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

Privatization, rents and rent-seeking 37these more predictable (Daniels and Trebilcock 2000). To safeguard againstcontract renegotiation, careful provision must be made to deal withunexpected events over the life of the contract. This includes conditionsunder which adjustment can be made; guidelines determining when andunder what conditions contract renegotiation must occur (rather than priceor service adjustment by agreement or by regulatory discretion); the processby which renegotiation must be initiated and conducted; and a definition ofclear arbitration provisions (Stottmann 2000). The regulator’s technicalcapacity will depend entirely on the quality of personnel and regulatoryexpertise. Regulatory staff should have the technical ability to specify theconditions of supply (access and possible exclusion), tariffs, prices and service/productquality, investment and profits (returns on capital), technicalstandardization and operational rules. This will in turn require adequatefinancial resources to attract and retain skilled professionals.SelectionLeast important in the context of privatization in developing countries is atransparent selection process as this is limited by inadequate and asymmetricinformation and often constrained by quite substantial costs associatedwith open bidding. Auctions can reduce information problems when valuinghighly idiosyncratic assets (where there are no obvious benchmarks to determinethe minimum return required) but work best where the allocated goodis stable and well defined. Furthermore, bundled goods which typify manyinfrastructure projects pose competitive bidding design problems (Danielsand Trebilcock 2000).Transparency will also be sacrificed in competitive negotiations where thegovernment invites proposals from selected bidders to meet specific serviceobjectives. This may be favoured where projects have many possible technicalvariations which the contracting entity may want to explore without beingbound by standard solutions required by competitive bidding (Stottmann2000), and to reduce the costs of organizing competitive bidding (andwhere the government may favour a few candidates). Similarly, in directnegotiations, the project proposal originates from the private sector. This maybe needed to attract innovative projects and secure private sector involvementin smaller cities and towns where the cost of entering competitive biddingmay be high relative to the expected returns (Stottmann 2000), but can also bean easy way to secure privatization funds.Obviously there needs to be a minimum standard of competence. The prequalificationof bidders arguably serves to ensure that potential bidders havethe technical and financial capacity, and a track record performing similartasks, thereby weeding out inappropriate firms before they prepare costlyproposals. However, the shortage of entrepreneurial capacity in developingcountries means that bidders often do not have the experience or technical oreven financial capacity which in turn requires some form of foreign technical