PRIVATE FINANCE INITIATIVE (PFI) IN MALAYSIA: THE NEED FOR AND ISSUES RELATED TO THE PUBLIC SECTOR COMPARATOR (PSC)
PRIVATE FINANCE INITIATIVE (PFI) IN MALAYSIA: THE NEED FOR AND ISSUES RELATED TO THE PUBLIC SECTOR COMPARATOR (PSC)
Suhaiza Ismail
Assistant Professor, Department of Accounting International Islamic University Malaysia
suhaiza@ iiu.edu.m y
Khairuddin Abdul Rashid
Professor, Department of Accounting
International Islamic University Malaysia
Abstract
The Concept of Private Finance Initiative (PFI) or Public Private Partnership (PPP) has been internationally implemented over the last two decades. In Malaysia,
e v e n t h o u g h t h e i n v o l v e m e n t o f t h e p r i v a t e s e c t o r in a s s i s t i n g w i t h t h e p r o v i s i o n o f p u b l i c s e r v i c e s a n d f a c i l i t i e s is n o t n e w , o n l y r e c e n t l y u n d e r t h e N i n t h M a l a y s i a Plan the government officially announced the implementation of projects using P F I s c h e m e in o r d e r t o p r o m o t e g r e a t e r i n v o l v e m e n t o f t h e p r i v a t e s e c t o r in delivering public services (Ninth Malaysia Plan, 2006). Consequently, a series of PFI projects is now being implemented including some already under construction.
H o w e v e r , l i t t l e is k n o w n o n t h e r e a l n a t u r e o f th e M a l a y s i a n P F I . O n e o f t h e a s p e c t s
c o n s i d e r e d c r i t i c a l in t h e i m p l e m e n t a t i o n o f a P F I p r o j e c t i s t h e n e e d f o r a p u b l i c s e c t o r c o m p a r a t o r ( P S C ) to d e m o n s t r a t e t h a t t h e p r o j e c t c a n a c h i e v e v a l u e f o r money through comparing the public sector comparator (PSC) with the bid or bids s u b m i t t e d b y th e p r i v a t e s e c to r . T h e s t u d y b e i n g r e p o r t e d h e r e i n f o c u s e s o n t h e
c o n c e p t o f P F I a s p r a c t i c e d in M a l a y s i a a n d t h e c o n s t r u c t i o n o f a P S C . G i v e n t h a t u n d e r th e M a l a y s i a n P F I , t h e P S C is y e t t o b e e s t a b l i s h e d t h e r e i s a n u r g e n t n e e d f o r o n e to b e c o n s t r u c t e d . I n a d d i t i o n , c r i t i c a l i s s u e s c o n c e r n i n g t h e t r a n s f e r o f r i s k s a n d
th e d e t e r m i n a t i o n o f d i s c o u n t r a t e a r e a l s o d i s c u s s e d . T h e s t u d y c o m b i n e s l i t e r a t u r e r e v i e w o n P F I a n d i n t e r v i e w s w i t h c i v i l s e r v a n t s i n v o l v e d in t h e i m p l e m e n t a t i o n o f P F I in M a l a y s i a .
Keywords: P r iv a t e F i n a n c e I n i t i a t i v e ( P F I ) , v a l u e f o r m o n e y ( V F M ) , P u b l i c
138 J u r n a l A k u n t a n s i d a n K e u a n g a n I n d o n e s i a , D e s e m b e r 2 0 0 7 , V o l.4, N o . 2 , h a l. 1 3 7 - 1 5 4
INTRODUCTION
T h e term s o f P riv ate F in an ce In itiativ e (P F I), P u b lic P riv ate P a rtn e rsh ip (P P P )
a n d P riv a te ly P ro cu red In frastru c tu re (P P I) h av e b e en in c re asin g ly u sed in m a n y
c o u n trie s. A lth o u g h d ifferen t term s are u sed , the c o m m o n g e n eral c o n c e p t is a b o u t th e c o lla b o ra tio n b e tw e e n th e p riv ate an d p u b lic secto rs w ith th e p riv a te sec to r
h a v in g sig n ifican t re sp o n sib le in d e liv e rin g p u b lic services. T h is p o licy h as b e en in te rn a tio n a lly im p le m e n te d o v er th e la st tw o decad es. It offers a n a lte rn ativ e to the
c o n v e n tio n a l p ro c u re m e n t o f p u b lic serv ice in frastru c tu re an d serv ices.
F o r a ty p ic a l P F I/P P P sch e m e th ere are sev eral u n iq u e c h a ra c te ristic s su ch as: i.
Service focus - th e m a in d ifferen c e is in the c h an g e from c o n sid e rin g b u ild in g s
a n d in frastru c tu re as ‘a ss e ts ’ to ‘se rv ic e s’ p ro v id e d by th e p riv a te secto r;
ii. . Ownership - th e b u ild ir gs are ty p ic a lly o w n ed b y the p riv a te sec to r d u rin g th e p e rio d o f th e c o n tra c t an d le ase d b a ck to the p u b lic sec to r clien t;
iii. .Risk transfer - so m e o f the risk asso c iate d w ith th e p ro je c t m u st be tra n sfe rre d to th e p riv a te sector. T h e d e term in in g facto r o f risk tra n sfe r is to tra n s fe r ris k to th e p a rty w h o c o u ld b e st m a n a g e it;
iv. Innovation - a n o u tp u t sp ecificatio n is u sed in w h ic h p u b lic secto r c lie n ts sp ecify th e ir re q u ire m e n ts in term s o f th e services req u ired . T h e n , it is u p to th e p riv a te se c to r b id d e r to c o m e u p w ith a d esig n th at m e e ts th e p u b lic s e c to r c lie n t’s re q u ire m e n ts. T h u s, it g iv es g re a ter flexibility to the p riv ate se c to r p ro v id e r to
a d o p t in n o v a tio n w h ic h leads to v alu e for m o n e y (V F M ) o p tim iz a tio n ;
v. Performance - th e p a y m en t to th e p riv ate c o n so rtiu m is b a se d o n th e e x te n t th a t th e re q u ire d serv ice is d e liv e re d and the c lie n t’s sta n d a rd p e rfo rm a n c e re q u ire m e n ts are m e t (B a ll et al. 2001 an d T u rn er & T o w n se n d M a n a g e m e n t
S o lu tio n s 2 002).
In M ala y sia, e v e n th o u g h th e in v o lv e m e n t o f th e p riv ate sec to r in a ssistin g w ith th e p ro v is io n o f p u b lic serv ice s an d facilities is n o t new , o n ly re c e n tly u n d e r th e N in th M a la y sia P lan th e g o v e rn m e n t h as officially a n n o u n ce d th e im p le m e n ta tio n
o f p ro je c ts u sin g P F I sch em e in o rd e r to p ro m o te g re a ter in v o lv e m e n t o f th e p riv a te s e c to r in d e liv e rin g p u b lic serv ice s (N in th M a la y sia P la n 2 0 0 6 ). E v e n th o u g h th e first P F I p ro je c t is n o w u n d e r co n stru ctio n , little in fo rm atio n is p u b lic ly a v a ila b le o n th e tru e n a tu re o f P F I in M alay sia. T h is study th e re fo re aim s at e x p lo rin g th e c o n c e p t o f M a la y sia n P F I by c o n d u c tin g in -d e p th in te rv ie w s w ith th e re le v a n t o fficers w h o
a re in v o lv e d in e x ec u tin g P F I p ro jects. T h e p rin c ip a l aim fo r im p le m e n tin g P F I is to p ro v id e an im p ro v ed fo rm o f p u b lic p ro c u re m e n t w h ic h u n d e r rig h t circ u m stan c es co u ld y ie ld im p ro v e d efficien cy
I s m a i l, R a s h id , P r i v a t e F i n a n c e I n i t i a t i v e ( P F I ) I n M a l a y s i a : T h e N e e d f o r 139
In o th e r w o rd s, fo r a p ro je c t to g o a h ead w ith a PFI o p tio n , it n eed s to d e m o n strate
b e tte r v alu e fo r m o n ey w h en c o m p arin g the p riv a te se c to r b id s w ith a d e ta ile d p u b lic s e c to r c o m p a ra to r (P S C ) (T reasu ry T ask fo rce 1997). In a sse ssin g V F M o f a p ro ject, P S C is o n e o f th e cru cial elem en ts to be co n sid e re d . F ro m M a la y sian co n tex t,
e v en th o u g h the g o v e rn m e n t ack n o w le d g e s th e im p o rtan c e o f V F M a sse ssm e n t in im p le m e n tin g P F I p ro jects, a ro b u st P S C fram e w o rk is y e t to b e e sta b lish e d (N in th M a la y s ia P lan 2 006). R ealizin g the sig n ifican ce o f h av in g a v alid P S C to a cc u ra te ly asse ss V F M , this study also a ttem p ts to d e v elo p an a p p ro p ria te fra m e w o rk o f PS C th a t su its th e M ala y sian e n v iro n m en t. H o w ev er, at th is v e ry initial stag e th e study o n ly fo cu ses on the p rin c ip le c o m p o n en ts o f P S C m o d els fo r PFI p ro je c ts e sta b lish e d
in d iffe re n t co u n trie s p a rtic u la rly the U K , A u stra lia, an d C an ad a. T h e in fo rm atio n w as o b ta in e d th ro u g h a th o ro u g h rev iew th e o fficial d o c u m e n ts o n P S C c o n stru c tio n o f th e se cou n tries.
T h is p a p e r is stru ctu red as fo llo w s. S ec tio n 2 d isc u sse s the c o n c e p t o f p riv a te fin an ce in itia tiv e (P F I) in M alay sia. S ectio n 3 o ffers in fo rm a tio n on th e p u b lic sec to r
c o m p a ra to r su ch as its d efin itio n , im p o rtan c e a n d also b rie f o f c o m p a riso n P S C ’s
c o m p o n e n ts b e tw ee n co u n tries. T h en , the fo llo w in g sec tio n (S ec tio n 4 ) d iscu sses th e c o n tro v e rsia l issu es c o n c e rn in g the c o n stru c tio n o f a P S C . A sp ec ia l re fe re n ce w a s m a d e to th e situ a tio n e x p erien c e d by th e U n ite d K in g d o m . F inally, S ectio n 5 s u m m a riz e s and c o n clu d e s th e fin d in g s o f th is study.
THE PRIVATE FINANCE INITIATIVE IN MALAYSIA
PFI is an e ssen tial e co n o m ic p o lic y th at h a s b een g lo b a lly a d o p te d as it is the
c u rre n t tre n d to w a rd s g re a ter p riv a te sec to r in v o lv e m e n t in th e m a n a g e m e n t, d e liv e ry an d fin a n c in g o f p u b lic serv ice s (D ix o n et al. 2 0 0 5 ). It is a m ean s c f u sin g p riv a te fin an ce an d sk ills to pro v id e p u b lic serv ices w h ic h w e re tra d itio n a lly p ro v id e d by th e p u b lic sector. In th e p u re st fo rm o f P F I c o n tra c t th e p riv a te se c to r is re sp o n sib le fo r
d e sig n in g , b u ild in g , fin a n c in g a n d o p e ra tin g fa c ilitie s b a se d o n o u tp u t s p ec ific a tio n s
d e te rm in e d by the p u b lic sector. In effect, th e p u b lic se c to r d o es n o t o w n th e a sse ts
b u t h a s th e o b lig atio n to m ak e re g u ia r p a y m e n ts to th e p riv a te se c to r p ro v id e rs fo r th e u se o f facilities th ro u g h o u t the c o n tra c t p e rio d o f n o rm a lly 25 to 3 0 y e ars (H e a ld 1997; H all 1998 an d B ro a d b e n t an d L au g h lin 1999). T h e in v o lv e m e n t o f the p riv ate se c to r in d e liv e rin g p u b lic facilities an d serv ic e s is n o t n e w in M alay sia. It ex isted sin ce m id 1 9 80s as a re su lt o f th e a d v erse im p a c t o f th e w o rld e co n o m ic recessio n th a t c au se d g o v e rn m e n t to see k a ssista n c e fro m p riv a te se c to r fo r the d e v e lo p m e n t and e co n o m ic a ctiv itie s o f th e country. M a la y sia n
in c o rp o ra te d and p riv atizatio n are a m o n g the e c o n o m ic p o lic ie s in tro d u ce d to fo s te r
140 J u r n a l A k u n t a n s i d a n K e u a n g a n I n d o n e s ia , D e s e m b e r 2 0 0 7 , Vol. 4, N o .2 , h a l. 1 3 7 - 1 5 4
P riv a tiz a tio n is o n e o f a v ital co m p o n en t o f th e g o v e rn m e n t’s e co n o m ic p o lic ie s w h ic h a im s a t red u c in g the g o v e rn m e n t’s a d m in istra tiv e and fin an cial bu rd en s. T he M a la y s ia n g o v e rn m e n t officially e m b a rk e d o n p riv a tiz a tio n in 1983. T h e p o licy w as
a im e d at fo ste rin g g re a ter in v o lv e m e n t o f th e p riv ate sec to r in d e liv e rin g p u b lic s e c to r p ro jects. G enerally, p riv a tiz a tio n has b e en defined as th e tra n sfe r o f e n terp rise o w n e rsh ip fro m th e p u b lic to th e p riv a te sector. K ay e t al. (1 9 8 6 , 2) iden tified th re e
in te rre la te d p o lic ie s u n d e r the u m b re lla o f th e p riv a tiz a tio n p ro g ram . T h e se in clude: 1.
D e n atio n a liz a tio n : th e sale o f th e p u b lic a sse ts to the p riv a te s ec to r; 2. L ib era lisa tio n o r d e re g u la tio n - th e o p e n in g o f th e state a ctiv itie s to p riv a te sec to r co m p e titio n and
3 ) c o n tra c tin g -o u t or fra n c h isin g - th e c o n tra ctin g ou t o f p u b lic p ro v isio n to p riv a te firm . F ro m th e M a la y sian c o n tex t, th e sco p e o f p riv a tiz a tio n is e v e n b ro a d e r (Jo m o
a n d S y n 2 0 0 3 ). T h e v a rio u s m o d e s o f p riv a tiz a tio n ap p lied in M a la y sia in c lu d e i) sa le o f e q u ity ; ii) sale o f assets; iii) le a se o f assets; iv) m a n a g e m e n t c o n tra ct; v)
B u ilt-O p e ra te -T ra n s fe r (B O T ) an d v ii) m a n ag em en t b u y -o u t (E co n o m ic P la n n in g U n it 2 0 0 6 ). T h e g o v e rn m e n t re p o rte d p o sitiv e o u tco m es from p riv a tiz a tio n p o lic y in
h e lp in g th e g o v e rn m e n t to re d u c e fin an cial an d a d m in istra tiv e b u rd en an d a lso to im p ro v e e ffic ie n cy in th e p ro v isio n o f p u b lic serv ices (Jo m o an d S yn 2 0 0 3 ; and S id d iq u e e 2 0 0 6 ). It w as re p o rte d in th e E ig h t M alay sia P lan th a t m o re th a n R M 2 8
b illio n o f th e g o v e rn m e n t’s c ap ital e x p e n d itu re w as sav ed as a re su lt o f p riv a tiz a tio n (E ig h t M a la y s ia P la n 2 001). S u b seq u en tly , in stre n g th e n in g th e ro le o f th e p riv ate se c to r as th e e n g in e o f
g ro w th , th e P riv ate F in an ce In itia tiv e (P F I) sch em e w a s u n v e ile d in M a la y sia u n d e r th e re c e n t N in th M ala y sia P la n (9 M P ). T h e PFI is fo rm ally d efin ed in th e N in th M a la y sia P la n re p o rt (2 0 0 6 ) as:
'the transfer to the private sector the responsibility to finance and manage
a package of capital investment and services
including the
construction,
management, maintenance, refurbishment and replacement of the public sector assets which creates a stand alone business. The private sector will create the asset and deliver a service to the public sector client. In return, the private sector will receive payment commensurate with the levels, quality and timeliness of the
service provision throughout the concession period' (Ninth Malaysia Plan, 2006)
In b rief, u n d e r the P F I p ro je c t, the p riv a te sec to r fu n d s an d b u ild s th e a sset, w h ile it is th e o b lig a tio n o n th e p a rt o f th e g o v e rn m e n t is to p u rc h a se a flo w o f s erv ice s o v e r tim e ra th e r th a n th e cap ital asse t th a t p ro v id e s th e services.
T h e p rin c ip a l o b je c tiv e fo r e m b ark in g o n PFI in M a la y sia is to rev ise a n d to im p ro v e o n th e im p le m e n ta tio n p ro c e ss o f th e ex istin g p riv a tiz a tio n p o licy (N in th M a la y sia P lan 2 0 0 6 ). A s ta b le d in th e 9M P, the PFI w ill be e m p lo y e d fo r
I s m a il , R a s h i d , P r i v a t e F i n a n c e I n i t i a t i v e ( P F I ) I n M a l a y s i a : T h e N e e d f o r 141
u tiliz e d i f it c o u ld m ak e g o v e rn m e n t p ro je c ts m o re efficien t, w h e re risk s an d re w a rd s are o p tim a lly sh ared b e tw ee n th e g o v e rn m e n t and th e p riv a te sector. S e c o n d ly , PFI
is to b e u s e d w h e re g o v e rn m e n t su p p o rt e n h an c e s th e v ia b ility o f th e p riv a te sec to r p ro je c ts in stra te g ic or p ro m o ted a reas (N in th M ala y sia Plan 2 0 0 6 ).
In a sp ee c h by th e S eco n d F in a n c e M inister, Tan Sri N o r M o h am e d Y akcop at th e P riv a te F in a n c e In itiativ e S e m in a r w h ich w as h eld o n th e 10th N o v e m b e r 2 0 0 6 ,
h e said th at:
' .. in t h e M a l a y s i a n c o n t e x t , w e v i e w P F I in t h e b r o a d e s t o f t e r m s , a s c a p t u r i n g a wide spectrum of options that lie between the two extremes of privatizations and
government project
F ro m th e in te rv ie w s w ith th e g o v e rn m e n t o fficials c o n d u c te d b y th e research er, it is u n d e rs to o d th a t th ere are tw o fo rm ats o f PF I sch em es in M alay sia. T h is sim ila r in fo rm a tio n h a s also b een a n n o u n ce d by th e P rim e M in iste r o f M ala y sia, D a tu k S eri
A b d u lla h A h m a d B ad aw i an d w as re p o rted in th e local n e w s p a p e r (T h e S tar O n lin e,
2 0 th Ju ly 2 0 0 6 ). In th e first fo rm at, th e p riv a te sec to r w o u ld c o n stru ct th e a sse t o r b u ild in g and le a se s it to th e g o v e rn m e n t fo r a specified fixed p e rio d o f tim e. A sp ecial p u rp o s e v e h ic le (S P V ) n a m ed P F I S dn. B hd. h as b een set u p to ta k e o n th e re sp o n sib ility fo r im p le m e n tin g th e PFI p ro je c ts u sin g th is form at. T h is S P V is w h o lly o w n e d su b sid ia ry o f th e M in istry o f F in a n c e. T h e P F I Sdn. B hd. is a c c o u n ta b le fo r e x e c u tin g
g o v e rn m e n t’s iden tified p ro jects. E ssen tially , th e p ro je c ts are m a in ly th e in itial 425 p ro je c ts th a t w o rth R M 2 0 billio n w h ic h h av e been id en tified by th e g o v e rn m e n t to
b e d e liv e re d v ia th is fo rm a t o f P F I u n d e r th e 9M P. In te rm s o f fin an ce, th e E m p lo y e e s P ro v id e n t F u n d (E P F ) h a s b e e n re q u ire d by th e g o v e rn m e n t to p ro v id e loan to th e SPV. T h e S P V (i.e. P F I Sdn. B h d ) w ill u tiliz e th is a llo c a tio n fro m E P F to fin an ce th e sele c ted c o n tra cto rs fo r th e c o n stru c tio n o f th e a sse ts. O n ce th e assets h a v e b e en b u ilt an d re a d y fo r o p e ra tio n , th e S P V w ill
lease th e a ssets to the F ederal L and C o m m issio n e r (F L C ) w h ic h acts as a m id d le m an b e tw e e n th e m in istry w h ic h h as re q u e ste d for the p ro je c t and th e SPV. In re tu rn ,
th e re le v a n t m in istry (i.e. th e g o v e rn m e n t) w ill p a y lease c h arg es to th e S P V th ro u g h th e F e d e ra l L and C o m m issio n er. T h ro u g h o u t th e c o n tra ct th e S P V w ill o w n th e
a sse ts an d w ill serv ice th e loans g iv e n by th e EPF. A fte r th e e x p iry o f th e c o n tra c t p e rio d s , th e assets w ill b e tra n sfe rre d to th e g o v e rn m e n t a t n o cost.
D u rin g th e in te rv ie w s th e re sea rc h ers w ere in fo rm ed th a t in c o n tra st to th e first fo rm at, th e se c o n d fo rm at req u ire s th e p riv a te sec to r to id e n tify th e p ro je c ts th a t are
d e e m e d to b e e co n o m ic a lly v ia b le and w o u ld b en efit th e p u b lic to b e e x e c u te d v ia P F I sch e m e s. U n d e r th is fo rm at the p riv a te sec to r co n ce ssio n is fu lly re sp o n sib le fo r
142 J u r n a l A k u n t a n s i d a n K e u a n g a n I n d o n e s ia , D e s e m b e r 2 0 0 7 , Vol. 4, N o . 2, h a l. 1 3 7 - 1 5 4
fo rm at o f P F I is s im ila r to the p u re st form o f PFI th at w as p re d o m in a te d in the U K sin ce 1992. A n ex am p le o f p ro je c t c a rrie d ou t u sin g th is form is the S eco n d P en an g
B rid g e p ro je c t w h ich h as b e e n a w a rd e d to U E M G roup. T h e 24 k m b rid g e w h ich w ill c o n n e c t B atu K a w a n in S e b e ra n g Perai and B atu M au n g on the islan d w ith an
e s tim a te d c o st o f R M 2 .8 b illio n is c u rre n tly u n d e r co n stru ctio n (T h e S ta r O n lin e, 3
A u g u st 2 0 0 6 ). T h e b u lle t train b e tw ee n K uala L u m p u r an d S in g ap o re p ro je c t w h ic h is c u rre n tly u n d er g o v e rn m e n t c o n sid e ra tio n is a n o th e r ex am p le o f p ro je c t o f this P F I fo rm at.
O v e rall, PF I in M a la y sia is a n e w a n d u n iq u e m e ch an ism u nlike o th er
c o n c e s sio n s th at h a v e b e en u sed in th e past. A s it is still at th e early sta g e o f PFI im p le m e n ta tio n , a c o n sta n t re v ie w a n d rev isio n to the cu rre n t PFI a rra n g e m e n t in sh o u ld b e w e lc o m e d to im p ro v e th e g o v e rn m e n t’s ap p ro ach to PFI in a ch ie v in g the o b je c tiv e o f in tro d u cin g th e b e st o f p riv a te se c to r s'cills an d pra c tice s to c o n trib u te to
a h ig h e r su sta in a b le level o f d e v e lo p m e n t an d eco n o m ic g ro w th o f th e country. A lso , th e g o v e rn m e n t sh o u ld see k ad v ice fro m P F I ex p erts b oth locally o r in tern a tio n a lly o n th e c ritic a l asp ects o f PF I im p le m e n ta tio n th at are still lack in g su ch as th e p ro p e r
p ro c u re m e n t p ro c e d u re s an d th e c o n stru c tio n o f p u b lic sec to r c o m p a ra to r th at is cru c ia l fo r th e a sse ssm e n t o f v alu e fo r m o n e y o f PF I p ro je c ts since. A s M a la y sia is
y e t to d e v e lo p a P S C , th e fo llo w in g sec tio n p ro v id e s in fo rm atio n a b o u t P S C to g e th e r w ith a b r i e f an aly sis o n the c o m p ariso n o f PS C b e tw ee n th ree c o u n trie s (i.e. U n ited
K in g d o m , A u stra lia an d B ritish C o lu m b ia ). A lso , d e b ata b le issu es on th e re lia b ility o f P S C a re d iscu ssed in the s u b se q u e n t section.
THE PUBLIC SECTOR COMPARATOR (PSC)
A P S C is d efined as ‘a h y p o th e tic al risk -a d ju sted co stin g , by th e p u b lic sec to r
a s a su p p lier, to an o u tp u t sp ecificatio n p ro d u c e d as p a rt o f a PF I p ro c u re m e n t
e x e r c is e ’. It is e x p re sse d in p re s e n t v alu e term s an d is based o n the re c e n t actu al p u b lic s e c to r m eth o d o f p ro v id in g th e defin ed o u tp u t w h ic h in v o iv e s the e stim a tio n o f th e c o n stru c tio n co sts, ru n n in g co sts an d m o re c ru c ially th e v alu e o f risk to b e tra n s fe rre d to th e p riv a te s e c to r (H M T rea su ry 1999).
T h e o b je ctiv e o f a P S C is to p ro m o te full co st p ric in g at an early stag e in th e p ro c u re m e n t p ro cess. A lso , it acts as a b e n ch m ark an d ev alu a tio n tool in e n su rin g
e ffic ie n cy o f the p ro c u re m e n t p ro c e ss. A P S C is re q u ire d fo r th e a sse ssm e n t o f th e v a lu e fo r m o n e y (V F M ) o f a PFI p ro ject. A p ro je c t n eed s to p ro v e as p ro v id in g
b e tte r b e fo re it can b e d e liv e re d v ia PF I. V F M is a sse sse d b y c o m p arin g the c o sts o f th e p ro p o s e d P F I p ro je c t a g ain st a p u b lic sec to r c o m p a ra to r (P S C ). A p ro je c t is
c o n sid e re d to p ro v id e g o o d V F M i f th e n et p re se n t v alu e o f th e PFI b id is lo w e r
I s m a il , R a s h i d , P r i v a t e F i n a n c e I n i t i a t i v e ( P F I ) I n M a l a y s i a : T h e N e e d f o r
Jerem y C o lem an , th e A u d ito r G e n era l o f th e U K N a tio n a l A u d it O ffice (N A O ). H e states that:
‘T h e P u b l i c S e c t o r C o m p a r a t o r ( P S C ) i s a k e y p a r t o f t h e f i n a n c i a l e v a l u a t i o n o f proposed PFI project. The PSC is an important guide to judgment of the overall
VFM of a PFI project.'(HM Treasury, 1999).
M o re im p o rtan tly , th e d e riv a tio n o f PS C is c o m p le x becau se it ta k e s into
c o n sid e ra tio n th e q u a lita tiv e fa c to rs su ch as risk s in v o lv e d and ty p e s an d q u a lity o f serv ices p ro v id e d ra th e r th a n c o n c e n tra tin g only on th e q u a n tita tiv e fa cto rs (T re asu ry T a sk fo rce 1999: p ara. 2 .3 .3 ). T h e U K T rea su ry T ask fo rce (1998: p ara. 2 .2 .1 ) c laim s th a t th e p ro c e ss o f b u ild in g a P S C in e v ita b ly fo cu ses o nly on th e fa cto rs th a t can
easily be q u an tified an d e x p re sse d in m o n e ta ry te rm s. O th e r fa c to rs, n o tab ly risk tran sfer, serv ice q u a lity a n d w id e r p o lic y o b jectiv es a re less e asy to q u a n tify an d
m ay n o t b e fully reflected in th e c o m p arato r. D u e to th e lim itatio n s in v o lv e d , th e T rea su ry T a sk fo rce (1 9 9 8 : p ara. 2 .2 .4 ) h ig h lig h ts th a t a P S C th a t is lo w e r th a n th e P F I b id sh o u ld n o t a lw ay s im p ly a u to m a tic reje ctio n o f th e P F I bid.
In o th er w o rd s, in s e e k in g fo r a m o re a n a ly tic a lly rig o ro u s V F M a p p raisal m e ch a n ism , V F M sh o u ld n o t b e c o n sid e re d as a p ass o r fail te st b e fo re all o th e r n o n -q u a n tifiab le fa c to rs w h ic h in v o lv e b o th th e b en efits an d co sts o f th e o p tio n h a v e
b een ta k e n into a cc o u n t (T re asu ry T a sk fo rc e 1999). A stu d y on P F I V F M a sse ssm e n t by M u m fo rd (1 9 9 8 ) id en tified six so u rces o f c o st sav in g th a t co u ld be a c h ie v e d from P F I c o n tra cts as c o m p a re d to c o n v e n tio n al p ro c u re m e n t p ro je c ts w h ic h m ig h t
h elp to a c h ie v e V F M . T h e se in clu d e: i. c lea re r d e fin itio n an d sp ec ific a tio n o f u s e r n eed s; ii. m o re c a refu l lifetim e d e sig n an d co stin g b y th e c o n stru cto r; iii. sp e e d ie r
c o n stru c tio n and c o m m issio n in g ; iv. M o re effe ctiv e m o n ito rin g o f c o n tra c ts; v. in c en tiv es th a t b e tte r alig n e ffo rt w ith risk and re w ard s; an d vi. d e c isio n m a k in g th a t b e tte r e x p lo its a ss e t co m p atib ility . M o reo v er, th e study b y A rth u r A n d e rse n and E n te rp rise L S E (2 0 0 0 : 18-19) w h ic h w as c o m m issio n e d b y T rea su ry T ask fo rc e id en tified six k ey d riv e rs to V F M as fo llo w : risk tra n sfe r, o u tp u t b ased sp ecificatio n , lo n g te rm n a tu re o f c o n tra ct, p e rfo rm a n c e m e a su re m e n t a n d in c en tiv es, c o m p e titio n and p riv a te sec to r m a n a g e m e n t skills.
D e sp ite th e n eed to c o n sid e r th e q u a lita tiv e facto rs, P S C re m a in s c ru c ia l in u n d e rta k in g V F M a sse ssm e n t. In M a la y sia , th e P S C is y e t to b e c o n stru cte d . T h is w as a c k n o w le d g e d in th e N in th M a la y sia P lan re p o rt as follow s:
“A s t h e e v a l u a t i o n a n d p r o c u r e m e n t p r o c e s s i n v o l v e d in i m p l e m e n t i n g P F I w i l l
be more elaborate, particularly the need to be clear about output specifications,
maintenance, performance indicators and distribution of risks,
an ejfective
enabling framework for implementation will be developed. In this regard, steps w i l l b e u n d e r t a k e n t o e s t a b l i s h t h e p u b l i c s e c t o r c o m p a r a t o r in e v a l u a t i n g t h e
proposals and determining the value Jor money as compared to the conventional
144 J u r n a l A k u n t a n s i d a n K e u a n g a n I n d o n e s i a , D e s e m b e r 2 0 0 7 , V o l.4 , N o .2 , h a l. 1 3 7 - 1 5 4
W h en c o n stru ctin g a PS C fo r M ala y sian PFI p ro ject, th e g o v e rn m e n t sh o u ld
c o n sid e r in c o rp o ra tin g b o th th e q u a n tita tiv e an d q u a lita tiv e fa cto rs so th a t a m o re re lia b le V F M a p p raisal o u tc o m e is o b tain ed . In c o n trib u tin g to w a rd s th e p ro c e ss o f
e sta b lish in g a m o d el o f P S C fo r PF I p ro je c ts in M alay sia, th is p a p e r briefly an aly se s th e key c o m p o n en ts o f a P S C w ith re fe re n ce to the P S C e sta b lish e d o th e r co u n tries p a rtic u la rly in th e U K , C an a d a , an d A u stralia.
A c o m p re h e n siv e re v ie w o f re le v an t d o c u m en ts o n P S C d e v e lo p m e n t in the U K , A u stra lia an d C a n a d a re v e a le d th a t th e re are th re e c o m m o n c o re c o m p o n en ts o f a PSC . T h e se in c lu d e b a se co stin g , tran sfe rre d risk a n d re ta in e d risk as in d icated in F ig u re 1. F o r the P S C in A u stra lia, c o m p etitiv e n e u tra lity is ex p lic itly c o n sid e re d
a s a n o th e r k e y co m p o n en t. Competitive neutrality
a d ju stm en ts re m o v e any net
c o m p e titiv e ad v an ta g e s th a t a cc ru e to a g o v e rn m e n t b u sin ess b y v irtu e o f its p u b lic o w n e rsh ip . T h is is to allo w a fa ir a n d e q u ita b le a sse ssm e n t b e tw e e n a P S C and PFI p riv a te b id d e rs (P P P V ic to ria 2 0 0 1 ). E x a m p le s o f co m p etitiv e n e u tra lity ad ju stm en ts
a re in su ra n ce co sts fo r a ssets an d serv ices th a t are ty p ic a lly n o t in su re d b y a p u b lic s e c to r e n tity as it w as d e e m e d fro m a risk m a n a g e m e n t p e rsp e c tiv e to s e lf in su re the
fa c ilitie s. F o r P S C in C an a d a , th is is called h id d e n o r a ssu m e d c o st a n d co n sid e re d
a s p a rt o f a n in d irec t c o st e le m e n t o f th e b a se co stin g .
B a se d c o stin g is th e e stim a tio n o f th e b a sic p ro c u re m e n t co sts w h ic h co v ers
c ap ital co sts a n d o p e ra tin g costs. C ap ital co sts are co sts n eed ed to c o n stru c t o r b u ild th e facility. T h ese in clu d e co sts in cu rred fo r th e d esig n , c o n stru ctio n , p u rc h a se o f lan d , m a te ria l, an d p la n t a n d eq u ip m e n t. B asically, c ap ital c o st re p re se n ts a h u g e
Figure 1 Comparison between PSC and PFI
Expected
cost ($)
Transferred risk
N et present value o f
Based costing
service
payments
Retained risk
Retained risk
Options
PSC
PFI
I s m a il , R a s h i d , P r i v a t e F in a n c e I n i t i a t i v e ( P F I ) I n M a l a y s i a : T h e N e e d f o r 145
c o st c o m p o n e n t o f a P S C . T h e e stim a tio n o f c ap ital c o st sh o u ld reflect re c e n t actu al p ra c tic e in th e p u b lic sec to r u sin g ex istin g p la n s fo r a site o r th e lik ely a p p ro ach . O n th e o th er h an d , o p e ra tin g co sts a re th e co sts o f p ro v id in g the serv ices sp ecified in th e p ro c u re m e n t o v e r th e c o n tra c t p erio d . T h e se in c lu d e fu ll s ta f f co sts, ra w m ate ria ls an d c o n su m a b le s, re p airs an d m a in te n an c e an d a d m in istra tiv e o v e rh e ad s. A s th e e ffe ct o f in flatio n th ro u g h o u t th e c o n tra c t p e rio d m ay b e sig n ifican t, all c o sts sh o u ld be ex p re ssed in th e p ric e s o f th e b ase y e a r o f th e c o m p a riso n (th e effe cts o f e x p ec te d fu tu re in flation sh o u ld be e x clu d ed ).
A n o th e r c ru cial b u t c o n tro v e rsial c o m p o n e n t o f a PSC is th e risk elem en t.
G a llim o re et al. (1 9 9 7 ) state th a t th e d istin c tio n b e tw e e n re a lity a n d p o s sib ility is
a n e sse n tia l e le m e n t o f risk . M o re sp ecifically, fro m a fin an cial p e rsp e c tiv e , ris k is ta k e n to b e th e v a ria n ce o f re tu rn s a ro u n d th e e x p ec te d retu rn (G a llim o re e t al., 1997). P o llo c k an d V ick ers (2 0 0 0 ) arg u e that risk s p la y a m ajo r ro le in d e te rm in in g
th e V F M o f a P F I p ro ject. F ro u d (2 0 0 3 ) h is a sim ila r v iew o n the im p o rtan c e o f ris k in v e rify in g th e V F M ach ie v e d fro m PF I. B esid e s, he also p o in ts o u t th e s ig n ifican ce o f ris k in th e a c c o u n tin g tre a tm e n t o f P F I p ro jects.
T h e re are sev e n p rin c ip a l risk s re le v a n t to PF I b e in g id en tified b y the T rea su ry T ask fo rc e (1997: p ara. 3 .2 1 ) in th e ir p u b lic a tio n , 'P a r t n e r s h i p f o r P r o s p e r i t y
D esig n an d c o n stru ctio n risk ; c o m m issio n a n d o p e ra tin g risk ; d e m a n d fo r v o lu m e / u sa g e risk ; re sid u al v a lu e risk ; te ch n o lo g y /o b so le sc e n c e risk an d re g u la tio n an d le g islatio n risk. T h e se risk s w e re also c o m m e n te d o n in the P riv ate F in a n c e P a n e l
p u b lic a tio n (1 9 9 6 ), ‘’R i s k a n d R e w a r d in P F I C o n t r a c t s ' .
F o r e ac h ty p e o f risk s, th e re are th re e p o ssib le c h o ice s to b e m ade: i) To b e re ta in e d b y th e p u b lic secto r; ii) To
b e tra n sfe rre d to th e p riv a te secto r; an d iii) To b e sh ared b e tw ee n th e tw o secto rs.
T h e u n d e rly in g p rin c ip le b e h in d th e d istrib u tio n o f risk a m o n g v a rio u s p a rtie s u n d e r P F I sch em es is th at th e risk sh o u ld b e ta k e n b y th o se m o st ab le to c o n tro l it,
a n d th is w ill re su lt in c o st re d u c tio n s b ro u g h t a b o u t th ro u g h in c re ase s in effic ie n cy
a n d in n o v a tio n s in tro d u c e d b y th e p riv a te sec to r (B all e t al. 2 000). In o th e r w o rd s , a m o re effic ie n t a llo c atio n o f risk b e tw ee n th e p riv a te an d p u b lic sec to r w o u ld y ie ld a
g re a te r V F M in th e p ro v isio n o f p u b lic serv ice s (H all 1998; B in g et al. 2 0 0 5 ). T ran sfe ra b le risk s are th o se th a t are lik e ly to b e tra n sfe rre d to p riv a te se c to r
b id d e rs. T h e ty p e an d n u m b e r o f risk w h ich a re to b e tra n sfe rre d n eed to be a sse sse d on a p ro je c t b y p ro je c t basis. T h e v alu e o f tra n sfe rab le risk in a P S C m e asu re s th e
c o st g o v e rn m e n t w o u ld e x p ec t to p ay fo r th a t risk o v e r th e te rm o f th e p ro je c t in
a p u b lic p ro c u re m e n t scen ario . A lte rn a tiv e ly , re ta in e d risk s are th o se risk s th a t are m a n a g e d m o re efficien tly w ith in th e g o v ern m en t. F o r pro je c ts w h e re re ta in ed ris k is in c lu d e d in th e P S C , its v a lu e w ill a lso n eed to be ad d ed to e ac h o f th e p riv a te b id s
to a llo w a m e an in g fu l c o m p aris )n.
146 J u r n a l A k u n t a n s i d a n K e u a n g a n I n d o n e s i a , D e s e m b e r 2 0 0 7 , V o l.4, N o .2 , h a l. 1 3 7 - 1 5 4
A s P S C is e x p ressed in p re se n t v alu e term s, a n o th er m a in issue in d ev elo p in g
a P S C , p a rtic u la rly w ith th e V F M v a lu a tio n is th e d e te rm in a tio n o f th e h u rd le rate to u se fo r d isco u n tin g the cash flo w s (P o llo c k and V ick ers 2 0 0 0 ). In o th e r w o rd s, o n c e all th e co m p o n en ts o f the P S C h av e b e e n ad d ed u p , th ey n e ed to b e d isco u n ted u sin g an acc e p tab le d isc o u n t rate to re a c h a t th e n e t p re se n t co sts b efo re c o m p a riso n
w ith the n e t p re sen t co sts o f the p riv a te sec to r c an b e m ad e. F ro m a re v ie w o f the o fficial d o c u m en ts, it w as realized th a t d ifferen t c o u n trie s ap p ly d ifferen t d isco u n t ra te s to w o rk o u t th e p re se n t v alu e o f th e c lash flow s. F u rth erm o re , in A u stra lia and
C an a d a , v a rio u s rates are u sed fo r th e d ifferen t se c to rs o f PFI p ro je c ts a v ailab le in th e ir co u n tries. O nly th e U nited K in g d o m , ap p lie s a u n ifo rm d isc o u n t rate a cro ss se c to rs th o u g h the rate h as b e en c h an g e d from 6 p e r c e n t in the p a s t to 3.5 p e r c en t at p re sen t. T able 1 b e lo w in d icates th e d isco u n t rates u se in th e U K , A u stra lia, and
C an ad a.
Table 1 Discount Rates Used in Different Countries
United Kingdom
Australia
Canada
8.65% (after tax
6% (real rate)
In the past Standard rate for all Different rates for
nominal rate)
projects different projects
Standard rate for all
projects
based on private sector’s cost o f
capital Current
3.5% (real rate)
Different rates for
Standard rate for all
different projects
projects
sector
G en erally , the sele c tio n o f th e d isc o u n t ra te fo r th e n et p re se n t c o st (N P C ) is
a su b je c tiv e issu e an d it req u ire s an u n d e rsta n d in g o f th e re la tio n sh ip b e tw ee n risk an d retu rn . D u e to th e su b jectiv e ju s tific a tio n s fo r se le c tin g an a p p ro p ria te d isc o u n t rate, th e re lia b ility o f th e P S C is a lw ay s b e e n a su b jec t o f criticism . T h e k ey issues
re g a rd in g th e d eterm in a tio n o f d isc o u n t rate as w ell as th e tra n s fe r o f risk s issu es a re
d iscu ssed in the n ex t section.
I s m a il, R a s h i d , P r i v a t e F i n a n c e I n i t i a t i v e ( P F I ) I n M a l a y s i a : T h e N e e d f o r 147
CONTROVERSIAL ISSUES ON PUBLIC SECTOR COMPARATOR
O n e o f th e c o n tro v e rsia l areas o f a P F I c o n tra c t lies in the tra n sfe r o f risk to the p riv a te sector. T h e p ro c e ss o f risk tra n s fe r is c en tral to P F I sch em es b e ca u se
a p riv a te ly fin an ced o p tio n is u n lik ely to re p re se n t v alu e fo r m o n ey b e fo re risk transfer. T h is is b e ca u se as risk is tra n sfe rre d to th e p riv a te sector, ceteris paribus, th e c o st o f the tra n sfe rre d risk is a d d e d to the P S C (W y n n e 2 0 0 2 ). T h is a d ju stm e n t w ill cau se th e P S C v alu e to be relativ ely m o re ex p en siv e th an a p riv a te ly fin an ced altern ativ e. F o r ex am p le, a n e v a lu a tio n o f th e N H S h o sp ita ls u n d e r P F I sch em e by
F ro u d a n d S h ao u l (2 0 0 1 ) sh o w s th a t a g re a ter V F M is a ch ie v e d w h en so m e o f th e risk s a sso c ia te d w ith c o n stru c tio n o f the h o sp ita l an d its su b se q u e n t m a n a g e m e n t is tra n sfe rre d to th e p riv a te sec to r p rovider. T h e fin d in g fro m A rth u r A n d e rse n an d
E n te rp rise L S E (2 0 0 0 , 53) stu d y also rev e als th a t 60 p e rc e n t o f th e a v e ra g e ‘s a v in g ’ is c o n trib u te d b y th e tra n s fe r o f risk.
H o w ev er, th e a m o u n t o f risk to b e tra n sfe rre d is a m a tte r o f am big u ity . T h is is due to th e c o m p le x itie s in v o lv e d in the v a lu a tio n o f risk . R isk s n e ed to be id en tified and th e ir im p acts on co sts n eed to b e assessed . It also req u ire s the e stim a tio n o f the p ro b a b ilitie s a n d the re -e x a m in a tio n o f th e e stim a te s u sin g sen sitiv ity an aly sis. M o reo v er, risk s sh o u ld b e a p p ro p ria te ly a llo c a te d b e tw ee n th e p riv a te an d th e p u b lic sector. A n in a p p ro p ria te ris k tra n sfe r w ill re d u c e th e V F M a ch iev ed as the p a rty w ill s e e k to allev iate th e im p act o f th e risk b y ch arg in g g re a te r p re m iu m (T reasu ry T ask fo rce 1999: p ara. 2 .4.9).
A c c o rd in g to N A O (1999e: 52), th e p o lic y o f risk tra n sfe r h as sh ifted fro m an early re c o m m e n d a tio n o f ‘m a x im u m risk tra n s fe r’ to a n ‘o p tim a l risk tra n s fe r’. A t p re sen t, th e p rin c ip le g o v e rn in g risk tra n s fe r is that;
‘R i s k s h o u l d b e a l l o c a t e d t o w h o e v e r i s b e s t a b l e t o m a n a g e it. A l t h o u g h t h e r e m a y also be policy reasons to encourage risk transfer, the aim is to achieve optimum
risk allocation, not transfer risk for its own sake'
In p ra c tice , risk is n o t a sim p le u n i-d im e n tio n a l co m m o d ity th a t can be
c o stlessly a ssessed an d co m p le tely tra n sfe rre d to the p riv a te sec to r (M a v sto n 1999). T h e re la tio n sh ip b e tw e e n risk an d V F M is th at as risk s are tra n sfe rre d to the p riv a te sector, V F M m ay rise u n til it re a ch e s th e o p tim u m level, w h e re an y fu rth er risk tra n s fe r m ig h t cau se a fall in the V F M . T h is is b e cau se risk tra n sfe r b e co m e s
in efficien t sin ce the p riv a te secto r m ay be u n a b le to ab so rb risk p ro p erly (F o rsh a w 1999).
A stu d y by B ro a d b e n t an d L a u g h lin (1 9 9 9 ) arg u es th at th ere are u n c e rta in tie s in th e issu e o f risk tran sfer. T h e m a in q v ^ries in clu d e the ty p e s o f risk s in v o lv e d
148 J u r n a l A k u n t a n s i d a n K e u a n g a n I n d o n e s ia , D e s e m b e r 2 0 0 7 , V o l.4 , N o .2 , h a l. 1 3 7 - 1 5 4
d e m o n strate w hen a risk is a c tu a lly resid in g w ith a p a rtic u la r party. S u b seq u en tly , the T rea su ry T askforce (1997a: p ara. 3 .23) co n clu d e d th at;
‘A s a g e n e r a l r u l e , P F I s c h e m e s s h o u l d t r a n s f e r t o t h e p r i v a t e s e c t o r r i s k s w h e r e the supplier can influence the outcome. The supplier is able to influence the l i k e l y p e r f o r m a n c e o f t h e b u i l d i n g a n d i t s s e r \> ic e s b y t h e q u a l i t y o f t h e d e s i g n , construction and refurbishment work undertaken. The quality and frequency of maintenance also has an important bearing on on-going performance. Therefore,
risks transferred will include design, build, financing and operating risks
L an d ers (1996) agrees w ith the id ea an d sim ila rly su g g ests th at PFI re q u ire s an
a p p ro p ria te tran sfer o f risk to the p riv ate sector, b oth th ro u g h the d e sig n , p la n n in g
a n d c o n stru ctio n p h ases and in o p eratio n and also th ro u g h a c o m b in a tio n o f p a y m e n t m e c h a n is m s and specific c o n tra ct c o n d itio n s. W ynne (2 0 0 2 ) also p o in ts o u t th a t th e re are tw o ty p es o f risk often cite d as tra n sfe rre d to th e p riv a te sec to r c o n tra c to r u n d e r a PFI project. T h ey are risk s related to d elay in c o m p le tin g th e p ro je c t an d risk o f c o st o v erru n for a project. N e v erth ele ss, a c c o rd in g to M ay sto n (1 9 9 9 ) a larg e p a rt o f th e ris k w h ich the PF I c o n tra ct m ay see k to tra n sfe r to th e p riv a te se c to r rela tes to d e m a n d risk.
F ro m the p e rsp ectiv e o f th e IP P R , d esig n and co n stru ctio n ris k an d o p e ra tin g
c o s t risk sh o u ld b e b o rn e b y th e p riv a te sector. W h ile p o litic a l risk s w h ic h in v o lv e p o lic y c h an g es should b e b o rn e b y the p u b lic sector. B ut, c ertain risk s w h ic h
a re d ifficu lt to specifically allo c ate b e tw ee n the p arties, su ch as d e m an d risk and o b so le sc e n c e risk, n e ed to b e a p p ro p ria te ly sh ared a m o n g th e tw o p a rtie s (IP P R ,
2 0 0 1 ). L ik ew ise, the re search fin d in g s b y B in g et al. (2 0 0 5 ) su g g est th a t th e p u b lic s e c to r sh o u ld re ta in p o litical risk s as w ell as site av ailab ility risk s. O n th e o th e r
h a n d , risk s w h ic h are d irectly a sso c iate d w ith the p ro je c t its e lf sh o u ld b e tra n sfe rre d to th e p riv a te sector.
A k in to y e et al. (1 9 9 8 ) c arried o ut a re sea rc h p ro je c t aim e d at o b ta in in g
fe e d b a c k fro m three d ifferen t g ro u p s in v o lv ed w ith PF I p ro je c ts (P u b lic sec to r (c lie n ts), c o n tracto rs, an d le n d ers) o n th e issu es o f risk b u rd e n s a nd risk a n aly sis and th e m a n a g e m e n t o f P F I sch em es. T h e resu lts fro m th e ir q u e stio n n aire su rv ey sh o w th a t th e re sp o n d en ts ten d to ran k m o st h ig h ly th o se risk facto rs th at w e re h ig h ly re la te d to th e ir ow n b u sin ess o b jectiv es. A lso , the resu lts sh o w th a t all the th ree p a rtie s a d o p t d ifferen t m e th o d s a n d te c h n iq u es fo r risk a sse ssm e n t a n d a p p ro a ch ris k s in d ifferen t w ays. H o w ev er, one th in g th ey h av e in co m m o n is th at all p a rtie s
h a v e in su ffic ie n t k n o w led g e o f P F I to e n su re its success. S im ilarly, G allim o re et al. (1 9 9 7 ) p ro v e th a t certain risk s are d ifferen tly p erc eiv e d b y p articip an ts. T h e y also
e m p h a s iz e th a t an attem p t to m e asu re and e x p o se th ese d ifferen c es is a d ifficu lt a re a o f stu d y b e c a u se it in v o lv es th e q u a n tificatio n o f data th a t are freq u e n tly q u a lita tiv e
I s m a i l, R a s h i d , P r i v a t e F i n a n c e I n i t i a t i v e ( P F I ) I n M a l a y s i a : T h e N e e d f o r 149
F ro u d and S h ao u l (2 0 0 1 ) an d W ynne (2 0 0 2 ) p o in t o u t th a t e v en th o u g h issues o f risk a n aly sis an d risk tra n s fe r are im p o rtan t in P F I, o fficial g u id a n ce o n h o w to
c a lc u la te the risk tra n sfe rre d is in su fficien t. M o re o v e r, p u b lic ly a v a ila b le e v id en c e is
a lso ty p ic a lly v e ry lim ited. T h e ir e v a lu a tio n o n a n u m b e r o f F B C s su g g ests th at n o v a lid m e th o d o lo g y fo r risk tra n s fe r h as b een a p p lie d . A s a resu lt, d ifferen t b u sin ess
c ase s u se d ifferen t m e th o d o lo g ie s to tra n sfe r risk. R ecently, a re sea rc h stu d y c a rrie d o u t b y a g ro u p o f re se a rc h e rs c o m m issio n e d by th e A sso c ia tio n o f C h artered C ertified A c c o u n ta n ts (A C C A ) (2 0 0 4 ) su g g ests th a t