Analysis of the Kuala Lumpur LRT Project Failure: A Case Study

This case study examines the failure of the Kuala Lumpur LRT project in Malaysia, initiated to alleviate traffic congestion through a Build Operate Transfer (BOT) model. The project, involving Sistem Transit Aliran Ringan Sdn Bhd (STAR-LRT) and Projek Usahasama Transit Ringan Automatic Sdn Bhd (PUTRA-LRT), faced challenges from the 1997 financial crisis, leading to operational instability and financial difficulties. The analysis covers the project lifecycle, highlighting failures in the performance and monitoring phases due to macroeconomic factors and financial risks. Critical failure factors included insufficient consideration of external impacts and customer value. The government's renationalization efforts and subsequent issues are discussed, concluding with recommendations emphasizing project management, planning, and risk assessment. The study underscores the impact of external economic conditions and the importance of effective project management in infrastructure projects.

Failure Reasons of PPP Infrastructure Projects: Case Study of Kuala Lumpur LRT
Project
Malaysia was growing in population as a result of rapid development. This resulted in
an increase in car traffic, particularly in the city of Kuala Lumpur. Additionally, residents
suffer difficulties as a result of the area's overcrowding. LRT initiatives have been
implemented by the government as a way to alleviate traffic congestion in the city. The LRT
project was launched using the Build Operate Transfer (BOT) contracting method. The
contract was signed by the Malaysian government, Sistem Transit Aliran Ringan Sdn Bhd
(STAR-LRT), and Projek Usahasama Transit Ringan Automatic Sdn Bhd (PUTRA-LRT).
PUTRA-LRT, a subsidiary of Renong Bhd, was tasked with the responsibility of planning,
constructing, operating, and maintaining the line.
This organisation was chosen based on its previous achievement in the fields of
engineering and management. The company possessed extensive experience managing
roadway, power production, and infrastructure projects. Another partner to the LRT
transaction was STAR-LRT, which was majority-owned by the British corporation Taylor
Woodrow. In order to construct one of the world's largest privately funded infrastructure
projects, the organisation raised and invested $850,000,000 in funding and development.
After the financial crisis of 1997, when inflation soared from 8% to over 40%, the LRT was
doomed from the start. The Kuala Lumpur LRT project was determined to have flopped
during the operation phase. Lower than expected passenger numbers have made LRT services
unstable. Both companies denied to repay the loan, and as a result, the government served
default notices on START-LRT and PUTRA-LRT, requesting repayment within 14 days.

Project life cycle considering Project Implementation:
Initiation, planning, implementation, performance and monitoring, and closing are all
significant stages in the project life cycle. The five phases of the project life cycle determine
whether or not a project is successful. The construction industry has acknowledged the
project as a high-complexity endeavour with various construction risks, significant cost
implications, highly technical needs, and a diverse set of resources. In this scenario, the LRT
project was victoriously implemented, but performance was impacted by macroeconomic and
other external conditions that neither the project leaders nor the stakeholders anticipated
during the project's duration. The project was abandoned due to operational issues.
Initiation Phase: The project needed to improve congestion and create money through Light
Rail Transit (LRT). The project's need and objective were clearly identified, and the project
was documented and approved.
Planning Phase: Planning is vital in construction projects. The project scope, budget, risk
analysis, and feasibility research are all part of the planning process. This project had a
budget, collaborators, and risks that were evaluated before it was executed. The LRT project
used an outcome-based strategy.
Implementation Phase: START- LRT and PUTRA- LRT collaborated on the project's
design and quality. The LRT implementation phase was more challenging, although the
companies involved had vast infrastructure experience. A well-developed team, effective
resource allocation, tracking systems and revised project scheduling enabled them to
successfully complete the project.
Performance and Monitoring Phase: It guarantees that all processes and elements are in
sync with the project timeline. This phase concentrates on resource management to maximise
the project's outcome. In the instance of LRT construction, the project's outcome was the

revenue-generating process. So daily operations and maintenance were included. The LRT
project failed due to the economic crisis. Due to the economic crisis, the LRT project failed to
deliver.
Closing Phase: The end of the project life cycle. In the building industry, the phase ends
when the product reaches its end of life. In this instance, the project lasted 60 years. Closing
phase documentation and information collecting is critical.
Critical Failure Factors
The project manager's perspective should be macroeconomic in nature. The project's
success was extremely contingent on external circumstances. The impact of external elements
on the project should have been examined, however this was not done. This is a contributing
factor to the failure of the project. Second, financial risk was a critical component of every
project's risk management. Costs associated with construction projects will be extremely
expensive. As a result, financial risk assessment can help avoid project failure. Finally, in the
case of infrastructure projects, the outcome is contingent upon factors affecting the consumer
or user. As a result, the customer's value proposition must be clearly established from the
outset of the undertaking.
Renationalization
Concessionaire faces financial difficulties and encountered difficulties servicing debt
and financing rolling stock. On 1998, the government announced that it would issue zero
coupon bonds worth RM4.5 billion to pay off the obligations of STAR and PUTRA once they
had operated for a year at full capacity (RM2 billion). Government bonds of equivalent to
RM8 billion were to be released in exchange for Renong's group indebtedness. To re-lease
both operations to the private sector, the government announced in December 2000 that it

would seize control of both operations. This debt of STAR-LRT and PUTRA-LRT was
acquired in November 2001 by the Ministry of Finance by issuing fixed-rate serial-
guaranteed bonds worth RM5.5 billion to the enterprises' lenders. In April and May 2002, it
acquired all assets and operations.
Conclusion
To conclude, Malaysia's government recognized the importance of a well-coordinated
public transportation system but it lacks the institutional and political competence to achieve
this. The underlying reason for privatization's failure is the government's political ineptitude.
On two levels, the LRT failed. Failure to ensure commercial viability was a major omission
from government monitoring. There is some evidence that the privatization was motivated
more by short-term gains in construction rents than by long-term gains in operational profit.
Networks of patrons and clients influenced project allocation and project selection. Secondly,
despite being aware of the difficulties and potential solutions, the government failed to
establish the necessary legislation to optimize the LRT's commercial potential. It is clear that
errors were not corrected. Because corporate interests denied stations to be built, the
government was unable to plan the route effectively. It was not possible to force STAR-LRT
and PUTRA-LRT operators to share routes, ticketing systems and stations. It was unable to
consolidate bus companies and prevent them from using LRT routes. It couldn't control
parking costs or levy a "congestion" tax to motivate people to take public transportation. It
also failed to pass legislation to unify transportation planning and authority.
Suggestion and Recommendation
Project-related factors, which include the type of project, the design of the project, the
complexity of the project, and the size of the project, must be thoroughly scrutinised.

Additionally, having adequate communication, control systems, feedback skills,
troubleshooting, teamwork effectiveness, decision-making performance, tracking, project
organisation structure, plan, and schedule, and related previous management experience are
all characteristics of project management that contribute to the success of the project. As a
result, this criterion will always be used. Apart from that, planning, scheduling, monitoring,
and managing all play a critical role in any project, as improper planning and control result in
increased cost variation under various circumstances. Project management is critical to the
success of any construction project.
Reference
Tan, J. (2008). Privatization in Malaysia: Regulation, Rent-seeking and Policy Failure.
London and New York: Routledge, 2008. Pp. 111-125, Notes, Bibliography, and
Index. doi:10.1017/S0022463410000445