PUBLIC INDUSTRIES AND

PRIVATIZATION POLICY
 LEARNING OUTCOMES

• TO EXPLAIN THE GOVERNMENT’S ECONOMIC POLICIES AND THE ROLE OF

PUBLIC ENTERPRISES
• TO ANALYSE THE PERFORMANCE OF PUBLIC ENTERPRISES
• TO EXPLAIN THE REFORM OF THE PUBLIC ENTERPRISES
• TO EXPLAIN THE PRIVATIZATION POLICY: AIMS, IMPACT AND ISSUES
 CONCEPTS OF PUBLIC SECTOR

• THE STATE, THE GOVERNMENT AND THE PUBLIC BUREAUCRACY

• ROCKMAN (1990) - 3 CONCEPTUAL ROLES OF THE STATE:
• DECISION MAKING – THE STATE AS AN AUTHORITATIVE POLICY MAKING SYSTEM
• THE PRODUCTION STATE – AS A PROVIDER OF COLLECTIVE AND DISTRIBUTIONAL GOODS
• THE INTERMEDIARY STATE – AS A REPOSITORY, CREATOR AND MEDIATOR OF SOCIETAL
INTERESTS

• DEFINITION IN THE MALAYSIAN CONTEXT – THE PUBLIC SECTOR CONSISTS OF THE

FEDERAL, STATE AND LOCAL GOVERNMENTS AS WELL AS STATUTORY
AUTHORITIES AND NON-FINANCIAL PUBLIC ENTERPRISES
• THE PUBLIC INDUSTRIES ARE THE STATE-OWNED ENTERPRISES (SOE)
 PERFORMANCE OF SOE

• THE MALAYSIAN SOE SECTOR WAS A NET CONSUMER OF PUBLIC RESOURCES

• WITHOUT THE PETROLEUM SECTOR, FINANCIAL BURDEN WOULD HAVE BEEN
GREATER
• 40% TO 45% OF ALL SOE WERE UNPROFITABLE THROUGHOUT THE 1980S
• 25% OF ALL SOE HAD NEGATIVE SHAREHOLDER FUNDS

• ALL THESE WERE DUE TO HIGH LEVELS OF DEVELOPMENT EXPENDITURE

 PRIVATIZATION POLICY AND MALAYSIA
INCORPORATED POLICY
• PRIVATIZATION IS DEFINED AS THE TRANSFER OF THE PUBLIC SECTOR ACTIVITIES AND FUNCTIONS TO THE
PRIVATE SECTOR.
• IN 1983, THE PRIVATIZATION MASTER PLAN WAS LAUNCHED.
• OBJECTIVES OF PRIVATIZATION:
• TO RELIEVE THE GOVERNMENT’S FINANCIAL BURDEN
• TO IMPROVE WORK EFFICIENCY AND PRODUCTIVITY (PROMOTE COMPETITION)
• TO FACILITATE ECONOMIC GROWTH
• TO REDUCE THE SIZE AND PRESENCE OF THE PUBLIC SECTOR IN THE COMPANY
• TO MEET THE NEW ECONOMIC POLICY (NEP)
 PRIVATIZATION POLICY AND MALAYSIA
INCORPORATED POLICY (CONT.)
• MODE OF PRIVATIZATION:
• SALE OF EQUITY, E.G. MAS AND MISC
• SALE OF ASSETS, E.G. QUARRIES IN SELANGOR AND PERAK
• LEASE OF ASSETS, E.G. PORT KLANG
• MANAGEMENT BUY OUT (MBO), E.G. FIMA GROUP BHD
• BUILD-OPERATE-TRANSFER (BOT), HIGHWAYS AND ROADS
• MANAGEMENT CONTRACTS, E.G. PRIVATISATION AND MAINTENANCE OF FEDERAL ROADS
• BUILD-LEASE-TRANSFER (BLT), E.G. PRIVATE SECTOR BUILDING, LEASING AND TRANSFERRING FACILITIES TO THE
GOVERNMENT
• BUILD-OWN AND OPERATE (BOO), E.G. INDEPENDENT POWER PRODUCERS
• LAND SWAP, E.G. PRIVATE SECTOR BUILDING FACILITIES FOR THE AND PRIVATE SECTOR OPERATOR BEING AWARDED
WITH LAND OF EQUIVALENT VALUE

• MALAYSIA INCORPORATED, LAUNCHED ON 25 FEBRUARY 1983, AIMS TO ESTABLISH AND STRENGTHEN COOPERATION TO BENEFIT
BOTH THE PRIVATE AND PUBLIC SECTORS.
ACCOMPLISHMENTS OF PRIVATIZATION

• THE BEST WAY TO REBUILD WEAKENED PUBLIC SECTORS.

• STOPS LOSS MAKING PUBLIC SECTOR FROM ADDING TO GOVERNMENT DEBT.

• RAISES MORE MONEY FOR GOVERNMENT THROUGH TAXING.

• EXPANDS AN ENTERPRISE AND AN INDUSTRY.
• CREATES MORE JOBS AND GENERATING WEALTH FOR THE COUNTRY.
 PRIVATISATION ISSUES
• A PRIVATIZATION EXERCISE THAT MERELY INVOLVES SELLING A PORTION (OR MAJORITY) OF
THE SHARES OF A SOE TO THE PUBLIC WITHOUT GREATER EXPOSURE TO MARKET FORCES
MAY NOT BRING ABOUT DESIRED EFFICIENCY IMPROVEMENTS
• EFFICIENCY COULD BE GAINED BY MANAGEMENT REFORMS, GREATER PUBLIC ACCOUNTABILITY
AND TRANSPARENCY RATHER THAN CHANGE OF OWNERSHIP

• CONSUMER WELFARE
• LACK OF PRODUCTIVE AND ALLOCATIVE EFFICIENCY

• RENT SEEKING
• THE AWARD OF PRIVATIZATION PROJECTS MADE WITHOUT THE FORMALITIES OF AN OPEN TENDER
SYSTEM
• THIS WAS SANCTIONED BY THE OFFICIAL ‘FIRST COME FIRST SERVED’ POLICY AND WERE PROTECTED BY
AMENDMENTS TO THE OFFICIAL SECRET ACTS (OSA) FROM1986
• CONTRIBUTED TO INCREASING CRONYISM, MONEY POLITICS AND CORRUPTION
NEM IN STRENGTHENING THE PUBLIC SECTOR

• UNDERTAKE TASKS THAT PRIVATE SECTOR CANNOT PERFORM

• STRENGTHENING OF FISCAL MANAGEMENT:
• GREATER TRANSPARENCY
• PROVIDE RIGHT INCENTIVES
• DIVERSIFY GOVERNMENT’S REVENUE BASE (E.G. GST) AND STREAMLINE
EXPENDITURE