Professional Documents
Culture Documents
26 Vikalpa
According to the EPU, the privatization policy is is in charge of implementing the privatization policy.
expected to contribute to growth by enlarging the role This committee looks into the overall problems in im-
of private investment in the economy and widen oppor- plementation and monitors the progress of the
tunities for private enterprise. Since a substantial part privatization policy. For detailed studies relating to
of the activities and public enterprises that would be individual undertakings, technical committees com-
privatized under this policy is already profitable, this prising of personnel from relevant departments and
policy would provide incentive for the private sector to ministries are formed. Based on their recommenda-
acquire assets of such undertakings and make them tions, necessary steps are taken to initiate the process of
even more profitable. In fact, the EPU envisages that privatization of the undertaking.
privatization would act as a catalyst for further
economic growth and contribute towards fulfillment of Since the announcement of the privatization policy
the country's aspiration to become a developed nation. in 1983, 90 public enterprises/projects have already
The commercial and profit orientation of private been privatized by December 1993 [Exhibit 1]. Of these,
enterprises is expected to provide the thrust for further 69 represent cases of takeover by the private sector of
growth. Moreover, through higher efficiency and the existing government undertakings, while the remain-
generation of higher profits by the private enterprises, ing 21 represent the construction of new infrastructure
the government would also be able to gain additional projects. The list given in Exhibit 1 does not include
revenues to finance its development plans. In addition, those government companies divested prior to 1983
privatization of several new projects will result in fur- under the scheme of transferring government's equity
ther growth, because these projects might otherwise in trust companies to Bumiputra. Under this scheme,
have been shelved owing to financial constraints of the which was launched in 1981, about 30 government
government. companies were transferred to Permodalan Nasional
An obvious intention of the privatization policy is Berhad (PNB) and thereafter to the Amanah Saham
to reduce the size of the public sector through Nasional (ASN) Unit Trust holders; in addition, about
withdrawal by the government from active and direct 120 small companies were sold to other private sector
participation in economic activities. During the 70s, the parties.
government's role in economic activities had extended
beyond the traditional areas of providing of public It is evident from Exhibit 1 that the methods used
goods and social services into the areas of commerce by the Malaysian government for privatization of
and industry resulting in a large public sector. The public entities are quite varied. The Privatization
feeling within the government is that this development Masterplan (1991) prepared by the EPU with the help of
is not healthy. The government, therefore, has decided a consortium of local and foreign consultants has vivid-
to withdraw its involvement progressively and instead ly described the following methods followed for im-
encourage more active private sector participation. plementing privatization in Malaysia.
The National Economic Policy of the Malaysian A. Sale of Equity: This mode of privatization applies
government is based on the principle of equitable dis- to government companies and it results in the
tribution through growth. Privatization is expected to transfer of three organization-related components,
provide vast opportunities towards the achievement of namely, management responsibility, assets and
this objective. While the number and involvement of
personnel. Sale of equity can either be partial or
Bumiputra (son of the soil) entrepreneurs and their
complete. A complete sale represents a transfer of
participation in various economic activities have been
100 per cent government equity in a company,
growing since the implementation of the NEP in 1970,
while a partial sale represents a transfer of less than
there is an urgent need to achieve further rapid progress
100 per cent. Some examples of privatization by this
in respect of restructuring the ownership pattern in the
method are Tenaga Nasional Berhad, Cement In
economy. The privatization policy would enable many
Bumiputras to participate directly or indirectly in the dustries of Malaysia, Sports Toto Malaysia,
privatization projects. Malaysian Airline System, and Malaysian Interna-
tional Shipping Corporation.
Implementation of Privatization Policy B. Sale of Assets: This method can apply to any kind
An inter-departmental Privatization Committee head- of government organization, be it a company or any
ed by the EPU under the Prime Minister's Department other type of entity. It may or may not involve the
28 Vikalpa
Note: Category 1 - privatizable in the short-term (within 2 years).
Category 2 - privatizable in the medium-term (2-5 years).
Category 3 - privatizable in the long-term (over 5 years).
Source: Privatization Masterplan (1991). Economic Planning Unit, Prime Minister's Department, Government of Malaysia.
Issues in Implementation
There are several issues that deserve careful attention government mainly intends to allow maximum practi-
while designing a well thought-out implementation cal degree of competition in privatized industries so
strategy. They are: that free play of market forces would dictate economic
decision-making in such industries. However, in cer-
tain cases of natural monopolies where introducing
legal aspects including amendment of existing laws effective competition may not be an economically vi-
or enactment of new laws able proposition, suitably designed regulatory
evolving appropriate regulatory framework framework has to be evolved and effectively introduced
primarily to act as a substitute for competitive pres-
policy decisions regarding the affected personnel
sures. The main purpose of such regulatory bodies is to
valuation of assets and equity ensure that the interests of the consumers are protected
capital market related issues especially with regard to price, quality, and availability
of the products or services involved. While deciding on
participation of Bumiputras
the regulatory framework, a delicate balance has to be
foreign participation in privatization of specified maintained between protecting consumers* interest on
public enterprises. the one hand and ensuring that the privatized entities
enjoy the commercial freedom required to improve
The Malaysian government has already amended a
efficiency on the other. The regulatory bodies already
number of laws which could have posed serious unin-
created to monitor the telecom and energy sectors rep-
tended obstacles to the privatization programme. For
resent good examples of the intensive thinking that has
instance, the Pensions Act (1980), the Telecommunica-
gone into the implementation of the privatization
tions Act (1950)j the Port Authorities Act (1963), and the
programme in Malaysia.
Electricity Act (1949) have already been amended to
facilitate smooth implementation of the privatization The sale of equity associated with privatization
programme. Moreover, through deregulation, the requires appropriate valuation of the amount of equity
30 Vikalpa
curred on the entities that were privatized. Also, the tributed to increasing Bumiputra participation in the
estimated cost of EOT projects implemented so far has corporate sector. Table 3 provides information on the
been RM 37.7billion and it is obvious that in the absence relative share of Bumiputras in corporate investment
of privatization, the government would have been re- during the period 1985 to 1992. Finally, it is also evident
quired to bear at least a part of this cost in its annual that privatization has significantly enlarged the
budget. Corporate tax collections have also shown a security base and volume of transactions at the KLSE in
rising trend in recent years partly on account of higher recent years. Currently, the top two companies listed on
corporate taxes paid by privatized entities. As a result, the KLSE in terms of market capitalization are the
the overall fiscal position in the annual budget has telecom and the electricity companies which have been
recovered significantly after 1990, with the year 1993 recently privatized.
showing a small fiscal surplus instead of a large deficit
as in earlier years (Table 2). Relevance of the Malaysian Experience for
The privatization programme has helped the Privatization in India
government to cut back the growing size of public It would be useful to review India's privatization
sector workforce. During the last few years, there has programme in the context of the Malaysian experience.
been a reduction in the public sector workforce by over The main thrust of privatization of public enterprises in
86 thousand. Moreover, the programme has also con- India has been a gradual disinvestment of a pre-deter-
mined proportion of the equity holdings by the govern- meant primarily to raise capital to meet new fiscal tar-
ment. The action in this direction commenced after the gets," and, "despite some increase in accountability to
industrial policy announcement in July 1991 which en- shareholders, there was not any great thrust to intro-
visaged partial disinvestment of public enterprise equi- duce private sector forces into the public sector under-
ty in selected cases as a means to ensure better market taking culture." Mr S Venkitaramanan, former RBI
discipline and to improve public enterprise perfor- Governor, who addressed the same forum, also argued
mance. By March 1993, the government had already that "partial privatization is not a solution except for the
realized Rs 4950 crore through four tranches of disin- problem of meeting the budget deficit."
vestment as indicated in Table 4.
Since such criticisms were also voiced earlier, the
In March 1993, there were 237 central public sector government had reconstituted the Committee on Disin-
undertakings in operation including 104 loss making vestment of Shares in Public Enterprises in November
enterprises. The total capital employed in these 1992 with Dr C Rangarajan as its Chairman. One of the
enterprises amounted to Rs 140 thousand crore, while major recommendations of the Rangarajan Committee
the net profit was only Rs 3.4 thousand crore indicating is that the percentage of equity to be divested should be
a meagre return of only 2.43 per cent on the capital 49 in the case of industries reserved for public sector and
employed. Thus, it is evident that the total amount 74 in other cases, as against the actual divestment of
divested so far still represents only a small proportion relatively insignificant proportion of equity so far. The
of the aggregate investment in all central public sector Committee has also recommended that instead of set-
undertakings taken together. Moreover, it also needs to ting the year-wise targets of disinvestment, there is a
be noted that more than 90 per cent of the amount need to evolve a clear action plan of privatization,
divested so far rests with the UTI and other public which should also incorporate a number of steps such
mutual funds. Hence, for all practical purposes, there is as corporatization of PSEs, restructuring of finances,
hardly any private ownership of public enterprise equi- and establishment of an independent regulatory com-
ty even after the four tranches of disinvestment. mission for the concerned sector wherever necessary.
Another major recommendation of the Committee per-
Of late, there has been a growing criticism of the tains to the introduction of a special scheme of preferen-
slow pace as well as the mode of privatization in India tial offer of shares to workers and employees of the PSEs
and several potential foreign investors have expressed to be privatized.
the feeling that India's privatization programme com-
pares poorly with that of several other countries. For It can be readily seen that the major aspects of the
instance, Mr Paul Zuckerman, Vice-Chairman of SG Rangarajan Committee's recommendations already
Warburg, argued at a recent meeting of the Subcon- constitute the basic elements of Malaysia's privatization
tinent Investment Forum at London (July 1994) that programme. In fact, the Malaysian experience clearly
disinvestment in the public sector undertakings in India indicates that a well thought-out comprehensive action
had never really been akin to privatization. In his as- plan incorporating the above mentioned elements is
sessment, which was shared by several others, "the almost like a precondition for the successful imple-
disinvestment in some companies in four stages was mentation of an effective privatization programme.
Exhibit 1: List of Privatized Projects as at December 1993
New Projects
1. Sistem Televisyen Malaysia Berhad BO 1983
2. North Klang Straits Bypass BOT 1983
3. }alan Ku.::hing/Kepong Interchange BOT 1985
4. Labuan Water Supply BOT 1987
5. KL Interchanges BOT 1988
6. NorthSouth Highway BOT 1988
7. Labuan-Beaufort Interconnection BOT 1988
8. lpoh Water Supply BOT 1989
9. Larut Matang Water Supply BOT 1989
10. Menara Kuala Lumpur BOT 1991
11. Plaza Rakyat BO 1993
12. Light Rail Transportation System BO 1993
13. Land Development Project at Lot PT4, Sale of
Bandar Baru Sentul Asset 1993
14. Second Crossing BOT 1993
15. Seremban-Port Dickson Highway BOT 1993
16. Paka Power Plant BOO 1993
17. Pasir Gudang Power Plant BOO 1993
18. Lumut Power Plant BOO 1993
19. Malacca Power Plant BOO 1993
20. Port Dickson Plant BOO 1993
21. Shah Alam Highway BOT 1993
Existing Projects
22. Sports Toto Malaysia Berhad Sale of Equity 1985
23. Malaysia Airline System (MAS) Sale of Equity 1985
24. RMAF toircraft Maintenance Depot Lease 1985
25. Malaysian International Shipping Sale of Equity 1986
Corporation Berhad (MISC)
26. Klang Container Terminal Lease + Sale of Asset 1986
27. Semenyih Dam Management Contract 1987
28. Marketing of Airtime, Radio Malaysia Management Contract 1987
29. RISDA Marketing Activities Management Contract 1987
30. Tradewinds Berhad Sale of Equity 1988
31. Maintenl!iroce of Tube Wells, Labuan Management Contract 1988
32. Syarikat Gula Padang Terap Sdn.Bhd. Sale of Equity 19811
33. Cement Manufacturers Sarawak Berhad Sale of Equity 19811
34 Vikalpa
Note: The above list does not include privatization projects which involve divestment of government companies under the
scheme of transferring government-owned enterprises to Bumiputra.
BO = Build-Operate
EOT = Build-Operate-Transfer
MBO = Management-Buy-Out
BOO = Build-Own-Operate
Source: Economic Planning Unit, Prime Minister's Department,
Government of Malaysia.
References
Privatization Masterplan (1991). Economic Planning Department, Government of Malaysia.
Unit, Prime Minister's Department, Government
Economic Report 1993-94 (1993). Ministry of Finance,
ofJ Malaysia.
Government of Malaysia.
Privatization: Malaysia's Experience (1993). Economic The Sixth Malaysia Plan 1991-95 (1990). Economic Plan-
Planning Unit, Prime Minister's Department, nning Unit, Prime Ministers Department, Govern
Government of Malaysia. Ment of Malaysia.
Mid-term Review of the Sixth Malaysia Plan 1991-95 (1993). Economic Survey 1992-93 & 1993-94. Ministry of Finance,
Economic Planning Unit, Prime Minister's Government of India.