Comment - The pitfalls of privatisation

MORE than 20 years ago, the then prime minister announced the privatisation policy with the aim of achieving the following:
» Relieve financial and administrative burdens of government;
» Improve efficiency and productivity;
» Facilitate and stimulate economic growth;
» Reduce the size of public sector; and
» Promote and meet targets of the New Economic Policy (NEP).
What happened next was the privatisation of many statutory bodies that were providing an efficient, critical essential service – the basic needs of the rakyat for daily life at low cost (only dreamed of in many parts of the world).
These included the supply of electricity, the ports, water supply, roads, airports and railway transport, to name a few.
Previously, these statutory bodies although monopolistic in nature, were providing an efficient and cost effective service. Some were even paying taxes on their profits. We could drink water directly from the tap, "blackouts" were rare and port services were efficient and logistics cost was reasonable.
Tariff increases were rare. For example below is some history of tariff and cost to users:
» Port and logistics sector – tariff formulated in the 60's never increased till privatisation. Since then it has increased two to three fold.
» Water – we have read enough about it. What more to say?
» Airport – passenger charges have gone up by 100%
» Malaysian Airlines – total collapse after privatisation.
» MISC – This national shipping line has transformed into a bulk carrier.
» TNB – A dramatic increase in tariff since privatisation and the introduction of IPP's.
Though the statutory boards were also regulators they never abdicated their social responsibility ensuring efficient services at affordable price.
Today, the scenario is different. Costs to consumers have increased in some cases three fold. From the word "Go" privatised entities pushed for tariff increases and proudly announced hefty increases in profit margins and dividends to shareholders – totally ignoring the principle of "least cost" essential service to the rakyat.
Who were the beneficiaries? Did the rakyat benefit at all?
Equally interesting is the fact that the salaries and wages of the senior management staff of all the privatised bodies have gone up by at least 10-fold. What expertise and corporate governance do these overnight corporate leaders have, leave alone in-depth understanding of the business? Adding insult to injury, massive costs were added on by using consultancy services to cover their weakness,
A glaring example to the above scenario is the situation regarding MAS and MISC. They failed and the bailouts cost the nation aplenty. Why so?
Unlike the essential service providers whose clientele was the rakyat (who had no choice but to use their service), these institutions had to compete internationally. They had to compete in the open market for business – no special favours nor guarantees from government contracts. The result of a lack of experienced managers with expertise led to the collapse of these national hallmarks.
This clearly showed the lack of the quality of management and corporate leadership of Malaysia which requires good business acumen, corporate governance and marketing. This is the price we pay for appointments made on political bias at the time of takeover by the private operator.
Who are paying the price? The poor Malaysians, the rakyat whose salaries and wages remain the same despite the increase in the cost of living. Not understanding the issues and the reasons for the high cost, we blame the GST and the increase in the price of roti canai and nasi lemak. The real culprits are the privatised essential services which directly impact the cost of living through the high cost of:
» Electricity for all users.
» Logistics and port cost on goods imported and transported.
» Controlled prices of flour, sugar and essential material.
» Water – not only the quality is bad but all homes have to fix filter systems at a high cost, not forgetting the constant water cuts.
» Toll - many spend as much as RM1 per litre of petrol.
» Impact on invisible earnings with the closure of MISC's container and break bulk service.
» Major bailouts involving billions of ringgit.
A very interesting trend is developing in this privatised sector, slowly but surely. The lack of highly trained expertise in management and the danger of impending failure has resulted in employment of foreign specialised managers at mind boggling salaries.
This is the result of very short-sighted planning in the development of local home grown talent to take over and manage the essential services. During the time when they were under statutory boards, priority was always given to train and develop local talent. Foreign expertise was used to only train and develop local talent.
Equally important to note is the fact that the civil service has bloated from approximately 850,000 employees (including all employees of essential services privatised) to 1,600,000 employees (excluding those in the privatised bodies). It is understood that on a per capita basis we have the largest civil service in the world. Can one imagine the cost of the operating budget of the government, and its impact on the cost of living to the rakyat?
The government needs to revisit the privatisation policy, especially the role of the regulatory agencies which have become eunuchs at best, serving the interest of the privatised entities and puppets to the political masters to protect their vested interests, rather than overseeing the privatised bodies to meet the privatisation policy objectives.
The regulatory framework must be strengthened with professionals and expertise to ensure policy objectives are achieved. If this is not possible would the writer be wrong in suggesting that nationalisation of these institutions be considered? This is because of the deteriorating trends in terms of the high cost to the rakyat, the poor management due to lack of expertise and the failure of the regulatory bodies to carry out their duties.
It is drastic but it is an option. This is also a timely reminder as to what the then minister of finance said: "Privatisation means looking at things through the eyes of the private sector without abdicating social responsibilities."
Can we agree that the real culprit is not GST but the high cost of privatisation to the daily life of the average man on the street?
The GST is only the proverbial "straw that broke the camel's back". In fact not a single aim of the privatisation policy has been achieved. On the contrary, the cost of living has shot through the roof long before GST was implemented. Added to this fact is the need to increase tax to look after the bloated inefficient ... civil service – it has to come from the rakyat.
Some serious rethinking is needed! How about a re-look into the failure of the policies which are affecting the livelihood of 80% of the population of Malaysia?
Comments: letters@thesundaily.com