Must privatisation be painful?

  • Business
  • Saturday, 07 Feb 2015

Whether their ire is properly directed or otherwise, consumers and businesses have been unhappy that they need to go through My E.G. Services to renew foreign worker permits and Bestinet Sdn Bhd when employing migrant workers.

Sticking to principles is half the battle. The other half is explaining and doing it well

IT’S time to bring up the P word – privatisation. The recent furore over services used by employers of foreign workers should make us think a bit more about the state of privatisation in Malaysia.

Whether their ire is properly directed or otherwise, consumers and businesses have been unhappy that they need to go through My E.G. Services Bhd to renew foreign worker permits and Bestinet Sdn Bhd when employing migrant workers.

Their main complaint is that the involvement of these private companies in matters that were previously handled by government agencies has led to inconvenience and higher costs. That may be a misperception, but this is not the first time that the privatisation of government services has provoked criticism so strong that the authorities had to reverse or reconsider decisions.

An episode that comes to mind was the Government’s 2013 takeover of the automated enforcement system or AES from two companies that had been given the concession to set up and maintain the system for recording traffic offences and issuing summonses. The objections to the concession were chiefly focused on the fact that an enforcement function was placed in the hands of private businesses.

Go back another couple of years and you’ll recall the proposed 1Malaysia Email project. Tricubes Bhd was chosen to run this Economic Transformation Programme initiative, which aimed to offer “a unique and official email account and user ID” to Malaysians aged 18 and above. This was meant to serve as “an alternative channel for two-way communication between the Government and rakyat”.

Few people liked the idea of having another email account to deal with the public sector, although registration was supposed to be voluntary and free. It didn’t make much difference either when the Government assured that the project didn’t require public funds and that it wasn’t a concession.

So fierce was the outpouring of antipathy and apprehension that Pemandu took out a one-page advertorial in May 2011 to set the record straight. Nevertheless, a Google search today yields no indication that the project is still alive.

There’s a pattern here – not a pretty one, unfortunately – but it ought to be understood well so that we can minimise the wastefulness of abandoning ideas after plenty of groundwork and of paying compensation to concessionaires.

We should begin with what has been written and made public about the policies on privatisation. The Privatisation Policy was launched in 1983 and the Privatisation Masterplan came out in 1991. But there’s no need to go that far back because much has changed since then. A better starting point is the 9th Malaysia Plan (9MP), covering 2006 to 2010, which devoted a chapter to the streamlining of Malaysia’s privatisation programme.

A key move is to introduce private finance initiatives (PFIs) in the implementation of privatisation projects. According to the 9MP, the use of PFIs would “facilitate greater participation of the private sector in the areas of management, operations and maintenance to improve the delivery of infrastructure facilities and public services.”

In April 2009, the Prime Minister’s Department formed the Public-Private Partnership Unit, which then came up with guidelines on public-private partnerships (PPPs) in November the same year. This 12-page document is a useful primer on the current approach to privatisation in Malaysia.

It tells us that the terms PPP and PFI are often regarded as interchangeable although there are different in subtle ways. In the Malaysian context, the PFI principles are a subset of the PPP principles.

Here’s how PPP is explained: “PPP involves the transfer to the private sector the responsibility to finance and manage a package of capital investment and services including the construction, management, maintenance, refurbishment and replacement of public sector assets such as buildings, infrastructure, equipment and other facilities, which creates a standalone business.

“In these PPP projects, there is a contract for the private party to deliver public infrastructure-based services over a long period of time. The private party will raise its own funds to finance the whole or part of the assets that will deliver the services based on agreed performances. The public sector, in turn, will compensate the private party for these services. In some PPP projects, part of the payments may flow from the public users directly.”

The guidelines also set out the elements that need to be taken into account when considering a PPP proposal: the project’s socio-economic impact; value for money and cost savings to the Government; quick delivery of the project and service enhancement; and increased level of accountability, efficiency and effectiveness.

It’s safe to say that the public and the business world are unlikely to reject a privatisation project if it ticks all these boxes. Of course, they must be convinced that the benefits are real and will significantly outweigh the drawbacks that come with the changes.

And to do that, it’s wise to have preliminary engagement with the stakeholders to find out what they really want and to obtain their buy-in. It’s equally important that the selection of the private-sector partner is transparent and competitive.

It’s never easy to accept the notion that we’re better off when a private company provide a service instead of the Government, but it certainly helps if there’s constant communication and competent execution.

  • Executive editor Errol Oh have observed that people don’t fancy new arrangements that come as a surprise and that deprive them of options.

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