privatisation malaysia

Tuesday January 30

Privatisation a burden on workers: MTUC
Leong Kar Yen

5:47pm, Tue: Privatisation policies advocated by international financial institutions (IFIs) provide more bane than boon to the already marginalised position of Malaysian workers, according to a Malaysian Trades Union Congress (MTUC) official.

“Privatisation of transport, energy, telecommunications, sewage treatment and the corporatisation of healthcare and education has dramatically increased the costs of these goods and services, adding a strain on workers,” said MTUC secretary-general G Rajasekaran at a seminar organised by MTUC and the International Confederation of Free Trade Unions.

Rajasekaran added that privatisation ideally was to increase efficiency, productivity and lower costs, but in the case of Malaysia, privatisation allowed private monopolies to arise and this increased costs for consumers.

“The Asian Development Bank (ADB) continues to support privatisation by focusing narrowly on the topic,” Rajasekaran told participants at the three-day seminar entitled “Fiscal and Monetary Issues and IFI’s policies in Malaysia” in Petaling Jaya.

Demands of the state

According to Rajasekaran, ADB in November 1998 issued a Country Assistance Programme that prescribed projects covering a three-year period, consisting of loans and technical assistance programmes.

The programme was written in “close consultation with the government of Malaysia and other stakeholders”, he added.

“Often the IFI puts the demands of the state and the private sector before that of the communities. Who actually becomes the beneficiaries?”

Many of Malaysia’s privatised industries, such as transport, have been in the media limelight due to controversial buy-back schemes offered by the government.

One such scheme involved a bailout of RM1.79 billion to ailing national carrier Malaysia Airlines. Another bailout amounting to RM6 billion was for light rail transit operators Putra and Star.

Competitiveness in danger

Rajasekaran stated that Malaysia’s international competitiveness is in danger as corrupt politicians make short-term profits in exchange for long-term gains in productivity and efficiency.

“Stronger businesses are killed in favour of businesses linked to powerful politicians,” he added.

Rajasekaran also cited cases where ADB-endorsed projects, such as the Klang River Flood Mitigation and Environmental Management Project, did not consult local non-governmental organisations (NGO) and the people they represented.

“The project report indicates that the Committee to Support Urban Settlers as well as the effected settlers themselves were consulted.

“Speaking to the NGO concerned, we were told that they only had a brief discussion on the matter and were not informed or consulted during the implementation,” he said.

PRIVATISATION:
Now You See, Now You Don't!
HARAKAH 16-31 January 2001
By: MGG Pillai

The Prime Minister is still sold on privatising government assets to cronies, courtiers and siblings. The few that collapsed, he infers, are "inconsequential". These things happen in the normal run of business. But he was less than ingenious in his recent interview to Bernama, his annual tour de horizon that in recent years raises more questions than answers. He did not privatise these assets after due diligence. It was handed out to favoured business men, with often a large sweetener to boot. And all we guaranteed to fail, as indeed it has.
     With it is the failure of the New Economic Policy, not for its inherent shortcomings but for its ill-thought-out political agenda. MAS is in deep straits because of what he now insists is the social contract. It is important, he now says, that Malays be spoonfed. No effort is made to have them stand on their own feet. But there was no mention of this social contract when they were privatised.

     In fact, what brought this country to its present levels is how policies are implemented. Civil servants defang desirable policies such that success only postpones the heavy cost to a date in the future and makes sure that no institution of government can pull its own weight. Frighteningly, it would now take decades before we can begin to rebuild them. In the meanwhile, we degenerate as a nation.

     The government must now bail-out the continually indebted privatised entities because it must continue to employ Malays to keep the social contract, such as it is, alive. What has the government done in the past 30 years to break away from this pernicious cycle? Precious little.

     The six billionaires this created are all in debt, consequently giving all bumiputra entrepreneurs a bad name: they are all, in the public eye, failures. They are not. Those outside the government loop survive, often well, without government help or assistance. They are themselves angry at this bailout of cronies.

     The Chinese business men press-ganged are handpicked not for their ability but for their lack of it. So, Tan Sri Ting Pek Khiing, a former tractor driver, and his Ekran empire keeps going with projects which prove their incompetence: after making a mess of the Bakun hydroelectrice project, he is given another chance to build it; besides, he also gets an important subcontract for the submarine base at Sepanga Bay in Sabah. The former car salesman and insurance agent, Tan Sri Vincent Tan, cannot rise from his inability to run companies and businesses without fresh infusions of government projects.

     Let us look at the "few" failures: MISC, Westport, MAS, Renong, UEM, IWK. The failed star is the Tan Sri Halim Saad stable, with more than RM30 billion in debt. These seven companies owe a quarter of what KLSE stocks now are worth: about RM80 billion or US$20 billion. Let us take a few other examples. The two LRT companies, Star and Putra, are in debt to RM6 billion.

     The two bus companies, ParkMay and Intrakota, RM2.7 billion. MRCB RM1.4 billion, its associate companies NSTP RM1.9 billion, TV3 RM700 million. The list goes on. When you add the cronies' and courtiers' corporate debt, it could quintuple. In other words, the total debt now of KLSE companies equal what KLSE stocks were worth -- US$400 billion -- before the 1997 decline. The GDP, then, of US$100 biilion was a quarter of what KLSE stocks were worth. The GDP remains the same but the KLSE stocks are worth less.

     What went wrong? All these assets were privatised for no reason than for its stakeholders to make lots of money. The North-South Highway and all privatised highways were built not by competitive tender but in such a way that the privatised company would be loaded with debt it cannot repay. Then this heavily indebted company is listed on the stock exchange, with the promoters making a second killing. Even with tolls increased regularly, the companies cannot repay its loans.

     The government finds creative reasons to say why the management could not do better. But the companies had no incentive to do better. The government takes over the debts and then returns it to the management that caused the debts in the first place. If the government is serious about turning a profit, it should bring in a different management chosen for their competence and not political reliability.

     Look at just one company, MAS. Tan Sri Tajuddin Ramli's 29.9 per cent stake in MAS was acquired not for cash as he now claims but by manipulating MAS and Malaysian Helicopter Services share prices. MHS price was pushed nearly four times and MAS pushed down a third so that two MAS shares equalled one MHS share. MHS changed its name to Naluri.

     He then went raided MAS. The planes were transferred to a Labuan registered company called MAS Capital, which then leased the planes back to MAS. The catering and maintence departments were privatised to companies in his stable. One TR subsidiary insures the 100 or so MAS planes for about RM2 billion each, so a pilot tells me.

     Now, with RM9 billion in debt, MAS's TR stake is sold to the government at what he paid for it -- RM8 a share, but without planes and services. In other words, the government has bought a virtual airline in acquiring the TR stake. Tan Sri Tajuddin himself is in debt to about RM1 billion. So, he needs to be rescued, come what may. But why is he being paid RM8 in cash when it would be far cheaper to return the Naluri shares back to him? Or buy the controlling stake on the open market, either buying up MAS or Naluri shares?

     Indeed, with the government's golden share which equals 51 per cent of the share capital, why did it have to buy the MAS shares when it could have controlled it behind the scenes to rescue MAS. Further, why did not the government use the golden share to prevent Tan Sri Tajuddin from stripping MAS of its assets?

     Every crony is mollycoddled so that he does not ever face the market place. They should be left to their own devices. So thoroughly indebted they are that future generations would continue to pay for the mistakes now long after they are forgotten. The RM18 billion the Plus Highway owes is scandalous, especially since the management is returned to the same group that brought this debt about. Meanwhile, Renong goes about crowing that its RM30 billion debt is about to disappear into the government safety net.

     The Prime Minister insists the cronies, courtiers and siblings did badly because the KLSE went weak. But they failed because they looked upon the companies they acquired as a monkey sees flowers. None had any intention to hold on to them and create a business. Their only aim was to make as much money in the shortest time possible. But they believed this is best done by being indebted as quickly as possible.

     The government believed that paper profits they made in a burgeoning stock market was proof of success. And they flaunted their wealth. Their fleet of planes, by and large, have been repossessed. Each of these instant tycoons fell over each other to buy the latest model of motor cars and acquired wives, mistresses, baubles as if there was no tomorrow. In this make-believe world they did not see reality.

     What frightens is that the Prime Minister and his cabinet cares not a whit what this does to future generations. Or if Malaysia would survive this heavy debt. They announce projects and plans worth tens of billions. They is no money. But they brazen it through with more privatisation and more projects, lulling the people into believing that somehow by the skin of its teetch the country would survive. Were it that simple!


- MGG Pillai -

MALAYSIA'S PRIVATIZATION MESS

By John Matthias
December 31, 2000

The uproar over the Malaysian government's acquisition of a 29 percent stake in the national carrier Malaysia Airlines (MAS) and takeover of two light-rail projects has highlighted the dismal failure of Prime Minister Mahathir Mohamad's privatization programme.

It has also put Mahathir in a tight spot as the chorus of opposition grows over the increasingly regular bailouts of debt-ridden privatized entities parceled out to politically well-connected businessmen during the boom years.

While the government hopes the furor will fizzle out soon, the disturbed waters this time around may create a far-reaching ripple in view of the changing national scenario manifested in the people's aroused sentiments and awakened political conscience.

The rumblings of discontent can also be found in Mahathir's own party, UMNO. Supreme council member Shahrir Abdul Samad expressed disappointment with the government's decision to save an individual over the national carrier, warning it could cost the ruling National Front coalition significant votes.

The rallying cry of prominent opposition figure and Democratic Action Party national chairman, Lim Kit Siang, who in the 80's highlighted the government's privatization projects as "piratisation," has caught on with many groups speaking out against decisions that favor the few at the expense of the nation.

After months of speculation over the ailing performance of Malaysia Airlines System Bhd, the government confirmed it was paying RM1.79 billion (US$471 million) for the 29 percent stake owned by Naluri Berhad, controlled by ethnic Malay tycoon Tajudin Ramli.

What riled the public was that at RM8 per share, the government was forking out more than double MAS' market value of RM3.62 per share as at 20 December.

The lifeline was said to ease Tajudin of huge personal debts of RM999.4 million (US$263 million) and Naluri of RM888 million (US$233.6 million) in bank loans.

Tajudin has denied the move was a bailout saying the airline's revenue has doubled to RM8 billion (US$2.10 billion) since he took over. However, reports revealed MAS had performed poorly with debts of about RM9.4 billion (US$2.47 billion) and is headed for a fourth straight year of losses with a net loss of RM258.7 million (US$68 million) up to March this year.

The MAS deal was followed in quick succession by the proposed purchase of the assets of Putra, owned by the UMNO-linked industrial conglomerate Renong, and STAR, owned by the country's largest pension fund Employees Provident Fund, British construction company Taylor Woodrow and other state-run funds, for RM6 billion (US$1.57 billion).

Projek Usahasama Transit Ringan Automatik Sdn Bhd (Putra) and Sistem Transit Aliran Ringan Sdn Bhd (STAR) both operate LRT systems in Kuala Lumpur and were reported to have fallen far short of their passenger and revenue projections.

In what is said to be the country's biggest rescue of another failed privatization venture, the government would sell bonds with a maturity of five to 15 years, at coupon rates from 5.8 to 7.2 percent to raise funds for the purchase.

Undeniably, this was another setback for Mahathir, who through the privatization programme enabled companies led by an elite band of hand-picked Malay businessmen to manage key national projects.

Earlier this year, the government paid RM200 million ($52.6 million) to take over Prime Utilities Bhd, the company managing the national sewerage system through Indah Water Konsortium (IWK). On top of that, the government stood to lose a further $375 million in soft loans, described as "clearly irrecoverable losses."

In May this year, UMNO MP Ruhanie Ahmad had urged the government to take stern action if IWK was found to be lackadaisical as an example to all concessionaires to discharge their obligations to the people.

However, cynics are suggesting that far from penalizing the businessmen handed privatized entities on a silver platter, they are now rewarded for their failures with multi-billion ringgit bailouts at the expense of taxpayers.

Analysts who speculated that the IWK bailout indicated the government was prepared to denationalize other ailing privatized projects appear to have been proven right.

Malaysian Institute of Economic Research (MIER) executive director Mohamed Ariff had then described the government's move to acquire IWK as "de-privatization." He said the phenomenon was a "conversion of private debt to public debt."

Finance Minister Daim Zainuddin denied any bailout in favor of Tajudin and insisted the MAS value was above the market price, and had good assets and potential.

Finance Ministry advisor Mustapa Mohamad sang the same tune, citing the Asian financial crisis as reason for the government's intervention while blaming the high development and upgrading costs of a light-rail system and reduced passengers due to the economic downturn.

Independent groups have shot down these excuses and lambasted the government, with an NGO, Aliran, describing the MAS acquisition as "privatizing the profits and socializing the losses".

While Democratic Action Party vice-chairman Lim Guan Eng described the ugly head of "cronyism as still the key to doing business in Malaysia", many have come to accept cronyism as the key to the un-doing of businesses in Malaysia.

Regardless how adamant the government is in denying the bailouts of the ailing companies, pertinent questions remain unanswered.

Why has the government not made itself accountable and transparent and submitted itself to public opinion to justify the controversial moves? Why has calls for inquiries into failed projects not been heeded?

True to form, Prime Minister Mahathir Mohamad has condemned foreign critics for suggesting that the lack of transparency and reforms in corporate governance was pulling down the Malaysian stock market.

But a larger issue looms. Has Dr Mahathir's privatization brainchild, which he launched two years after he became prime minister in 1981 to boost Malay control of the economy, turned out to be mega flop?

While privatization has trimmed Malaysia's bloated civil service, with over 97,000 employees or 11.4 percent of the total public sector workforce transferred to the private sector, a nagging doubt persists that the underlying inefficiency and mismanagement had not been addressed, but merely transferred.

The biggest worry is that privatized projects numbering over 400, ranging from power utilities, telecommunications, highways, ports, water, TV stations to rubbish disposal, may fall into the same risk group.

The stark reality facing the nation is that if deprivatization via government bailouts has become an accepted means of turning around unprofitable privatized companies, the recent takeovers may just be the tip of the iceberg. - Asiafeatures.com

Malaysia's privatization at crossroads

By Lee Min Keong
May 15, 2000

When the Malaysian government paid almost 200 million ringgit ($52.6 million) recently to take over Prime Utilities Bhd, the company managing the national sewerage system, it raised a stink which threatened to tarnish the government's privatization program.

Prime Utilities subsidiary Indah Water Konsortium (IWK), the financially hobbled sewerage concessionaire, was lambasted by a government lawmaker during a parliamentary debate.

Ruhanie Ahmad, a backbencher with the ruling National Front coalition government, urged the government to take stern action if IWK was lackadaisical about the privatized project.

"There should be no compromise with IWK to serve as an example to all concessionaires to discharge their obligations to the people," retorted Ruhanie.

Predictably, the opposition also joined in the fray. Lim Kit Siang, national chairman of the mainly ethnic-Chinese Democratic Action Party, wants taxpayers to demand the reason for the $52.6 million "golden handshake" as compensation for the government bail-out of IWK.

But Lim, a critic of the privatization program, believes the government's exposure probably doesn't stop there. Government soft loans to IWK totaling $375 million "are clearly irrecoverable losses."

Criticized by consumers for charging "exorbitant rates," IWK has been cash strapped as only a third of its customers pay their bills.

The takeover of the waste water treatment company in February has far greater impact than just causing a furore among politicians. This may be the first time the federal government has taken back privatized projects.

Coming on the heels of its $250 million takeover of the massive Bakun Dam hydroelectric project in Sarawak state, the IWK rescue has prompted analysts to wonder if the government is prepared to denationalize ailing privatized projects.

The implication - billions of dollars in public funds may have to be pumped in to rescue ventures from crumbling under massive debts.

Calling it "de-privatization", Mohamed Ariff, executive director of the Malaysian Institute of Economic Research (MIER) says: "The implication is that private debt is now converted to public debt."

However, he concedes the government can't allow privatized projects providing essential services such as electricity generation and sewage treatment to close down. Rescuing such companies should only be a last resort, he adds.

The IWK and Bakun Dam debacles are viewed as major disappointments for Prime Minister Mahathir Mohamad, the architect of Malaysia's privatization policy.

After almost 17 years, the recent takeovers along with the financial problems plaguing other major privatized projects may prompt a major overhaul of the program.

PRIVATIZATION'S BENEFITS
Malaysian privatization, according to proponents, has been an astounding success but critics describe it as an unmitigated disaster.

While critics are scathing in their assessment, the government argues that privatization has been powering the country's decade-long economic boom before the regional financial crisis in 1997.

Mahathir asserts "privatization has without doubt enabled Malaysia to sustain high growth, while enabling the nation to keep up with demands for infrastructure".

Privatization had saved the government $33.97 billion in capital expenditure, besides gaining $5.65 billion from the sale of assets and equity, according to the premier.

Privatization has boosted the growth of the Kuala Lumpur Stock Exchange (KLSE). By March 1996, a total of 25 privatized entities were listed with a market capitalization of $40.07 billion or 22.5 percent of the exchange's capitalization.

Privatization has also trimmed Malaysia's bloated civil service. First Finance Minister Daim Zainuddin revealed last year that over 97,000 employees or 11.4 per cent of the total public sector workforce had been transferred to the private sector.

Malaysia's privatization program was the brainchild of Mahathir, who launched it two years after his appointment as premier 1981.

It was a radical policy departure from his predecessors who implemented the affirmative action New Economic Policy in 1970 to redress the economic inequalities between the ethnic Malays and the ethnic Chinese. The policy was to boost Malay control of the economy through public enterprises.

When Mahathir became premier, many of these state-owned companies had failed miserably and were bleeding the government's coffers.

The no-nonsense premier decided to take business out of the hands of government and hand it to the private sector, particularly a new breed of handpicked Malay entrepreneurs. The rest is history.

The scale of privatization which ensued was unprecedented. Malaysia became a model for privatization to many Asian countries.

Since 1983, Malaysia has privatized 434 projects ranging from power utilities, telecommunications, highways, ports, water, TV stations to parking fees and rubbish disposal.

A local research house report revealed that since the mid-1990s, the government had privatized projects totaling $56.68 billion.

To help these companies, the government often provided soft loans, tax incentives, loan guarantees and other favorable concessionary terms.

This includes the controversial practice of compensating highway concessionaires for not allowing them to increase toll rates as stipulated in the concession agreements. For example, the government revealed last year it paid $63.2 million in compensation to four highway concessionaires in 1998, with North-South Expressway concessionaire Projek Lebuhraya Utara Selatan (PLUS) getting the biggest chunk of $50.5 million. Between 1996 and 1998, the government was reported to have paid PLUS a total of $113.9 million in compensation.

The Democratic Action Party's Lim then said there was "no justification for such government subsidy or compensation to a private monopoly like PLUS as it is collecting over 1 billion ringgit in toll a year."

The Asian financial crisis saw various cash-strapped privatized entities seeking government assistance. This has exposed the government to criticisms that it is bailing out cronies and politically well-connected companies, according to critics.

The financial plight of IWK and infrastructure conglomerate Renong Berhad, recipient of Malaysia's choicest privatized projects, highlight the dangers of "over privatization." Fueled by easy capital, politically-linked groups borrowed aggressively during the boom times to grow into jack-of-all-trades conglomerates. Property developers became dam builders and mining companies built highways.

However, the Asian financial crisis proved to be an excruciating lesson for these highly leveraged groups. More than 20 privatized projects, including the KL Monorail (KL PRT) and New Pantai Expressway, with a total project value of over $22.3 billion ground to a halt as liquidity dried up when Malaysia's economy hit rock bottom in 1998(See related article on deferred privatization projects).

With financial institutions cutting off credit lines and interest rates hitting new highs, it would have been suicidal for these entities to proceed. Even though the Malaysian economy staged a recovery last year, many of these projects remain mothballed.

The recipe for financial disaster included unrealistic revenue projections and a funding mismatch where short-term loans were secured for projects with long gestation periods. These groups suck up much of the credit within the banking system, say economists.

For example, having its hands on various pieces of the privatization pie resulted in the Renong group racking debts of $5.26 billion by early 1999. The recession forced Renong to seek assistance of the government-backed Corporate Debt Restructuring Committee (CDRC).

The high-powered CDRC put together a scheme last year allowing Renong's cash-rich toll-road unit Projek Lebuhraya Utara-Selatan Bhd (PLUS) to sell $2.21 billion in bonds to repay part of the group's debts. PLUS is the builder-operator of the successful North-South Expressway, stretching from Perlis at the Malaysia-Thai border to Johor in the south.

A construction industry analyst notes during the boom years, well-connected companies and businessmen "went bananas" seeking privatized projects though many were obviously not viable.

In certain highway projects, the consultants' traffic projections were overly optimistic, according to the Kuala Lumpur-based analyst. "Some of these companies were enticed by the construction profits they could make through their construction units."

Other projects often cited as not financially viable included Kuala Lumpur's light rail transit (LRT) systems, the Malaysia-Singapore Second Link and the Kulim-Butterworth Highway in the north.

Designed to handle 200,000 vehicles daily, the Second Link was used by only 11,500 vehicles daily by 1998, or 5.7 per cent of the bridge's capacity.

Sistem Transit Aliran Ringan Sdn Bhd (STAR) and Projek Usahasama Transit Ringan Automatik Sdn Bhd (Putra) operate two LRT systems. Both have fallen far short of their passenger and revenue projections.

It is not unusual to sometimes ride in near empty trains during the off peak hours. The CDRC has also been called in to help Putra, a Renong unit, and STAR resolve the $1.63 billion debt they took for the LRT projects.

SILVER LINING
Malaysia's steep recession may have had a silver lining. Where once the award of a privatization contract was coveted as a financial gold mine, several companies have discovered it can quickly turn into a millstone around their corporate necks.

Not only is this is a costly chastisement for these companies, it is also a bitter pill for the less than prudent financial institutions bankrolling projects which turned out to be duds.

Ariff of the Malaysian Institute of Economic Research says the Malaysian government as well as other countries can learn from these privatization failures. This includes more caution when farming out privatization contracts and a higher level of transparency in privatization exercises.

Privatized entities laden with massive debts, he asserts, reveal inefficiency or mismanagement, or both. He agrees there were privatized projects which were "ill-conceived," adding that the concessionaires had over estimated potential revenue or under estimated the project costs.

But Ariff does not see the whole privatization program as a failure. "There are a number of success stories," he adds, citing the privatization of Port Klang, Malaysia's premier port, and local airports.

While no one discounts privatization's role in boosting Malaysia's impressive economic growth, there is growing disquiet about weaknesses in its implementation.

A senior corporate figure publicly raised such concerns recently when he said privatization needed to be fine-tuned to enhance transparency and better competition so that "past failures would not be repeated".

"Ineffectively implemented privatization programs will cause hardship to the people," says SungeiWay Group economic advisor Ramon Navaratnam.

"The pricing must be fair, the quality must be good. But in many privatization exercises, we can see the pricing is high but the quality is low. So, people question the rationale of the program."

Navaratnam, a former Finance Ministry secretary-general, highlights the pitfall of creating monopolies when implementing the policy. "Where possible, there should be two or three privatized entities in the same field," he proposes. Malaysia's experience has shown that a private monopoly inevitably results in significantly higher charges for services compared to a public monopoly.

The economic turmoil appears to have nudged the government to rethink the implementation procedures of the program. Aware of public dissatisfaction over certain projects, particularly the ever rising cost of privatized services, a government report stated "public opinion, where relevant, will be sought before certain projects are privatized."

The comments were contained in the mid-term review of the Seventh Malaysia Plan, a five-year national development program which ends in 2000.

And in a tacit acknowledgement that certain projects were less than successful, Daim said last year the government will no longer provide revenue guarantees for privatized projects, which in future "must be viable and bankable on their own".

During a meeting in Manila last year, Daim issued the terse message that the government was taking a tougher stance to ensure there was no bailing out of corporations using public funds, while private investors and lenders must take their appropriate "hair-cuts".

However, there was a caveat as Daim left open the possibility that certain privatized entities may be rescued. "...businesses that are badly managed should be allowed to fail".

"But there may be some grounds for government assistance for troubled industries and companies that fall under the criteria of national and strategic interests".

Daim, who helped Malaysia extricate itself from two recessions, stated "because of their size and importance in the economy, the failure of these industries and companies would have far-reaching economic and social implications".

Daim may well have had the Bakun Dam and IWK in mind.

While supporters of the government's position may argue that Bakun Dam and IWK fall under the ambit of "national and strategic interests," it riles many that they were apparently well compensated for their failures.

Are the Bakun Dam and IWK bailouts a portent of things to come? "I hope not," adds MIER's Ariff.

It is obvious that Malaysian privatization has reached a major crossroad. Malaysian taxpayers wait with trepidation to see whether the rescue plan will screech to a halt at just two or become a flood of private debt swamping the national treasury. - Asiafeatures.com

Saturday January 27

Privatisation policy fleecing the public
WORLDVIEW
Harun Rashid

5:10pm, Sat: The IMF makes a general recommendation to countries it attempts to assist with development and rescue loans. The countries are told that they should divest themselves of those publicly owned and operated activities which can be transferred to the private sector.

This recommendation is based on the view that private firms are more profit oriented, thus tend to be more efficient in carrying out the various operations of the enterprise. Developing countries improve their infrastructure using public funds derived from taxes, fees and publicly owned natural resources such as oil and timber sales.

Over a period of years the government of many developing countries becomes larded with large enterprises that are often nation-wide in scope. The government soon finds itself the owner-operator of auto plants, steel mills, railroads, airlines, trucking companies, hospitals, schools and universities, bus lines, ships, logging and oil companies (complete with refineries). The problem of transferring these large assets equitably and successfully to the private sector is thus a major undertaking.

Typically public operations will be privatised by transferring the assets to a new corporate entity. The shares will be offered to the public at a fair market price in stages, and the share price will then fluctuate on the open market according to perceptions of present and future earning potential.

But governments tend to feel threatened when the shares are bought by foreigners. There is a paranoid fear the foreigners will become re-colonisers. Therefore an effort is made to limit the number of shares allotted to foreign nationals. In addition, there may be affirmative action programs which favour one segment of the population over others, so that preferential shares are created. The equitable transfer of national assets to capable private hands is a difficult problem, and unless great care is taken to avoid it, the activity may give rise to charges of nepotism, cronyism and outright theft.

Instant fortunes

This is the unfortunate situation in Malaysia. The privatisation process is viewed with suspicion in many instances, especially when instant fortunes were given to family members and political partners. The selection of executives to provide management for the newly privatised companies is often from a narrow group of friends and ‘old-boy’ acquaintances who have assisted party leaders in their rise to power.

They frequently have neither the education nor the experience to successfully manage a large organisation. The subsequent inequities which occur, and eventually become public knowledge, create rancour toward the political leaders responsible.

The public outcry for full disclosure is genuine, and the politicians who ignore these requests for transparency create deep-seated resentment. A division arises between the political leaders and the public which deteriorates into repression and tyranny. The loss of human rights can be traced to the attempt to keep secret the transactions of the finance ministry. It is said with truth that money is the root of much evil.

The prime minister takes personal credit for much of the privatisation that has occurred. He has selected the people who hold the majority of the shares in many cases, and he has done this in the absence of a consultative body. There is no oversight. Thus the general outrage. Many of the executives have failed to demonstrate management ability, and the enterprises entrusted to them have failed.

Their failure is traced to the prime minister, who, rather than admit mis-judgment and accept responsibility, attempts to prove himself right by entrusting additional large chunks of public money to the same individual. He has the addiction of a compulsive gambler, making heavier and heavier bets in hopes of recouping his losses, the behavioural disease made more virulent by an occasional success.

Public funds to the rescue

Because failure of large public utilities and other important areas of national economic activity generate widespread and unforeseeable repercussions, they become too-big-to-fail, and the government is forced to bring public funds to the rescue. Shares must be bought back to return management control to the hands of the finance minister, who cannot be happy to handle the harness of a now-hobbled horse.

He not only gets a failing company as a hard-to-hold hot potato, he must also find means to pay for it, restructure and maintain it, all in a Herculean effort to staunch the massive outflow. Valuable funds desperately needed for other tottering projects must be shifted on an emergency basis to save the pale and prostrate prodigal.

When government operations are transparent and all funds are openly accounted for, the public accepts the risk, with some misgivings, making generous allowances for mistakes and ineptitude. It is when the exchanges of assets and funds are kept secret, and clouds are placed to cover the transactions, that the people become first irritated, then angry.

The secrecy creates an impression that public assets are being treated as personal property, taken as a self-appraised reward for service. This impression is reinforced by the conspicuous spending of political party members and their families.

The MAS re-purchase is a political fiasco for the Umno-BN party, and to this is now added the Kuala Lumpur city transit firms which have been returned to the finance ministry at enormous cost. One part, the monorail project, was allotted to a favourite flatterer, along with a huge loan to accomplish the project. But the project was not finished, and the work in progress stopped for three years "because of the fiscal crisis" that faced the country.

The public correctly notes that once the public has funded a project there can be no such excuse for not carrying it to completion. The costs were all put into the contract, and the contractor took the project and the money on favourable terms. Normally it is publicly funded projects which carry the country through difficult periods by providing employment and other economic stabilisers.

Where is the bond that all competent contractors put up to guarantee completion? (There is no such profitable business for the insurance companies of Malaysia. They are too busy fleecing the public of their pension funds through ill-conceived annuity schemes.) So the argument that the fiscal crisis interfered with the successful completion of the contract requires further clarification.

Imprudent decisions

In a period of expansion and feverish economic activity great enthusiasm may account for imprudent decisions which are later shown to suffer from poor planning. But it is difficult to admit mistakes.

It is the failure to reveal the true causes of the failures, and the arrogant insistence that no funds have been diverted to private accounts without tangible evidence, that contributes to public suspicion that political leaders have been using public funds for personal and party purposes. To this is added the bribes which come as kickbacks on large contracts, and for the approval and illegal transfer of public land and timber to private developers.

In Terengganu the records of past government mis-management have become available with a change of government. It will require a similar change in the federal government to achieve full disclosure of the mis-management and fiscal irregularities perpetrated by those who are at this moment busy covering their tracks. The strategy is to eradicate the paper trail, but today the trail is electronic, readily copied and preserved.

That a day of reckoning is ahead is more certain in this IT age. The details of illegal transactions are known to too many, and records are being kept for the day of final accounting. As the momentum for government reformation grows, more and more people forced to cooperate with thieves are finding courage to fight for a new day, a better country.

The oppressive fear has been lifted. There is but to presson on to the final victory. There will be leisure to catch the errant fowl.

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HARUN RASHID is a scientist avidly interested in the application of Islamic principles in international affairs. The promotion of goodwill through civilisational dialogue motivates his writing. His Worldview column is a personal analysis of Malaysian affairs from a global perspective.

Can privatisation succeed only with soft loans?

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From           "M.G.G. Pillai" <pillai@mgg.pc.my>
Organization   Unconfigured
Date           Thu, 25 Jun 1998 22:04:34 +0800
Newsgroups     soc.culture.malaysia,jaring.general

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When privatisation was mooted in the 1990s, the government insisted the private sector could do these services cheaper than it ever could. But instead of inviting bids, it handed these over to cronies, coterie and
business men close to the government, often in stealth and public ignorance. Often, it was an excellent exercise in cheating the consumer.
The recipients expected the cabinet to support its rapacious habits, and the consumer to grin and bear it. But when the sewage privatisation was parcelled out in 1984 to that international business man on unequestionable repute, Tan Sri Vincent Tan, the consumer worm turned.
Tan Sri Vincent Tan, in a series of corporate moves, made his money and decamped, transferring the debt to other gullible Bolehland business men.
IWK just cannot make money.

Four years on, IWK still negotiates the rates it could charge. The government continues to give it soft loans. With the RM500 million yesterday, it received so far RM1,425 million, with the chance its concession would be extended from 2028 to 2038. The much vaunted efficiency in privatisation is a far dream. It becomes clear to an idiot that these loans cannot be repaid. The corporate exercise its current leading shareholder engaged in to take control only ensures his ultimate bankruptcy. What the latest loan ensured is to delay that.

Every privatisation is under such strain. The Bakun hydroelectric
dam is a write-off, with its promoter, Tan Sri Dato' Dr Ting Pek Khiing, handsomely rewarded for his monumental incompetence. The Employees
Provident Fund under heavy strain for supporting it as it did. The government can all but forget the RM2,000 million interest-free loan it gave UEM/Renong to kickstart the North-South Highway privatisation project; the concessionaire wanted another loan on the same conditions for the same amount, but the finance minister, Dato' Seri Anwar Ibrahim, would give it only after proper accounts were presented on how the previous loan was used. That was never provided. The light rapid transit system is given to three crony-coterie companies, representing incompatible systems, and with all three in financial trouble; the government recently tried to bail out one with RM300 million, but it remains dead.

It appears in almost every such project, the preferred winner
laughs all the way to the bank at the government's gullibility.
Privatisation has failed, as has much of Bolehland's hyped ventures into industrialisation and global business. Every business man the government built up by giving him preferred contracts, privatised projects, and other economy handouts is in deep trouble.

The government's rush into privatising its activities, organising public utilities to support privatised components, reduced well-functioning and well-run public utilities into debt. Tenaga Nasional Berhad was forced to bring in independent power producers from whom it had to buy a fixed quantity of power, whether needed or not, at higher than its own manufacturing cost. Curiously, Tenaga could not penalise the IPP for not providing the contractual power. A well-functioning Telekoms, on
privatisation, attracted competitors at advantageous terms, especially when several formed by cronies and coterie moved in. A well-run airline
like Malaysian Airline System is in deep trouble because of the financial travails of its chairman, to whom it was privatised; today, to save that man, the minority shareholders are ignored. All three are now on the ho-hum list of any investor.

What the government should be considering is to nationalise these privatised projects, setting off the loans expended against the purchase price, which should be based on either the book balue or share market
price, whichever is lower, with the balance payable in long-term bonds. This will destroy the privatised companies, but that is the name of the game in business. Losses should be cut, and a serious restructuring done. But would the government listen?

M.G.G. Pillai
pillai@mgg.pc.my