PROPOSING AN INTERGRATED MODEL FOR LOCAL
INFRASTRUCTURE PROVISION IN MALAYSIA

DANI SALLEH
Faculty of Public Management and Law, Universiti Utara Malaysia

HO CHIN SIONG
Faculty of Built Environment, Universiti Teknologi Malaysia

INTRODUCTION

In Malaysia the rapid urbanisation process has created pressure for the provision of adequate and efficient of infrastructure. Similarly in other countries, infrastructure provision always concern with the involvement of public sector in the provision of physical facilities which range from public amenities, highways and road construction, dams for generating power supply, water treatment plant, airports and many others facilities at local level. The adequate provision of appropriate infrastructure is vital to the economic of our communities the local development in particular. In Malaysia, most of the local infrastructure traditionally was undertaken by local authorities. This practice therefore, was very much contributed financially consequences to the local authorities. In order to reduce the burden, an effective approach in reformation of the present practice should be formulated as an alternative means to secure the required infrastructure.

Under the present practice of planning system, local authority should be proactive in identifying ways to accommodate the incremental developments within it areas. As provided under present planning legislative, it gives power to local authority to regulate the development and also to impose requirements of financial contribution, adequate public amenities and appropriate infrastructure facilities to private developers’ prior planning permission is granted. This means that private developers are required to provide such as road improvement, construction of new roads and provision of other facilities.

By referring to Street, Drainage and Building Act 1974 (Act 133) under the provision of Section 133, local authority may to set up fund (Improvement Service Fund, ISF) to generate financial contribution prior development approval granted. The fund actually was prescribed only to be used for a specified range of infrastructure uses. In some cases, developers are required to pay for improvement of existing infrastructure or construction of new infrastructure such as drainage system, water and local road.

Figure 1: The location of Malaysia

It has been seen that most studies have shown that adequate infrastructure facilities are very important for urban development and it is clearly a necessary precondition to sustain economic development (for examples see Healey, 1995; Choguill, 1996; Kaplinsky, 1999; Altshuler and Gomez, 1993; Claydon and Smith, 1997; Ennis, 1997; Bunnel, 1995; Koegh, 1985). However, the increasing cost of providing infrastructure under scheduled allocation for public expenditure has had a significant impact on the capacity of the local authorities to provide infrastructure as it did in the past. Therefore, it is important for the local authority to be proactive in identifying ways to generate additional financial sources to accommodate infrastructure requirement within the current practice of development control system. This requires the local authority to improve their collection methods or diversify their sources of revenue and articulate development control to promote the provision of infrastructural facilities.

In this respect, planning system and development approval system can be seen as a potential mechanism for creation of urban growth in addition to its traditional function of enhancing environmental quality. Hence an effective approach within the framework of the present development control system should be formulated. In order to achieve this objective, it requires a thorough overview of the current scenario of local infrastructure and furthermore to understanding the practice of planning controls system in the country. For the purpose of this paper, the discussion intends to look at the scenario local infrastructure provision and how local authorities secure its infrastructure through the development control framework.

URBANISATION AND PLANNING FRAMEWORK

The development planning system in Malaysia is well established with a hierarchy from the national level to the lowest level. The lowest level is concerned with physical development within its domain. The system has been formulated in order to ensure a balance development in public interest. Meanwhile, the New Economic Policy (NEP, 1970-1990) has provided an idealised hierarchy of framework for physical land-use planning in the country. The development plans complement the upstream planning effort by providing the necessary physical development strategies for executing the above socio-economic development policies in definite spatial terms.

In the past three decades, Malaysia has been experiencing a progressive rate of urbanisation. Total urban population of Malaysia in 1991 population Census was reported at 7.68 million (54.3%), making more than half of the national total. It is anticipated that by year 2020, urban population would grow to 20 million (or 80.0%) of the total population. By referring to Table 1, urban population experience a rapid increase of population in urban areas from 1980 to 2000. The scenario was requires the relevant authority to provide adequate infrastructure in order to facilitate the in coming development. Therefore, several strategies have been adopted to maintain urban growth in order to ensure the achievement of an equitable urban growth situation.

At the local level these included the strategy to facilitate adequate urban infrastructure and services and the privatisation of local government functions. As revealed by Morgan and Susan (1988), development control should make an important contribution towards optimising land-use, while land-use planning through structure plans and local plans need to be pragmatic and forward-looking to ensure that cities remain attractive living places. Numerous factors impact on urban development and the relationship between these factors need to be understood. The importance of economic, social and technological factors should be reviewed timely and needed to be taken into consideration of land-use planning. To meet with the future trend of land-use demand, flexibility and forward planning will need to be incorporated into existing development plans. The development plans consists of structure plans and local plans require economic contents in providing a framework for future development and requirements.

TABLE 1: Projection of Urban Population in Peninsular Malaysia, 1911-2020

Year		Total	Urban		Rural
		Population	Population	%	Population	%
1911 1921 1931 1947 1957 1970 1980 1991 2000 2010* 2020*	2,339,000 2,906,691 3,787,758 4,908,086 6,267,955 8,819,928 11,426,613 14,127,556 16,884,000 20,582,000 25,088,000		250,273 406,936 570,513 929,928 1,666,969 2,662,787 4,182,759 7,676,486 10,838,000 14,406,700 20,070,400	10.7 14.0 15.1 18.9 26.6 30.2 36.6 54.3 64.2 70.0 80.0	2,088,727 2,399,755 3,217,245 3,978,158 4,600,986 6,157,141 7,243,854 6,541,070 6,046,000 6,174,300 5,017,600	89.3 86.0 84.9 81.1 73.4 69.8 63.4 45.7 35.8 30.0 20.0

Note: *Projected figures

Source: Federal Department of Town Planning, Malaysia (2003)

In Malaysia, according to Chung (1986), the expended role of town planning in the context of settlement planning can be based on the following five specific areas of specialisation namely; i). Development planning; ii). Socio-economic planning; iii). Civic design; iv). Infrastructure development planning; and v). Advocacy planning. With respect to infrastructure development planning, planning in itself is not confined to allocating land for various types of development. It is also concerned with the form of development and redevelopment. The problem of physical development and redevelopment which it has to deal are often highly complex, involving investment decisions across many related fields of policies, these included the planning of infrastructure facilities.

LOCAL INFRASTRUCTURE PROVISION

Introduction

Infrastructure provision in Malaysia of over a decade ago was almost entirely the public sector’s responsibility. Private sector left with a less important actors played in fulfilment the local needs. As argued by Yaacod and Naidu (2000), the government presumed that the economic of infrastructure precluded any substantial role for the private sector. Because of natural monopolies of economies of scale and externalities in the production and distribution of infrastructure services it was considered more suitable for public provision than private.

The involvement of the private sector in the overall development of the country was advocated as early as 1980s. Since then, the Malaysia government has stressed that the development of the country relies on the private sector as the primary engine of economic growth. Immediately after that, the Privatisation Concept was launched. The concept was a comprehensive policy which contains both program of economic liberalisation and deregulation initiated by the Malaysian government. The new approach in diversifying national economic strategy resulted in down-seizing the public sector while widening private sector opportunities. Since that, numerous public infrastructure projects which most of them were located within local authorities were financed and implemented using privatisation method. These ranging from various types of infrastructure, namely port, road, water supply, electricity supply, telecommunication and other. The method of privatisation are vary depend upon the nature of the facilities required. However, in Malaysia the most efficient method of privatisation are B.O.T, management contract, sale of equity and corporatisation. Table 2, detailed the methods of infrastructure that had been used under privatisation concept.

In the effort to increase effectiveness in local urban management, local infrastructure provision such as economic infrastructure and social infrastructure have been privatised to central agencies; and some of them have been privatised to private companies appointed by the local authorities (see 3.2 for further clarification on the terms referred). With the privatisation, the effective management of urban infrastructure is achieved. Successfully implemented of the concepts, it would contribute to overall development of urban and rural areas within the local authorities.

TABLE 2: Infrastructure Privatisation and Contracting in Malaysia

Sector and projects

Method of privatisation

Type of contract

Ports

Klang Port

Kelang Container Terminal

Kelang Port Management

Klang Multi Terminal

Johor Port

Bintulu

Penang Port

Lumut Maritime Terminal

Pelabuhan Tanjung Pelepas

Kuantan Port

Roads

North Klang Straits Bypass

Jln. Kuching/Kepong Interchange

KL Interchange

North-South Expressway

Second Link to Singapore

Penang Bridge

Butterworth-Kulim Expressway

Seremban-Port Dickson Highway

Shah Alam Expressway

North-South Expressway Central Link

KL-Karat Highway

New North Klang Straits Bypass

Cheras-Kajang Highway

Elevated Highway over Sg.Klang and Sg. Ampang

Damansara-Puchong – Putra Jaya Highway

New Pantai Highway

Sungai Besi Road

Water Supply

Labuan Water Supply

Ipoh Water Supply

Larut Matang Water Supply

Semenyih Dam

Tube Well Maintenance, Labuan

Johor Water Authority

Pulau Pinang Water Authority

Power

Tenaga National Berhad (TNB)

Independent Power Producer (IPP)

YTL-Paka and Pasir Gudang

SEV-Lumut

GSP-Sepang

PDP-Port Dickson

PSP-Powertek, Melaka

Telecommunications

Telekom Malaysia Berhad

10 Private telecommunications operators

Others

KTM Berhad (Malayan Railway)

Malaysian Airports Berhad

National Sewerage System (IWK)

Light Rail Transit System I (phase 1)

Light Rail Transit System I (phase 2)

Light Rail Transit System II

Sale of equity (1986)

Sale of equity (1992)

Sale of equity and BOT(1986)

Sale of equity (1995)

Corporatization (1993)

Corporatization (1994)

BOOT (1993)

BOOT (1995)

Sale of equity

BOT(1984)

BOT(1985)

BOT(1987)

BOT(1988)

BOT(1993)

Management contract (1993)

BOT(1994)

BOT(1995)

BOT(1996)

BOT(1987)

BOT(1989)

Management contract (1987)

Management contract (1988)

Corporatization (1994)

Corporatization (1987)

Sale of equity (1992)

BOT(1995)b

BOT(1996-1997)b

BOT(1994-1996)b

BOT(1995)b

(1990)

Corporatization (1992)

BOT(1992)

BOT(1993)

BOT(1994)

Lease (21+30 years)

Lease (30 yrs) and concession (33 yrs)

Lease (30+30 years)

Lease

Concession

Lease

Concession (25 years)

Concession (16 years)

Concession (30 years)

Management contract (25 years)

Concession (32 years)

Concession (30 years)

Concession (29 years)

Concession (25 years)

Concession (27 years)

Concession (25 years)

Concession (30 years)

Concession (33 years)

Concession (30 years)

Concession

Management contract

Lease

License (21 years)

Power purchase agreement (21 years)

License (21 years)

License

Lease

Concession (28 years)

Concession (60+60 years)

Note: i. BOT is Build-Operate-Transfer; BOOT is Build-Operate-Own-Transfer.

ii. a. Transaction was pending in 1996. b. Date of commissioning.

Source: Yahya Yaakob, Naidu, G. (2001)

With regards to the infrastructure improvement and infrastructure provision within the local councils’ jurisdiction, vests on various ministries or departments including the local authority itself to financing infrastructure projects (Mohammad Nong, 1990). The local authorities in responses to this have taken steps to upgrade its infrastructure facilities within its areas. Since then millions of ringgits[1] has being spent on the provision of infrastructures in the form of roads, water, domestic solid waste incinerator facilities and electricity supply, telecommunication facilities and others through various relevant implementation departments in the local authority. Such huge expenditure within limited of resources requires local authorities implementing its development project in particular infrastructure projects strategically. This is a must in order to stimulate the strategic urban sector development and avoiding the allocations taped to less needed projects.

The concept of local Infrastructure

Generally, the term of infrastructure itself brought a very technical terminology. It can be defined as the basic physical systems of a country's or community's population, including roads, utilities, water, sewage, etc. Economically, these systems are considered essential for enabling productivity. Developing infrastructure often requires large initial investment, but the economies of scale tend to be significant. There is a need for a determined framework definition of the term local infrastructure.

In the Malaysian planning system, there is no definite definition available to describe the term local infrastructure provision. In the development plans which are refers to Structure Plans (SP) and Local Plans (LP). Even the terms was used alternately in many planning reports. However, the terms (SP and LP) most of the time would be refers to public amenities and public utilities[2]. As interpreted in Section 2 of Town and Country Planning Act 1976 (Act 172) (Act A1129), the terms public amenities to;

“..Public amenities means such quality or condition of a place or area as contribute to its pleasantness, harmony, and better enjoyment, and includes open spaces, parks, recreation grounds, and playgrounds..”;

Whereas the term public utilities would refers;

“.. To roads, water and electricity supplies, street lighting, sewerage, drainage, public work, and other similar public services and conveniences…”

According to Stewardson (1995), there are two types of infrastructure always referred. It is often made the distinction between 'economic infrastructure' and 'social infrastructure'. Economic infrastructure usually refers to transport, gas and water, electricity and communication infrastructure due to their 'hard' engineering-based delivery networks. Therefore 'social infrastructure' may include State Primary School and Secondary School, public hospitals, police and emergency services and inter-local district roads. Webb (2004)[3], when discussing the influence of investment in infrastructure provision on the local development, classified infrastructure into two main level, first economic infrastructure (which includes physical facilities such as telecommunications and transport networks) and secondly social infrastructure (such as schools, hospitals, public housing open space etc.)

Before we go further on the subjects discussed, it would better if the type of infrastructure be elaborated earlier. Based on a study conducted by Utah Governor’s Office of Planning and Budget (2004)[4] to develop Infrastructure Cost Assessment Model, it was then identified that there are three levels of infrastructure;

1. Regional infrastructure, these facilities are planned by regional or state governments and financed by state and or federal funds. These including regional roads, transit and water supply facilities.

2. Sub-regional (off-site) infrastructure, these infrastructure maintained by the municipality or service district which are financed by local governments through the sale of bonds, levying of impact fees, or use of tax revenues. The facilities falls under this category are water and waste water treatment facilities along with distribution lines, storm drain lines and basins, and minor arterial roads.

3. On-site infrastructure provided by developers. This type of infrastructure normally financed by the private developers which are reclaimed their costs through the sale of improved lots. On-site infrastructure is classified into the categories of roads, water transmission lines, sewer transmission lines, dry utilities (telephone, electric, etc.), and storm drains.

Urbanisation and local infrastructure

As predicted from Eight Malaysia Plan (8MP, 2001-2005) the country would experience a high rate of urbanisation of 66.9%. However, the more developed states 6 experienced high urbanisation rate ranged from 50 per cent to 100 per cent. Whereas in the less developed states ranged between 33 per cents to 50 per cents. Comparatively the developed states in the west cost of Peninsular Malaysia experiences urbanisation rate higher than national average (about 77.7%). This is due to two main factors, namely the expansion of modern sector in existing towns and the greater rate of rural urban migration (see Table 3). These factors will continue to influence the urbanisation rate in future. In line with the national trend, the development of individual cities and towns in Malaysia is also keeping pace.

This scenario is typical of growing economies. The increase in urbanisation rate directly exerts pressure on the demands of local infrastructure to support the urban growth. This requires the local administration to evolve efficient urban delivery mechanisms for infrastructure provision particularly off-site infrastructure. The emphasis at local level was to ensure that the urbanisation process planned and implemented enhances local economic development.

Meanwhile, in 1999 Local Agenda 21 was launched to strengthen the sustainability of local development. The programme was jointly collaborated by involving local authorities, local communities and community based organisations. The main objective is to improve the land use planning, management of natural resources and in particular to improve the present local infrastructure management. To this end, four local authorities were selected as pilot projects. These included the cities of Petaling Jaya, Krian, Kuantan and Miri.

TABLE 3: The Distribution of Urban Population 1980-2000

Period	1980		1985		1990		1995		2000
	‘000	%	‘000	%	‘000	%	‘000	%	‘000	%
Pen. Malaysia Sabah Sarawak	4,304.4 210.6 238.2	37.5 20.0 17.6	5,326.4 289.4 296.4	41.1 22.6 19.2	6,527.2 388.3 366.3	44.7 25.6 20.9	8,132.8 472.5 445.7	49.2 27.5 22.5	9,897.6 575.1 542.5	52.9 29.6 24.9
Malaysia	4753.2	34.2	5,912.2	37.4	7,281	40.7	9,051.1	44.7	11,015.2	48.1

Source: Adapted from Malaysian Plans

Rapid urbanisation process was resulted in the increase of adequate requirements of local infrastructure provision. For example, the rapid population increase in urban areas, particularly major cities and towns, will definitely generate a lot of water waste. Meanwhile, the demands for water also increase greatly with the rapid population growth. In 1980 the demand for waste water is about 1,145 million gallons per day (mld), in 1990 it has increased to 1,667 millions gallons per day and 2,434 million gallons per day in 2000. Consequently, by the year 1985 the government has to spend more than RM2.5 billion on water supply investments just meet the water demand between 1990-1995 periods. Also the increase in the urban population has also generated a lot of waste. Tere was 989,414 tons of solid waste generated in the urban areas in Malaysia in 1980. This figure increased to 1,448,577 tons in 1990, and in 2000 it increased to more than 2 million tons of solid waste was generated. In terms of investment, the government requires more than RM400 million to build solid waste disposal sites in order to cater for this huge increase in solid waste (see Appendices 1 and 2).

Furthermore, as provided in Section 41 of the Local Government Act 1976 (Act 171), local authority is permitted to take up a loan of not more than five times the annual value as contained in its current valuation list. However, due to the rapid rate of development and urbanisation, certain new funds have been introduced to mobilised resources in assisting the local authority meets the required infrastructure facilities. The new financial funds are;

i. The minimum rate of equalisation grants has increased from RM107,500.00 to RM215,000.00. This is intended to increase the fiscal capacity of the needy local authorities for the purpose of the overall maintenance of their areas.

ii. For the purpose of maintenance of public buildings (such as schools, hospitals, local roads, drainage system), the Federal Government has approved an allocation of RM1.8 billion. Out of this total, RM50 million was granted to local authorities for maintenance of drainage system as outright grant. This specific allocation for the maintenance of drainage system by local authorities was to attain and enhance a clean environment in the urban and rural areas.

iii. For the improvement of infrastructure and facilities in the traditional villages and new villages, the Federal Government has also allocated a fund of RM30 million.

iv. As part of the Clean and Beautification programme for urban areas, and allocation of RM30 million has been approved to local authorities.

What can be concluded that, the revenue collected by all the local authorities in Peninsular Malaysia could be broken down into two major sources which are internal sources and external sources. Revenue collected from local sources are raised from taxes and business licence fees or charges from public services consumed as provided in Local Government Act, 1976 (Act 171). The external sources of funds are either from government grants or borrowings from the State or Federal Government or commercial financial institutions. For example see Table 6 and 7, the tables elaborates the extent the local authority receives and expends the revenue collected in one of rapid growth local authority in Malaysia ( MHLG, 2000)[5].

Specifically, revenue collected by local authorities could be classified into six major groupings which are;

i). Real property tax or assessment: Is a tax levied on all holdings within the local authority area. The property tax is the main income for most local authorities.

ii). Licence fees: The licence fee is used as a means of regulating the business activities within a local authority.

iii). Rentals: Rentals of the local authority’s properties.

iv). Government grants: Grants received from the central government in the form of road grants and annual grants.

v). Parking lots fees, plan fees, interest receivable and miscellaneous items.

vi). Loans.

vii). Improvement Services Fund (ISF): Revenue collected as provided under Street, Drainage and Building Act 1974 (Act 133), Part VI: Section 132. The provision have to be used together with the relevant provisions under Town and Country Planning Act 1976 (Act 172).

The development plans also contained the policies which requires for the provision of on-site relevant facilities. Where the policy describes that the type of facilities or public amenities has potential to be provided in the particular location. Actually, the policy statements, give very strong requirements in improving the on-site infrastructure and these are i). to improve the quality of the present infrastructure facilities, ii). to improve access to and circulation to the location of the facilities provided, and iii). to identify the strategic and accessible location of newly development projects. When large property projects (residential) schemes are developed, it normally involves a negotiation process between public and private parties (developers) to secure off-site infrastructures prior granting of planning permission. As a result of these negotiations it affects the financial aspects of the proposed development process.

In the context of Malaysia planning system, development control in the general is being practiced implicitly and explicitly through process under the Town and Country Planning Act 1976 (Act 172). The development control in the country had in fact been started before any institutionalised planning established. According to Goh (1991) at least in Peninsular Malaysia before the formal planning institution was set up, there were two incidences of fire in centre of Georgetown in 1813 and the town of Kuala Lumpur in 1881. These have prompted conscious reactionary towards development control measures in the form of by-laws in Peninsular Malaysia (Shamsulbahar, 1988).

Consequently, these prompted conscious reactionary development control measures are in the form of by-laws. These by-laws was empowered under the town’s Sanitary Board (then Local Authority) the towns were divided into land use zones and which prohibited the use of timber construction material in certain areas (Anuar, 1994). There are three types of development control systems, namely i). a system originated and practiced in British planning system, so-called discretionary system of control; ii). the heavily regulated development control system (often regarded as rigid-based system) as practiced in French and Americans; and lastly iii). the mixed-system called hybrid which is a mix of both system.

In the context of planning system in Malaysia, the local authority is empowered to grant or refuse any planning permission in its areas. When a planning application (as required by Act 172) is sent to the local authority, the local authority considers whether the proposal is in accordance with the Local Plan if there is one. If there are no Local Plans for the area, decisions are made on an ad-hoc basis. The Planning Department processes the application and recommends to the planning committee to approve the application, or refuse it or approve it with condition. But because of the variation in size and character between one authority and another the pattern in decision making is not uniform. The planning approval for a building or subdivision of land does take a long time because so many departments within and outside the local authority are involved in the approval process (see Figure 2).

Analysing the trends of urbanisation and demands for various types of urban infrastructure and services has generated several key financial issues. It is apparently that the investment needed to cater for the increased demand for urban infrastructure is tremendous. The total investment needed to finance major infrastructure projects in the major urban centres was on increasing from RM6 billion (1981-1985) to RM10.2 billion in the 1986-1990 (Muhamad Nong, 1990)[6] and however for the period 1991-2000, more than RM19 billion is expected required to provide the such facilities.

The question is whether or not the relevant authority involved; particularly local authorities have the money to invest such a huge sum of money. Looking a the revenue capability of the local authorities it is impossible for them to finance the urban infrastructure and services needed. For example, cost of financing the central sewerage scheme of one local authority is more than 2/3 of its annual revenue in order to pay the sewerage loan. Indeed very few of the local authorities in Malaysia on its resources is capable of financing such huge sum of investment needed for the local infrastructure and services.

Another question is that the issues of maintenance. The local infrastructure will need to be properly maintained if it were to be useful to the public. Without proper maintenance, the existing infrastructure would further incur higher cost for normal operating. Take sewerage system for example, with lacks of maintenance by the local authorities it is estimated that almost all the investment in the sewerage development in the past requires a very huge of allocation for repairing purposes. Without proper maintenance, the sewerage system became more of a storage system rather than sewerage treatment system. It does not solve the sewerage problems. This clearly was one of the issues of local maintenance investment. Yet, for many local authorities and other government agencies this is a neglected area. Based on a study (by Public Works Department) shows that less than 1 percent of the budget allocated were devoted for infrastructure maintenance. Obviously this figure was insufficient and much more amount of allocation is needed for maintenance if the problem of investment is to be overcome.

Another critical aspect of local infrastructure provision was the issues pertaining to financial management. Local authorities in Malaysia not only experiencing lack of qualified and experienced financial accountant, however they also working very hard with insufficient and outdated financial procedure. Financial aspect of local authorities was not always the main concerns of development and this financial factor is important for efficient management of local infrastructure. According to Mohammad Nong (1990), most local authorities does not use an effective financial management of local infrastructure. Presently, more than 80 percent of the local authorities do not have proper qualified accountants.

The sources of revenue for local authority are the collection of taxes income such as assessment rates on houses and buildings and non-tax income which includes the issue and renewal of trading licenses, rental of stalls, parking fees and fines. Like public companies, the survival of local authority and their financial health depends on how well they collect revenue and increase income, and how efficient they are in controlling expenditure.

The expenditure of local authority is divided into two broad categories; i). administrative and operating expenditure; ii). development expenditure. One can work out whether it is a surplus or deficit budget by subtracting the total expenditure from total revenue. Administrative and operating expenditure includes salary and emoluments of local authority staff, acquisition of services and supplies, upkeep of roads and traffic systems, town cleaning and health programs, among others. Development expenditure involves the construction of new roads and infrastructure, parking facilities, recreational parks, wet markets, hawker centres and others.

The administrative and operating expenditure grows steadily with staff salary increments and benefits as stipulated in the government's proposal to improve the remuneration of civil servants. The pattern of development expenditure can jump drastically as special needs arise, say, in preparation for hosting of major sporting event or to build new infrastructure to replace old ones.

It is important for the local councils to generate enough income to pay their staff, at least. Development expenses can be obtained from federal government or the Ministry of Housing and Local Government (MHLG) for the financing of certain projects or special programs. MHLG receives a yearly allocation of around RM400 million from federal government to be granted to local authority in need of such funds for development. Meanwhile, the local councils are not profit-making concerns, they are urged to manage their finances well and achieve balanced budgets, apart from improving the quality of services to their residents.

The more prosperous a town, the greater the revenue that a local authority can generate from the collection of assessment rates and license fees from new buildings and increased business activities. Such revenue will then be channelled into development expenditure to enhance the standard of services provided by local authority. However, the reverse is true of the poorer towns, which often find it difficult to maintain their roads or infrastructure and have to rely on government grants. Local authorities are encouraged to undertake projects that will generate new income for them, such as multi-story car parks or buildings for rental. Some local authorities are very good at it, by going into joint-ventures with the private sector. But they must balance new development with the welfare of residents. Since the local authorities are not allowed or prohibited from raising funds from the public, and they cannot simply raise taxes or rates, they have to either improve their collection methods or broaden their sources of revenue.

According to Asiah (1999), in Malaysia under the current, local authorities are able to impose the private housing developers to provide a list of requirements including water supply, electricity and telecommunications according to the standards and requirements of the relevant departments. These requirements form an integral part of development cost and total up to 40 percent of the total cost of the project. However, the rapid increase of new development areas still cannot accommodate with the addition of population. The present practice of infrastructure provision must be reviewed according to the scenario. The reviewed process must have a win-win situation between local authority and developers without damaging the property market. Most importantly, the main objective is that the LPAs should be more realistic and conducive in reviewing and formulating policies related to infrastructure provision by taking into consideration the interests of developers in the uncertainty of economic scenario. Basically, the involvement of private sectors will naturally be increased when there is enough availability of required infrastructure facilities which enable then to supports the future proposed development. In order to sustain the participation of private sector, a long-term public interest rather than short-term private interest should be given more consideration by LPAs.

There are 145 local authorities in the different states and federal territories in Malaysia. They collect revenue to pay its staff, maintain its roads and infrastructure as well as construction of new development projects for the benefit of residents. The local authority have to keep their biggest stakeholders (the local residents) to fulfil their basic requirements. And they have to do this by tapping their resources efficiently and effectively. In theory, they should operate as efficiently and effectively.

The 144 local authorities collect around RM11.92 billion of revenue in total each year (up to October 2003) and spend RM13.2 billion (see table 4.6x1). These figures sum up the consolidated state governments’ finances as announced in the economic report (of all local authority in all states) with that of the City Hall of Kuala Lumpur Dewan (DBKL). The total local authority revenue, which comprises assessment rates, trading licenses, parking fees and grants from state government, is roughly 11.3% of the consolidated general government revenue of RM105.5 billion estimated for 2003. It is worth noting that general revenue of local councils is much higher than all the state governments’ revenue combined because it is entitled by the Constitution to a large source of tax revenue like personal and corporate taxes. Local authority (included municipal councils) or state governments do not collect personal income or corporate taxes.

Being effectively the DBKL is the largest among 144 local authorities in terms of yearly income revenue with total revenue collection is more than 1.5 times that of four large municipal councils in Selangor namely Petaling Jaya (MPPJ), Subang Jaya (MPSJ), Shah Alam (MPSA) and Klang (MPK), whereas its total spending is 3.1 times more theirs (see Table 4).

By referring to the same table, the 2003 DBKL’s budget envisages a total revenue collection of RM918.66 million for the current year, with plans to spend RM1.82 billion. It also incurs that the biggest deficit RM897.26 million is expected for this year (RM304.04 deficit in 2002). The huge deficit this year is mainly attributed to the 51.7% increase in development expenditure to RM927.42 million of which RM405.23 million will be funded by the federal government. This enormous amount of development expenditure is in line with the objective of creating a world –class city in Kuala Lumpur. The upgrading and construction of new roads, interchanges and elevated highways will see the biggest spending. This will cost RM397.55 million or 42.9% of the total allocation for development expenditure. On top of that, DBKL has allocated RM 145.65 million to accommodate the Klang Valley integrated transport project, to build new taxi stands, pedestrian sidewalks and special bus lanes, among others. DBKL is the only municipal council which has a bigger allocation for development expenditure than administrative and operating expenditure, underpinning the rapid development in the Federal Territory. This is despite the general trend at other local authority to have far bigger allocations for administrative and operating expenditure than development.

There is a wide gap between the municipals councils of bigger towns and smaller ones. Kuching, for instance, collects less than RM60 million in annual revenue just roughly one-third that of Penang. It is worth noting that the seven major municipal councils above are expected to collect a total revenue of RM1.76 billion for this year, or 15.0% of the estimated RM11.92 billion total revenue collection of all 144 local authorities combined.

For instants, in Municipal Council of Penang Island (see Table 5), the council also performs the various functions ranging from land use planning and control, traffic management and control, including managing urban public transport systems, urban services maintenance, health services and many other functions. For instance, the Engineering Department is responsible for the planning, construction, maintenance and control of traffic for the entire Penang Island, except for federal roads, processing of road-digging permits by utility agencies and maintaining and repairing roads, pavements and drainage system within the city limits and free industrial zones. Each of these functions estimated almost more than 45% of average estimated council’s gross annual revenue. The raising cost of development and more particular infrastructure provision expenditures require an urgent step and efforts to be formulated. Obviously, this means that more pressure on MPPP to manage the needs of the different stakeholders of Penang Island while ensuring a better quality of life for all residents.

From the discussion in the paper, the main problem of local infrastructure always associates with inadequate funds. Issue pertaining to local infrastructure provision was a multi of issues. Given this facts any mechanism put forwards for the solution should be able to consider all significant attributes towards successful local infrastructure provision. Therefore, the appropriate model to ease the outstanding problem of local infrastructure should be integrated and incorporate many sectors. The main feature of the model was developed by incorporating the development approval system component as the main engine. The main keys features are;

i. Adopting the present related legislative framework of planning system (development control system) to recoup the direct costs from beneficiaries (e.g. private property developers) rather than through general town-wide taxation;

ii. Maximising cost recovery from beneficiaries within affordable and locally acceptable limits.

By referring to Figure 3 and 4, model emphasises development approval mechanism to be vital components in local infrastructure provision by integrating other multi-funding, likely i). Built-Operate-Transfer (BOT); ii). Service or Management Contract; iii). Joint-Venture (JV) and iv). Issuing Municipal Bonds.

The main reason of why these multi-funding be the main components because during development approval stage local authority may initiated some sort of adverse offer from private developers to enter negotiation for additional planning approval instead of normal approval. During the negotiation, local authority will be offered a preferable items to be considered as developer’s contributions as a return for local authority from the negotiation process. Under present relevant legislative, local authorities are not allowed to impose any excessive requirements since it not stated in the appropriate acts

[1] Ringgit was the Malaysian currency (e.g. US$1.00=RM3.80).
[2] MPPP (1987) Penang Structure plans.
[3] Webb, R. (2004). The Commonwealth Government’s Role in Infrastructure Provision. Department of Parliamentary Services of Australia. Research Paper No. 8 2003-04.
[4] Utah Governor’s Office of Planning and Budget (2004)
[5] Ministry of Housing and Local Government, 2000.
[6] Muhamad Nong (1990). Financing urban infrastructure: trends and key issues. Paper presented at National Planning Conference. 8-9^th. November, 1990.Kuala Lumpur.
[7] The model developed based on the author’s initial findings on the study of local infrastructure and development control in Malaysia.