Above picture caption: Reversed cross project proposed by Pansak Vinyaratn, former chief advisor for PM Thaksin Shinawatra, and former advisor for PM Chatichai Choonhavan.

Keywords:

Public-Private Partnerships, PPPs, accountability, contract, outsourcing, public financial, public budget, Iskandar, Reversed cross, Securitization

Ideas:

The recent corruption charged against the spouse of ex-Iskandar Investment Berhad (IIB) executive in Malaysia raised a question on an accountability of the Public-Private Partnerships Project (PPPs) alike in Southeast Asia.

According to Star Online, Mohd Amin Suhaimi, believed to be the husband of Arlida Ariff, former IIB’s chief CEO, had been alleged soliciting RM1.6 million as an inducement to obtain a project.

IIB, with a total of 3.4 RM billion total assets, was invested by Khazanah Nasional (60%), EPF (20%) and Kumpulan Prasarana Rakyat Johor Berhad (KPRJ) (20%), a company wholly owned by the Johor State Government. IIB will own a significant land bank in South Johor through various financial instruments, and IIB will lead the implementation of various strategic and catalyst Iskandar Malaysia initiatives, including implementing some of the major Ninth Malaysia Plan projects within the Iskandar Malaysia through various Special Purpose Vehicles and partnerships with the private sector.

The borderline between public and private is now blurred; accountability is thus a serious question more and more on PPPs project. This paper will examine how accountability will shape the future of PPPs in Southeast Asia.

Iskandar Malaysia, a Southern development corridor in Johor, Malaysia.

Scenarios:

Theoretically, PPPs are long term relationships between government and private sectors. Both sectors share responsibility on both decision making and negotiated allocation of risk of the project together. Although PPPs are neither a form of Privatization nor Contracting, since in Privatization the government will either eliminate direct control and ownership of the operation and the delivery of services (full privatization), or it will retain some control by holding some stock in the privatized enterprise. While, in contracting the government will issue a request-for-proposal (RFP) for its required products and services.

In PPPs, the government will get an advantage by reducing the learning curve and can access the cost-effectiveness from the service, while the private organizations are willing to share their expertise in order to get long-term service contracts. In this case, accountability will help guiding on mutual benefit for the partnership in mutual respect manner on equal participation in decision-making, mutual accountability and transparency aspect.

However, in the real world situation, especially in a developing democratic country, PPPs seems to be used as a financial instrument and a management structure to gain benefit for the elite who gain power from the government. On the other hand, left wing groups will continue to pose their skepticism about PPPs based on capitalist exploitation. They will run their campaign against projects such as PPPs, privatization and so on. The two forces will shape the future of PPPs in Southeast Asia in three possible scenarios as follows:

 

Fully corporate PPPs style

In this scenario, the ruling class, with the overwhelming support of a majority vote and support from other elite groups, will apply full mechanism on PPPs.  They will implement privatization in various forms both for full privatization and capitalization. Accountability and conflict of interest will be a big question. This scenario also requires political stability and long term administration by the ruling class. Projects such as Suvarnabhumi Airport in Thailand and Iskandar project in Malaysia reflect this scenario.

 

Reversing privatization

In this case, the opposition forces will gain enough backup from other factions in the society. They will employ both the judicial process and running campaigns to force the government to buy back public stock, or reverse privatization. The demolishment of ITV in Thailand occurred through an arbitrator’s judgment to award concessionaire advantage to Shin Corp by an administration court in March 2007. The establishment of Thai PBS, based on public television service, has been considered a supporting case in this scenario. However, due to connected globalization and according to the rule of law, opposition forces cannot easily implement their ideas.  They need a well-researched strategy backed by logic to convince the public to support their movement. Public television research from TDRI was utilized in this case. The movement will look at efficiency in the project related to national security and high level of public interest.

 

A well-strengthened accountability for PPPs project

If neither the ruling class nor the opposition forces can dominate each other, a compromise scenario might be happen. In this case, although backstage negotiation via lobbying and threatening will be on-going, in the forefront it will apply a well strengthened accountability for PPPs project. The ruling class will agree to apply accountability concepts in order to gain public support for the project. They will require project successfulness, in order to please their voting base. Meanwhile, the opposition force will monitor the project, and they will act as an accountability inspector. Thus, the accountability agreement will not just be a paper contract, but it will be forced into reality by such a process.

Early Indicators:

• An initiative to establish city’s size projects

There is a study from the Thai government to establish a new capital / administrative city center, following the model of Putrajaya in Malaysia and Canberra in Australia. The location could be at Petchaboon, Chacherngsao, Nakorn Pathom, or more recently Nakorn Nayok which had been suggested by the Thaksin government. The Thai floods in 2011 may resurrect the new capital city project, in order to find a secure place to avoid mega floods in the future and to maintain fully functioning national administrative work in times of crisis.

There was also a similar model for a Nakorn Suvarnabhumi province. The proposal was announced in October 2005, with a draft bill approved by the cabinet in June 2006. The area would cover Lat Krabang, Prawet, Bang Sao Thong and Bang Phli, and it would have become a special administrative zone. However, the proposal was finally withdrawn by a resolution of the cabinet in April 2007.

• Mega-projects ambition

Pansak Vinyaratn, former chief advisor for PM Thaksin Shinnawatra and advisor for PM Chatichai Choonhavan, suggested that there be the construction of a high speed train supported by The People’s Republic of China from Khunming to the Eastern-Seaboard in Thailand, and a highway infrastructure built supported by Japan from Malawmang in Burma, to Pitsanulok in Thailand, and on to Danang in Vietnam—called The Reversed Cross project. It may help Thailand to position itself as a logistics center for mainland ASEAN. He pointed out that Thailand could nurture creative industry and green technology along the “Reversed Cross” area. It would also be possible that Thai government could establish a semi public-private enterprise to help develop this special economic zone and real-estate. A multi-layer corporate body would be designed together with multiple financial instruments in order to raise funding such as securitization, follow the Iskandar project in Southern Malaysia, and the government complex in Chaengwattana.

Another possible project is the East-West Southern Economic Landbridge, which will connect the Andaman Sea with the Indochina Sea via a high speed road and rail system across Southern Thailand, instead of the Kra Canal project which was considered a high security risk.

• PTT striking from NGOs

Since inception of The Stock Exchange of Thailand (SET), PTT Public Company Limited has always been a major target for NGOs to run campaigns demanding the government buy back its public stock and delist it from the stock market. The rationale has been that this would safeguard energy welfare for Thai people and solve a transparency problem during capitalization in the SET.

Implications:

• Implement full accountability process in PPPs

Many PPPs projects display poor performance. In order to pose excellent performance and low risk operation as expected, such projects as British private finance initiative (PFI) projects in education, health, criminal justice, and information technology has been proposed, while the only successful project so far has been the road project.
Forrer, Kee, Newcomer and Boyer (2010) suggested an approach to apply accountability in six dimensions, which are: 1) risk, 2) costs and benefits, 3) social and political impact, 4) expertise, 5) partnership collaboration, and 6) performance measurement. This accountability process may help PPP projects become more successful.

• Apply the democratic public finance budget concept on public projects

Normally, mega-projects may come with various complex financial instruments. These financial instruments tend to hide public expenditure and financial risk from public audit. Financial instruments such as Special Purpose Vehicle (SPV), Securitization and Sovereign Wealth Funds (SWF) may pose unlimited risk to the public. At the very least public financial law and institution reform, as well as transparent information are needed. The large PPPs investment must be included in the annual public budget and must be authorized by the House of Representatives.

Drivers and Inhibitors:

• Mega-projects on infrastructure intended to endorse better logistics by China and Japan may leverage PPPs projects in Southeast Asia.
• Public opinion for an acceptance of corruption with better performance on public works will pose a limitation in accountability promotion.
• A recent anti-corruption campaign from many public and private organizations may activate accountability awareness in public projects.