Project viability framework for privatized highway projects in Malaysia

Abstract

The construction sector is one of the indicators of national economic growth and contributed in average of 4% annually to Malaysia’s Gross Domestic Product (GDP) and 6% to the national economy between 1995 - 2015. The excellent of construction growth was mainly from projects implemented under the “Public-Private Partnership” (PPP) and through privatization. Under the 10th Malaysian Plan, 52 projects with an estimated value of RM62.7 billion will be implemented under Private Finance Initiatives (PFI) for infrastructure works. In fact, the privatization project involves the investment of huge amount of money and project viability depends on the revenue collected against the expenses incurred during the concession period. This research aims to evaluate the project viability and the correlation between the costs and revenue collected for the entire concession period. A comprehensive framework for project viability of highway privatization projects was developed based on the research findings obtained via the use of descriptive analysis and statistical technique analysis. Eleven (11) urban highway projects located in Klang Valley were identified to evaluate the project viability. The techniques of Life Cycle Cost (LCC) are used by the respondents in their projects. The research findings show the most preferred technique used by respondents are Internal Rate of Return (IRR) and Net Present Value (NPV). In sustaining the highway projects, the costs incurred during the concession period should be managed efficiently. The average expenses incurred by the companies for operation and maintenance cost were RM23.22 million and RM21.03 million respectively. Four (4) variables were used to evaluate project’s viability and to identify variables which significantly correlated with the revenue of the project namely operation cost, maintenance cost, actual toll traffic, and revenue. Traffic volume was the variable that correlated positively to the revenue with 44%, followed by the operation cost and maintenance cost with 28% respectively. Traffic volume was the nucleus and dominant variable which contributed to the revenue of the project. Based on the NPV, seven (7) projects (63.6%) were found to be viable and four (4) projects (36.4%) were considered not viable. This research highlighted the viability of the privatized highway projects for an entire concession period. Based on the findings of the current study, a comprehensive framework for future project evaluation comprising of eight (8) components of commercial and technical evaluation for the privatization of highways in Malaysia is recommended.