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

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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).
Table 4.08 IWK: Tariff and ownership changes1995 1996 1997 1998 1999 2000Tariff review 21 November April–June SeptemberTariff revision 1 January 1 July 1 OctoberTariff reduction household,commercial,Govt loans(RM million)Concession extension Until 2022 Two yearsto 2024Ownership PUB(Ahmad Sebi)PUB(Wan Adli)30%commercial5–20%commercialindustrial 433.7 503.8 545.4I. Hydraulic(Ishak Ismail)Date November August September10 yearsto 2034I. Hydraulic(Ishak Ismail)I. Hydraulic(MoF)MoFSource: Adapted from Prime Utilities (1995–2000); various newspapers.
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Privatization in MalaysiaRegulation
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Privatization in MalaysiaRegulation
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Dedicated to my parents, Tan Siew S
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viiiContentsProblems 123Conclusion
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xTables6.02 Asia Pacific airlines:
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AbbreviationsAFTAAFTKAPTKARPASEANAS
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LoSLPPJLRTLTALTATLTDLTLMARAMASMBOMC
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1 IntroductionWhy privatize?The deb
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Introduction: why privatize? 3neces
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Introduction: why privatize? 5count
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2 Privatization, rents andrent-seek
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Privatization, rents and rent-seeki
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What is needed to make privatizatio
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3 Institutional and politicalfailur
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Institutional and political failure
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Page 66 and 67: Institutional and political failure
Page 96 and 97: Malaysia’s national sewerage syst
Page 102 and 103: Table 4.01 IWK: Performance summary
Page 118 and 119: Table 4.09 IWK: Tariff revisions, 1
Page 124 and 125: Kuala Lumpur Light Rail Transit 107
Page 132 and 133: Table 5.01 Kuala Lumpur LRT: Financ
Page 136 and 137: Table 5.03 Regional urban rail syst
Page 150 and 151: 6 Perverse incentivesMalaysia Airli
Page 152 and 153: Malaysia Airlines 135Both types of
Page 154 and 155: Malaysia Airlines 137The industry i
Page 156 and 157: BackgroundMalaysia Airlines 139The
Page 158 and 159: Malaysia Airlines 141improvements i
Page 160 and 161: Malaysia Airlines 143Table 6.03 Reg
Page 162 and 163: Table 6.04 MAS: Leverage ratios and
Page 164 and 165: Malaysia Airlines 147debt as early
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Malaysia Airlines 149with the Maldi
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Malaysia Airlines 151its fleet to a
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Malaysia Airlines 15312 November 20
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Malaysia Airlines 155state not inte
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Malaysia Airlines 157overall indust
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Proton 159was technology acquisitio
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Proton 161(when Proton’s domestic
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Proton 163Late-comer and specific c
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Proton 165Motor Company (MMC), in M
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PerformanceProton 167Although Proto
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Table 7.03 Proton: Profitability, 1
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Proton 171be able to develop its ow
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Proton 173Table 7.08 Proton: Export
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Table 7.09 Proton: Impact of reduct
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Proton 1778 May 2004). Overall, Pro
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Proton 179DRB-HICOM for RM297 milli
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Proton 181to go about it’ and Pro
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Proton 183competitiveness needed to
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Proton 185Although Proton was finan
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Proton 187Proton’s poor performan
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Summary and conclusion 189necessita
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Summary and conclusion 191appropria
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Summary and conclusion 193cost per
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Summary and conclusion 195that it i
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Notes 197directed primarily at the
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Notes 1996 IWK was incorporated as
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Notes 20111 This comprised EPF (20
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Notes 203million new ordinary share
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Notes 20515 Proton’s market share
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References 207Aziz Zariza Ahmad (19
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References 209Chee P.L. and Fong C.
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References 211Felker, G. (1993) ‘
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References 213—— (2002) World A
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References 215Mustapa Mohamed on Ec
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References 217Lum W.K. (1994) ‘Pr
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References 219Payson, W. and Steckl
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References 221—— (2002) (SMRT)
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Newspapers, magazines, websites and
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226 IndexBumiputra National Economi
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228 IndexEmployees Provident Fund s
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230 Index99-100, 104; industrial ta
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232 Index41, 50, 65, 71-2, 77, 191;
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234 Indextechnology: acquisition an
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PRIVATIZATION Privatization in Malaysia, Regulation, rent-seeking and policy failure

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