FACULTY OF ADMINISTRATIVE SCIENCE AND POLICY

STUDIES BACHELOR OF ADMINISTRATIVE SCIENCE

ADS 504: MALAYSIAN ECONOMY

TUTORIAL CHAPTER 8 : QUESTION 4

DISCUSS ANY 4 MODES OF PRIVATIZATION AS PRACTICED IN MALAYSIA BY

PROVIDING RELEVANT EXAMPLES.

PREPARED BY:

NOOR FAIQAH BINTI MOHD MA’AROF 2020371473

MADIHAH ZAHIDAH BINTI MOHAMMAD ZAIDI 2020937547

AIDA ARIZA BINTI ABDUL WAHIB 2020374723

NURUL ALIYAH BINTI MOKHTAR 2020179953

MUHAMMAD NADZMI BIN KAMAROL ZAMAN 2020975263

GROUP: AM228 5F

PREPARED FOR:

SIR AHMAD SHAH PAKEER

Privatization is defined as the systematic transfer of activities and services now or

historically provided by public sector entities to private sector companies. In other words, the

transfer of diverse government interests or assets to the private sector is referred to as

privatization. The transfer of interests connected with the privatization process typically involves

the three fundamental components relating to the impacted public body as management

responsibility, assets, and personnel. Privatization must include the transfer of at least one of

these three fundamental elements. Malaysia's privatization strategy was originally stated in

March 1983 in a national policy statement issued by the Prime Minister. Besides, Malaysia is

also known as one of the first emerging countries to embark on a large-scale privatization of

public enterprise (Bakul H Dholakia, 1994). The Privatization Policy was established in 1983 to

promote the Malaysia Incorporated Policy of strengthening the role of the private sector in the

country's economic growth. Next, the main purpose of this strategy is to decrease the

government's financial and administrative burden, enhance skills and output, accelerate

economic growth, lower the size and participation of the public sector in the economy, and aid in

the achievement of the country's economic policy goal. (Official Portal of Public Private

Partnership Unit, 2021). For example, the first project being the upgrading of a public road into a

tolled road bypass in the town of Klang.

Firstly, the mode of privatization as practiced in Malaysia is dispossession of equity which

involves a few steps. The company will have experience changing from the government sector to

the private sector through corporatization. When the company is changing, they also need to

substitute in legislation that requires sending public assets to the private assets. The company is

required to show their profits at least three years before they are successful to be listed in Kuala

Lumpur Stock Exchange. Besides, the equity that will be released from the government is just

half of it because the government is the largest single holder even though the company is a

substitute to the private sector. Most of the company dispossesses because of competencies
core in their business and one of the companies is Telekom Malaysia. The competencies core in

Telekom Malaysia is to provide services which are the line and data that must be fixed so that

they need to work as limited companies without depending on others. Based on Datin Wong

Muh Rong, she said sometimes dispossession is the progress that is healthy for the company

to continue growing their business with new rules and regulations in the company.

Next is a method of privatization through the sale of equity that applies to government

companies that were previously agencies or a company managed by the government.

Privatization methods occur to save the country's finances as well as increase the country's

source of income. With this policy in place, privatized companies can increase efficiency and

provide opportunities for non -governmental companies to strive to generate national revenue.

Furthermore, this method of selling equity results in the transfer of three components related to

the organization namely management responsibilities, assets and officers. Sale of equity can

either be partial or complete. A complete sale represents a transfer of 100 per cent government

equity in a company, while a partial sale represents a transfer of less than 100 per cent. For

examples of privatization by this method are Tenaga Nasional Berhad (Lee, 2011).

Thirdly, the lease of assets. A leased asset is something that is licensed by its owner to a third

party in exchange for money or other benefits. When leasing an asset, the ownership enters into a

contract that allows the other partner to use the asset for a limited time. Usually the length of the

project depends on the type of project. For example, the project of Port Klang , whose lease

period was 12 years and the case of the North and South Highway in Malaysia about 28 years. It's

frequently applicable to fixed assets, especially if they're huge and strategic assets like seaports
and airports. Lease rentals are estimated on the basis of a stream of revenue and expenditure

flows over the lease duration, rather than the current worth of the assets, and payments are

determined on the basis of a stream of revenue and spending flows over the lease time. For

privatised entities, terms of the lease rentals could be merely minimal rates for a period of five

years or until the business is privatised, whichever occurs first. The lease rentals are based on the

market rate once the first time has ended. Institut Jantung Negara, Shah Alam Abattoir, and

Syarikat Printing Malaysia are some examples of this mode.

Lastly, the modes of privatization as practiced in Malaysia is management contract. The

government may retain full ownership of public economic enterprises and other public facilities

on occasion, but may delegate operation of those enterprises and infrastructures to a private

corporation. As a justification, it is asserted that public economic enterprises and public facilities

are administered less successfully than private firms and private amenities Among the industries

where management contracts are common are the hotel and restaurant industries as well as

hospitals, nursing homes, day-care centers, bus and subway operations, and some manufacturing

industries such as steel, fertilizer, chemical, and textile. Many developing countries have

embraced the management contract model in recent decades, with the majority of them already

having one in place. At all stages of growth and development, it has proven to be an effective

vehicle for the transfer of management, corporate, and technological skills to private firms.

African, Middle Eastern, South East Asian, and Latin American emerging countries have begun

to broadly apply this system. Among the private sector of developed countries, management
contracts are particularly common. Private sector management expertise is contracted to

management government agencies in exchange for a predetermined fee under this approach of

privatization of government services. Although it involves the transfer of managerial

responsibilities, it does not always require the transfer of persons. Furthermore, this strategy does

not necessitate the transfer of any assets. The privatization of the management of the water

treatment facility at the Semenyih Dam is an example of this strategy in action.

As a conclusion, the rationale of privatization is that it enhances efficiency. As a result, it is

assumed that privatization will maximize welfare. Privatization is used to minimize government
participation in companies, therefore avoiding crowding out of private sector investments and
lowering the costs of government intervention in industry. However, Malaysia's privatization
experience reveals that the government continued to interfere in business in other ways: which it
continued to intervene, but perhaps less actively. Cronyism might have been reduced if the
government had been more diligent in developing an institutional structure that emphasized
efficiency, openness, and good governance.

REFERENCES

Lee, C. (2011). Privatization of Infrastructure Services in Malaysia. ResearchGate, 283-

286.

Bakul H Dholakia, R. H. (1994). Malaysia's Privatization Programme. Vol. 19, No. 3.

Retrieved from https://journals.sagepub.com/doi/pdf/10.1177/0256090919940302

Official Portal of Public Private Partnership Unit. (2021). Retrieved from

http://www.ukas.gov.my/en/about-ukas/profile/background

Cassey Lee. (2008). Privatization of Infrastructure Services in Malaysia (Vol. 11).

https://www.researchgate.net/publication/341787156_Privatization_of_Infrastructu

re_Services_in_Malaysia

Mohd Soffi Puteh. (2004). Divestiture as a New Trend in the Information Age. Gading

Business and Management Journal, 8, 35-46.

https://ir.uitm.edu.my/id/eprint/31539/1/31539.pdf

Aktan, C. C. (1995). AN INTRODUCTION TO THE THEORY OF PRIVATIZATION. The

Journal of Social, Political and Economic Studies,, 20(2), 187-217.

Dolakia, B. H., & Dolakia, R. H. (1994). Malaysia's Privatization Programme. Vikalpa,

19(3), 25-35

Liew Jia Teng. (2020). Diversify-and-divest route provides new lease of life for listed

companies. The Edge Markets.

https://www.theedgemarkets.com/article/diversifyanddivest-route-provides-new-

lease-life-listed-companies