Infrastructure development has always had strong correlation with a country’s economic advancement. With the recently announced 12th iteration of the Malaysia Plan (2021-2025), the Malaysian government has allocated RM400 billion for existing and new developments. The plan details key focuses on its intended economic priorities which includes significant and strategic infrastructure developments that can carry growth potential for foreign investors in these unique and unprecedented times.

Infrastructure, Utilities and PPP Opportunities

The 12th Malaysia Plan expresses an intended focus on the investment and development of infrastructure and utilities such as roads, rails, digital infrastructure, water, and electricity supplies. While significant focus on these investments and developments are intended to target the infrastructure gap with specific regard for the East Malaysian states, there are also major transportation infrastructure developments already in progress which include:

• The East Coast Rail Link project, which is expected to be completed in 2026;
• The Rapid Transit System project linking the Bukit Chagar Station in Johor Bahru with the Woodlands North Station in Singapore, construction of which will begin by end-2021; and
• The 5,500 kilometre Pan-Borneo Highway in East Malaysia which is intended to be completed by 2025.

The 12th Malaysia Plan also proposes the establishment of a specific facilitation fund for future infrastructure projects under the Public Private Partnership (PPP) 3.0 model. The PPP implementation model is intended to not involve any major financial commitment from the government. Rather, the model contemplates significant private sector involvement.

The implementation of the projects under the new model is expected to be announced in 2022. A special PPP committee chaired by the chief secretary to the government will be established to enable PPP project consultations to be completed swiftly with an intended target of consultations being completed within a year.

The announcement of the new model and opportunities of PPP projects by the Malaysian government is an evolution of what is an already established PPP ecosystem in Malaysia. Nevertheless, this new development will have the private sector assessing the opportunities arising from the underlying demand for infrastructure in Malaysia along with the inevitable complexities that are inherent in PPP projects.

Green Developments and Carbon Neutrality

Parallel to the infrastructure development targets is the Malaysian government’s stated commitment towards a green and eco-friendly technologies in the 12th Malaysia Plan. The Malaysian government has expressly stated that environmental, social and governance principles are to be factored in its decision making. This can be seen with the government’s commitment to cease any future construction of coal-fired power plants, a timely commitment in view of the approaching UN’s Conference of Parties (COP26).

Perhaps the more eye-catching commitment in the 12th Malaysia Plan is Malaysia’s intention of being a carbon-neutral country by 2050. This would be in concert with Malaysian government-linked entities such as Petronas, Tenaga Nasional Berhad, Employees Provident Fund and Sarawak Energy Berhad who have already announced similar aspirations and intentions of achieving net zero emissions by 2050 with moves towards decarbonisation and renewable energy.

Further plans on carbon reduction and low-carbon long term development are intended to be finalised and announced in 2022 with a National Energy Policy also in the works to act as a guiding policy for the carbon neutral aspiration. With technology ever advancing especially in renewable energy generation, it will be interesting how the National Energy Policy would account for current trends such as decentralised power grids or utility scale battery storage or obstacles such as integration.

The green energy revolution has been a long time coming but the 12th Malaysia Plan provides an interesting roadmap. In the wake of the COVID-19 pandemic, development of green infrastructure such as renewable and energy efficiency technologies could accelerate economic growth with the job-creating impact of a concerted push by the public sector.

Conclusion

Overall, the proposed policies and developments in 12th Malaysia Plan points Malaysia in the direction of significant infrastructure development with the PPP 3.0 implementation and with an environmental target of being carbon-neutral. Objectives that are laudable but may face significant challenges in implementation.

With the Malaysian federal budget intended to be tabled at end October 2021, it will be interesting how much of the 12th Malaysia Plan will be fleshed-out and developed.

For further information, please contact Glynn Cooper, Partner, Raja Irfan, Associate, or your usual Herbert Smith Freehills contact.

Disclaimer

Herbert Smith Freehills LLP is licensed to operate as a Qualified Foreign Law Firm in Malaysia. Where advice on Malaysian law is required, we will refer the matter to and work with licensed Malaysian law practices where necessary.