The truth about privatisation
It has led to more bailouts than benefits in Bolehland
by Martin Jalleh
The country’s assets are placed in the hands of the hand-picked children, `cousins', cronies and courtiers of the political elite. Only a year in existence, and they are out to sell the last bits of the country’s silver for a song.
The promises of privatisation are played up to the full as profitable public utilities are turned into private monopolies – and as the purported purpose and the process of privatisation ironically pave the way for less accountability and transparency.
Privatisation’s costly price is covered, converted and coated with official cocksure and naive confidence. It will, quite evidently and eventually, be paid by the people and their children. Blessed are the young, they shall inherit the country’s debts!
Contrary to what is often portrayed, the pages of history on privatisation in Bolehland speak little of benefits to the people but far more of debts by conglomerates and costly and controversial bailouts by the government.
Often the objective of reduced fiscal burden on the government has backfired, with the government having to pay higher costs with public funds to bail out failed privatisations. We see this in the results of the “mindless privatisation” of the Mahathir years.
Indeed, the records show that the previous government would enter into a privatised project with a brave face and often come out of it with an about-face – and a PM refusing to lose face in spite of the fact that the promised windfall had turned into a pitfall.
Equally outrageous is that workers’ savings, meant for old-age security, have often been used to bail out selected groups of crony capitalists. Malaysia does not have to borrow from IMF because it has the EPF (Employees Provident Fund). Towards the end of September 1997, following serious decline in the ringgit and share values and large losses suffered by several corporate figures, Mahathir announced the formation of a RM60 billion fund, sourced mainly from EPF.
Initially, the public was made to understand that only unprofitable enterprises would be privatised. But, it did not take very long before very profitable state-owned enterprises like Telekom Malaysia, Tenaga Nasional and Pos Malaysia were offered at the altar of privatisation.
Privatisation has resulted in the public having to pay more – and without a commensurate improvement in essential services provided. – whether it be for electricity supply, water, telecommunications, health services, postal services, highway travel, etc.
The former government was right when it declared that privatisation creates a win-win situation. The government wins — and surely the private companies win. Even if they lose, the government is always there to ensure that they will win – by bailing them out. The public will always lose. With such privatisation-made-easy at “no risk”, it is not surprising that many crony companies are begging to be awarded privatised ventures.
With the former government raving about privatisation and rushing to privatise everything possible (and the present government following suit), we are left with the inevitable question – what then is the role of the government, especially when it comes to its social agenda?
What about its crucial obligation and duty to provide to the lower-income group and the poor basic and essential services — such as electricity, water and sanitation, healthcare, and telecommunications — that would enable public participation and advancement in society.
By increasingly putting public service into the hands of private ownership the Government is abdicating its role and responsibility — for privatisation is a movement away from a caring society (central to Vision 2020) to a ‘high social risk society’, and an unjust society at that.
Further, instead of funding the maintenance of social safety nets and social development, the former government provided `safety nets' for elite crony companies, which had failed in privatised projects.
Pertinent are the (summarised) observations of M. Nadarajah, a sociologist who works on issues of sustainable development:
Lest we forget, below are some examples of instances of the wheels of the privatisation express having come off and the people having to pay the price for the privatised failures. It’s about time that the tell-me-the-truth PM faces the truth about privatisation.
IWK: Pure pong
The citizens of Bolehland can still remember what a stink the former government raised with its RM200 million bailout of Indah Water Konsortium (IWK), the financially hobbled concessionaire managing the national sewerage system. But that was not all that the country lost. According to DAP national chairman, Lim Kit Siang, the soft loans granted by the government to IWK amounted to about RM1.4 billion and they were ‘clearly irrecoverable losses’.
KPB: Sunken ship
Who can forget Mahathir’s rescue of Konsortium Perkapalan Bhd (KPB) (then owned by his son Mirzan), which was submerged in debts of about RM1.7 billion, using funds from Petroleum Nasional Bhd (Petronas)? The Petronas-controlled national shipping carrier Malaysian International Shipping Corporation Berhad (MISC) was used to acquire KPB’s shipping assets with cash said to be as much as RM1 billion.
Proton: Sad saga
The previous government fuelled controversy by using Petronas funds yet again to buy 27 percent of the national car maker Perusahaan Otomobil Nasional Bhd, or Proton, for about RM1 billion, thereby making it the controlling shareholder. (It has since disposed of its controlling stake). The stake was held by the DRB-Hicom Group Bhd, which was deeply in debt. The deal was announced after Proton reported a net loss of RM19 million in the nine months to 31 December 1999.
MAS: Ailing airlines
The government bought back a controlling stake in the Malaysia Airlines System Bhd. (MAS) at the same price for which it sold it in 1994. But the carrier, which had a light debt load then, was grounded by its RM9.5 billion debt and was headed for a fourth straight year of losses. Bankruptcy was imminent.
The national carrier was first sold to then chairman, Tajudin Ramli, a protégé of then Finance Minister Daim Zainuddin without an open bidding process. In the bailout, the government used the rakyat’s money to pay RM8 a share when the shares of the ailing airline were trading at only RM3.6. It was believed that the government paid close to RM1 billion more than the market value for the stake held by the airline’s former chairman – who had no experience in the airline business before he took over the company and was widely blamed for running the airlines into the ground.
Time dotcom: Damned dot
The manner in which the government rescued Time dotCom, a subsidiary of Time Engineering (then saddled with a RM5 billion debt), itself a publicly-listed company of the UMNO-linked Renong Group, added yet another ugly dot to its integrity.
In a land where anything is possible, Bolehlanders watched in disbelief when:
The rakyat was again taken for a ride on the privatisation express when in another privatisation reversal the government raised RM6 billion (in what was known as Malaysia’s biggest-ever rescue via bond issue) to bail out Kuala Lumpur’s light-rail transit operators Projek Usahasama Transit Ringan Automatik Sdn Bhd (PUTRA) — which belongs to Renong Bhd (former UMNO’s investment arm), and which defaulted on its RM2 billion loan in 1999, and Sistem Transit Aliran Ringan Sdn Bhd (STAR).
The Government through the EPF again, gave STAR more than RM600 million in loans even when the company was operating at a loss - resulting in the Fund’s equity stake of RM135 million being subsequently written off and it’s share of the loss amounting to RM96 million in 1999. Both companies were allowed to continue to operate and manage the LRT systems despite their mismanagement and incompetence. Taxpayers had to foot the mega-bills.
PLUS: Cash cow
In 1988, the Malaysian government awarded the North-South Expressway (NSE) concession to United Engineers Malaysia Berhad (UEM), a company owned by UMNO trustee company Hatibudi Sdn Bhd. This award was heavily tainted with corruption allegations, as apart from conflict of interest, UEM was the least qualified among the four tenders submitted. UEM then formed PLUS to undertake the NSE concession.
Despite this being a privatised project requiring the conces-sionaire to provide his financing, the government provided a soft loan of RM 1.6 billion, which was half of the tender price of RM 3.2 billion. (The construction costs were later reported to be double this amount, for reasons best known to PLUS itself.) Other over-generous terms given to UEM included annual increments of toll rates, guaranteed traffic volumes and various indemnities, the full details of which remain secret till this day.
When the Asian financial crisis struck in 1997/8, PLUS took the role of cash cow to bankroll the UEM Group, which became largely insolvent, mired in debts that ran into tens of billions of ringgit. The endless streams of toll collections from the NSE made PLUS the rose among the thorns in the UEM Group, as far as credit standing was concerned. PLUS naturally became the chief borrower of the group, incurring huge long term debts, in order to keep the UEM conglomerates afloat during the financial crisis. This explains the unusually high gearing of PLUS despite its own highway operation being highly lucrative. It also explains the favouritism practised by the BN government towards PLUS. Looking from this perspective, the people are now being made to carry the burden of the financial follies committed by the UEM Group.
Coming on the heels of the highly unreasonable toll hike of 10 per cent recently, Works Minister Samy Vellu announced in Parliament on 24 March 2005 that the Cabinet had approved a package deal with PLUS to widen certain sections of the NSE. Under the deal, PLUS would undertake to widen two stretches of roads from four lanes to six lanes (Seremban-Ayer Keroh, Rawang-Tanjung Malim, totalling 119 km), to relocate a toll complex (at Jelapang), and to abolish the collection of Senai toll. In return the government would write off a loan (to PLUS) of RM 962 million, hand over the existing Seremban-Port Dickson Expressway valued at RM 50 million to PLUS for toll collection, and extend the NSE toll collection period by eight years to 50 years. These completely one-sided concession terms favouring the concessionaire at the expense of the public must have made the contract between the government and PLUS one of the most unbalanced contracts. (Source: Kim Quek, Malaysia Today)
PSC/Navy project: Future fiasco
Recent reports have it that Pak Lah is trying to unwind the country’s biggest privatized contract, a problem-plagued RM24.3 billion deal (signed in 1998) for navy patrol vessels awarded to PSC Industries Bhd. (PSCI), a Malaysian company controlled by Amin Shah Omar Shah. The deal, which also gave PSC control of the government’s main naval shipyard and the exclusive rights to service the Malaysian Navy’s entire fleet, was intended to be the springboard for Malaysia to create its own marine-engineering industry. The government, which already has advanced more than RM2.5 billion to PSCI, is increasingly skeptical that Amin Shah can deliver the patrol vessels. The first two ships built by PSC have failed to pass pre-delivery trials. PSC itself is in deep financial trouble.
In June this year, Amin Shah was re-elected director of PSCI at the annual shareholder meeting, during whichseveral representatives of several shareholder companies such as Boustead Holdings Bhd.were barred from the meeting. Boustead, the single biggest shareholder of PSCI with 32.7 per cent has served notice to get Amin Shah out of the PSCI board.
The recent recommendation by Public Accounts Committee (PAC) chairman Datuk Shahrir Samad that the Government should use any means possible to rescue and corporatise the PSC Naval Dockyard, the ailing subsidiary of PSCI, makes Amin Shah’s insistence that “the contract is still in tact”, very suspect.
PSCI has threatened to take legal action against Shahrir for his allegation of the possibility of criminal breach of trust among senior officials of the company, which could have taken the company’s operations to such depths of failure.
Other bailouts which bewildered the citizens of Bolehland included the following:
In the light of the depressing saga described above, the decision by Abdullah’s government to (further) privatise basic services runs contrary to assurances made before the last general elections and can only be seen as defying all logic, wisdom and common sense.
The string of de-privatised projects proves that continued privatisation only provides more rope for this country to hang itself economically. The country cannot afford to have more bailouts.
Privatisation in Bolehland has brought more failure than fortune, more bailouts than benefits. The only thing that the public gains is the burden of private debts. The only clear reality is that, the government continues to lack transparency and accountability as was the practice under the previous government.
All that glitters is not gold – including privatisation! Will Abdullah listen to these truths?
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