy (1983)

Guidelines onPrivatisation

(1985)

PrivatisationMaster Plan

(1991)

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3PU is the core agency with the responsibility to coordinate the Privatisation and the Public-Private Partnership (PPP) projectswhich have made an impact to the country’s economy.

Must make governmentprojects more efficient withrisk and rewards optimallyshared between the twoparties

To be used wheregovernment supportenhances viability ofprivate sector projects instrategic or promoted areas

Two formats for PPP:

Private sector constructassets/building and lease toGovernment for a specifiedfixed period

Private sector identifyprojects that are deemedeconomically viable andwould benefit the public to beexecuted via PPP scheme

At present, the Government isundertaking 52 projects in theconstruction stage with an estimatedvalue of RM62.7b. In line with theGovernment’s new approach based on thenew economic model in the 10th MalaysiaPlan, the Government is encouraging theprivate sector to invest in developmentproject whether through PPP or throughdirect investment of the private sector inthe country’s development programme.

The key themes of the current 10th

Malaysia Plan PPP initiative centeraround:

• Improvement of basic infrastructure• Upgrading of public transportation in

Greater KLSource: The Star Online, 2006

Two conditions for PPP:

Background of PPP in Malaysia (cont’d)Early major projects from inception

Infrastructure Early major projects

Roads 23 BOT*-style projects let between 1985 and 1997, usually with 25-year concessions

Ports 2 BOOT*-style projects in 1993 and 19953 Lease-sale projects in 1986, 1992 and 19943 Corporatisations in 1993 and 1994

Local Airports 19 Airports and 12 short take-off and landing ports under operation and management licences(1992) , normally with 30-year concessions

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International Airport 1 (Kuala Lumpur) under operation and management licence (1998), with a 50-year concession

Power 5 BOT-style projects let in 1995 – 1997, with 21-year power purchase agreements

Water Supply 3 BOT-style projects let in 1987 – 19892 Corporatisations in 1994

Sewerage 1 BOT-style project (1992**), with 28-year concession

Rail 3 BOOT-style projects (1992 – 1994, 2002)** with 60 + 60 year concessions

Source: Australian Journal of Public Administration, Development and Distortion of Malaysian Public-Private Partnerships – Patronage, Privatised Profitsand Pitfalls (2010)

* BOT – Build, Operate and TransferBOOT – Build, Operate, Own and Transfer

** The sewerage and three rail projects were subsequently re-nationalised

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Background of PPP in Malaysia (cont’d)Recent and upcoming PPP projects (2011 – 2015)

Sector Recent/Upcoming projects based on 10th Malaysia Plan 2011 – 2015

Roads Seven highway projects amounting to an estimated RM19billion, including:• West Coast Expressway• Guthrie-Damansara Expressway• Sungai Juru Expressway• Paroi-Senawang-KLIA Expressway• Ampang-Cheras-Pandan Elevated Highway

Rail andTransport

• Integrated Transport Terminal in Gombak, Selangor• Mass Rapid Transit (MRT) project in Greater Kuala Lumpur (RM40billion)• Kuala Lumpur – Singapore High Speed Rail of 400km (RM18.6billion – currently in feasibility stage)

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• East Coast Rail Route (RM29 billion – currently in feasibility stage)

Power • Two coal electricity generation plants (RM7billion)• 300-megawatt Combined-Cycle Gas Power Plant in Kimanis, Sabah (RM1.5billion)• Construction of the liquefied natural gas regassification by Petronas in Melaka (RM3billion)

Education • Perdana University, a joint venture between Academic Medical Centre Sdn Bhd and John HopkinsMedicine International as well as Royal College of Surgeons Ireland (RM2billion)

• Five Universiti Teknologi MARA (UITM) branch campuses• International Islamic University Malaysia Teaching Hospital in Kuantan (RM413million)

Port • Privatisation of Penang Port Sdn Bhd

Others • Development of Malaysian Rubber Board’s 3,300 acre land in Sungai Buloh, Selangor (RM10billion)• Redevelopment of the Angkasapuri Complex Kuala Lumpur as Media City• Kuala Lumpur Strategic Development by 1MDB; Sungai Besi Airport area• KL International Financial District in Kuala Lumpur (RM26 billion)• Two aluminium smelters in Sarawak Corridor of Renewable Energy (SCORE)

Source: Utusan Online, 2010

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Example PPP Projects Completed

Example 1: PLUS Expressways

PLUS Malaysia Berhad operates and maintains 973-kilometrelength of inter-urban expressways in Peninsular Malaysia,

including the North-South Expressway (NSE) stretching from theborder of Thailand to Singapore and others including the

Expressway Lingkaran Tengah (NSECL) linking Kuala Lumpur tothe Kuala Lumpur International Airport (KLIA), the Malaysia-

Singapore Second Crossing (MSSC), and the Penang Bridge linkingPenang Island to the mainland Peninsular Malaysia.

It is the first expressway to be implemented via PPP using the Build

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It is the first expressway to be implemented via PPP using the BuildOperate Transfer model in Malaysia. It was completed in 1988.

Example 2: Stormwater Management and RoadTunnel (SMART)

SMART is an initiative by the Government to alleviate theflooding problem in the KL city centre as well as being a trafficdispersal scheme. The project was completed in 2007 and theconstruction cost of RM1.9b is expected to be recovered via tollcollections within 40 years.

The project was implemented through a JV pact between MMCCorp Berhad and Gamuda Berhad with the Department ofIrrigation and Drainage Malaysia and the Malaysian HighwayAuthority as the executing government agencies.

Example 3: Westport

As part of the privatisation exercise by the Government in the early90s, Port Klang was subdivided into 3 terminals now known as

Northport, Southpoint and Westports.

With a current quay length of 3.2kilometres including 5 containerterminals, Westports remain a key seaport terminal for Malaysia,

responsible for providing storage, bunkering, cargo/freighthandling and other port related facilities.

As part of the Facilitation Fund of RM20billion which will be

Example PPP Projects Completed (cont’d)

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As part of the Facilitation Fund of RM20billion which will beprovided under the 10MP to help bridge the private sector viabilitygap with respect to projects that have a strategic impact and those

with huge economic spill over, land reclamation in Westport isbeing considered for financing under this fund.

Example 4: Privatisation of Penang Port

The 225-year old Penang Port which was previously owned by theMinistry of Finance was recently privatised to Seaport TerminalSdn Bhd.

The port has seen a drop in ranking to number five in the countryfrom number two in terms of throughput behind Port Klang,Northport, Westport and Port of Tanjung Pelepas. Privatisation hasbeen claimed as necessary to boost the port’s competitiveness,efficiency and ensure its long-term survival.

Example 5: KLIA Expres and KLIA Tansit

The KLIA Expres and Transit which commenced operations in2002 is a daily high-speed, non-stop air-rail connection betweenKuala Lumpur International Airport (KLIA) and Kuala LumpurCity Air Terminal (KLCAT).

Under the BOT model, the high-speed rail train is designed,financed, constructed, operated and maintained by Express RailLink Sdn Bhd (ERLSB) for a concession period of 30 years. TheConcession Agreement was signed between ERLSB and theMinistry of Transport in August 1997.

Example PPP projects (cont’d)

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Ministry of Transport in August 1997.

Example PPP Projects Under Construction

Example 1: Mass Rapid Transit (MRT)

This Project in Greater Kuala Lumpur (Klang Valley) is estimatedto involve private investment of RM40billion, and is the largestinfrastructure project in Malaysia. It was implemented frombeginning 2011 and expected to be completed by 2017.

The Land Public Transport Commission (LPTC) will be thesupervising and coordination agency, while project and assetowner Prasarana has appointed RapidKL as the system operatorand MMCG JV as the project delivery partner. The Ministry ofFinance is to set up a special purpose vehicle company as the

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Example 2: Electrified Double Track Ipoh-PadangBesar project

The Electrified Double Track Ipoh-Padang Besar project is a 329-km northern railway project that integrates with Keretapi TanahMelayu’s (KTM) main line from Ipoh to Johor Bahru. Whencompleted in 2013, the entire electrified dual tracks will stretch968-km from south to north of Peninsular Malaysia.

MMC-Gamuda Joint Venture Sdn Bhd is a joint venture companybetween MMC Corporation Berhad and Gamuda Berhad chargedwith construction of infrastructure works, track and system worksof the the Electrified Double Track Project on a 5-year Design andBuild Contract.

Finance is to set up a special purpose vehicle company as theinfrastructure’s funding entity.

Example PPP Projects Under Construction (cont’d)

Example 3: Perdana University

One of the recent most highlighted PPP projects in Malaysia, this is aRM2billion PPP project involving the tie-up between Perdana

University with John Hopkins University School of Medicine (JHU)and the Royal College of Surgeon Ireland (RCSI)

The project was initiated by the public-private partnership at thePrime Minister’s Department and Academic Medical Sdn Bhd (AMC).

Two agreements, between AMC and the JHU and John HopkinsMedicine International, and another formalising the collaboration

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Medicine International, and another formalising the collaborationbetween AMC and RCSI were signed last year.

Example 4: International Islamic UniversityMalaysia (IIUM) teaching hospital

The project will be developed by Ahmad Zaki Resource’s Berhad(AZRB), a wholly-owned subsidiary of Peninsular Medical SdnBhd (PenMedic) upon signing of the concession agreementbetween IIUM and AZRB.

The first hospital to be funded and built under the government’sprivate financing initiative (PFI), the project is expected to costaround RM413m. It comes with a concession period of 25 yearsincluding three years and six months for construction, under adesign, build, lease, maintain and transfer basis.

Example 5: Combined-cycle gas power plant inKimanis, Sabah

The objective of this 300-megawatt power plant is to increaseelectricity generation capacity to meet rising demand . Oncecompleted, the Kimanis Power Plant will be the biggest IPP plantin Sabah.

The power plant costs about RM1.5billion to build and it is ownedby Kimanis Power Sdn Bhd (KPSB), a 60:40 joint venture initiativebetween Petronas Gas Berhad and NRG Consortium (Sabah) SdnBhd, a company under Yayasan Sabah.

Example PPP Projects Under Construction (cont’d)

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Bhd, a company under Yayasan Sabah.

Example PPP projects in Planning Stage

Example 1: West Coast Expressway (WCE)

In January 2012, KumpulanEuroplus Bhd has been awarded a60-year concession by the Public Private Partnership Unit of the

Prime Minister’s Department to build the West CoastExpressway from Banting, Selangor, to Taiping, Perak, at a cost

of RM7.07 billion.

The 316km road project will be undertaken on a Build, Operate,Transfer basis by Europlus’s 64% owned subsidiary, West Coast

Expressway Sdn Bhd, and will be backed by a governmentsupport loan of RM2.24billion .

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support loan of RM2.24billion .

Example 2: Kuala Lumpur International FinancialDistrict (KLIFD)

The KLIFD is a key enabler to strengthen the position of KualaLumpur as the global financial city of choice, transforming Kuala

Lumpur into an international hub for banking and finance as wellas related professional services.

Valued at RM26billion, this project have been implemented from2011 by 1Malaysia Development Berhad (1MDB) in collaboration

with Mubadala Development Company, an investment arm of theGovernment of Abu Dhabi.

PwC Contact Details

Andrew CHAN Yik HongExecutive Directorandrew.yh.chan@my.pwc.comT: +60 (3) 2173 1219

PricewaterhouseCoopersCapital Sdn. Bhd.

Level 10, 1 Sentral, Jalan TraversKuala Lumpur Sentral

P O Box 1019250706 Kuala Lumpur, Malaysia

www.pwc.com/myT: +60 3 2173 1188F: +60 3 2173 1288

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Kay-Li KIMAssociate Directorkay-li.kim@my.pwc.comT: +60 (3) 2173 1286

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Thank you

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