User-pay solution for infrastructure

Photo: SHAARI CHEMAT/The Star

In Budget 2025, the Prime Minister introduced a new approach to financing public infrastructure through the “user-pay” concept, positioning the public and private sectors as active partners in national development through public-private partnerships (PPP).

The primary goal is to alleviate the government’s financial burden by distributing the costs of developing and operating these facilities between the government, private sector and users, thereby creating a more sustainable and viable funding model.

This approach reduces fiscal pressure on the government and allows limited resources to be directed towards critical sectors like education, healthcare, and welfare.

Moreover, the private sector is encouraged to enhance service quality as their continued operations depend on user satisfaction. Competition among private companies fosters innovation through modern technology, improving user experience and operational efficiency.

With this approach, users benefit from better facilities, while the government can focus on non-profit-driven social sectors. The “user-pay” approach is expected to balance the government’s financial stability and the provision of high-quality public services.

However, implementing the user-pay approach may raise public concerns over how the government can balance its responsibility to reduce fiscal burdens while ensuring the welfare of citizens, especially low-income groups.

Firstly, the additional financial burden on the B40 group is a pressing concern, as rising public service costs could significantly impact their financial capacity. Concerns also arise about unequal access to public services, where the less affluent may struggle to enjoy certain services.

Additionally, users worry about the potential for service costs to continuously rise, especially in an unstable economy, potentially creating further financial strain. Other concerns include a potential decline in service quality if the private sector prioritises profit over standards. Quality standards might be compromised when the main focus shifts to user satisfaction and profit.

In an unstable economic climate, private companies may be forced to raise prices to maintain profit margins in line with inflation and other rising costs. This could add further financial pressure for vulnerable groups and regular users, especially if government subsidies are reduced. Low-income groups may need government assistance to access essential services at reasonable prices, exacerbating social inequality.

Furthermore, the perception of unfair cost-sharing often arises when low-income groups bear the same costs as higher-income individuals. A lack of awareness and understanding of the user-pay concept can also lead to anxiety and resistance to this initiative. In contrast, a lack of protective mechanisms in challenging economic conditions leaves users feeling their rights are unprotected.

Lastly, the lack of user involvement in monitoring this model raises concerns that prices may be unfairly imposed and user interests neglected.

Several strategies can be implemented to reduce fiscal pressures, protect public interests, and encourage private sector participation to ensure the success of the user-pay model in PPP projects.

The government could offer tax incentives to private companies that use user-friendly or green technologies in their projects, which would reduce costs and enhance user experience.

Additionally, to alleviate the burden on low-income groups, the government could introduce subsidies or financial assistance schemes, such as toll discounts for the B40 group, ensuring access to essential services.

Flexible payment models based on usage or specific timeframes can also be introduced, allowing users who access services during off-peak hours or at lower rates to enjoy reduced prices.

The user-pay approach in PPP projects is a strategic move that requires careful implementation. With meticulous planning and appropriate strategies, it has the potential to ease the government’s fiscal burden while supporting the private sector in driving the national economy forward. This approach requires a balance between ensuring equitable access for the public and providing reasonable returns for private investors.

DR SHAHRUL AZMAN ABD RAZAK

Researcher and Islamic Finance Consultant