PRIVATIZATION Privatization in Malaysia, Regulation, rent-seeking and policy failure

Malaysia’s national sewerage system 99RM84 million per annum 29 for the financial years 1999–2001. On 23 June2000, the MoF completed its purchase of IWK for RM192.54 million cash.Based on his 32 per cent stake in IWK, Ishak would have received RM61.6million (i.e. a loss of RM80.9 million).Ex post failureTariff revisionsThe downward tariff revisions and continued non-payment of seweragecharges underlines the government’s ex post political failure to enforcepayment. There were three tariff reviews (November 1996, April–June 1998and September 1999), followed by revisions (January 1997, July 1998 andOctober 1999) and discounts (1997, 1998, 1999). The concession period wassubsequently extended three times, following each tariff revision (1995–2022,with provisions for tariff revisions every three years after the first five yearsto adjust for inflation; 1996–2024; and 1998–2034) (Malaysian Business,16 June 1995) (Table 4.08).In August 1995, following widespread opposition, the government offereddiscounts of 40, 30 and 20 per cent respectively for the first, second and thirdyears for all non-household customers. The government was to compensateIWK with RM300 million for losses resulting from these discounts. However,when billing was extended to the state of Perak in October 1995, accumulationof arrears (for charges for the period commencing from the originaltakeover date) led to more public dissatisfaction. In May 1996, the governmentinitiated a tariff review exercise following further public complaintsabout rates, and in October 1996, ordered IWK to stop billing or collectingpayment pending a review. The review exercise addressed issues related tobilling, charges and services, as well as financing the development and managementof a modern and efficient sewerage system (Sewerage ServicesDepartment, Malaysia 1998).On 20 November 1996, the Prime Minister announced that IWK was towrite off RM180 million in unpaid sewerage charges and, in return, wouldbe provided with an additional RM450 million soft loan. The governmentalso announced new sewerage rates effective from 1 January 1997 based onthe principles of affordability and equitability, with businesses, industry andgovernment offices paying more to subsidize lower-income home owners.The first revision of rates not only reduced monthly charges, but alsochanged the basis of evaluation. Household customers (including governmentquarters) were charged fixed monthly rates from RM2 to RM8(depending on type of premise), and were exempted from water usagecharges. Commercial customers were levied a basic charge based on theannual value of the property 30 plus RM0.65 per cubic metre of water usageexceeding 100 cubic metres a month. Industrial customers were charged a flatrate based on the number of employees (Table 4.09).