Photograph: Ong Ee Lynn

The social costs involved in privatisation of public goods have been obvious since this lazy man’s method of nation building became the fashion in the 1980s. In Malaysia, despite huge losses to the public, privatisation continues, and under dubious and less-than-transparent conditions. Penang Port is up next. 

By Tricia Yeoh

(First published in Penang Monthly in the July 2012 issue).

The present controversy about Penang Port Sdn Bhd (Penang Port) saw for once members from both sides of the political divide come together in agreement. Penang Port is 100% owned by the Ministry of Finance, but the federal government Cabinet has recently made the decision to privatise it fully to Seaport Terminal, one of many logistical companies owned by the billionaire Syed Mokhtar Al-Bukhary.

The Penang state government has opposed this move, warning that businessman Syed Mokhtar would strip the port of its assets, including its seven cranes for shipment, to his Tanjung Pelepas Port (PTP) in Johor. This would in effect make the profitable Penang Port a feeder port to PTP. At the same time, Penang Barisan Nasional spokesperson Teng Chang Yeow has also cautioned against the move, urging the Cabinet to reconsider this option, whilst Member of Parliament Bung Mokhtar also condemned the plans (although he insinuated that he, too, would be the welcome recipient of such friendly contractual arrangements).

This disagreement to privatise the port is an interesting development, for several reasons. First, it highlights the growing awareness among the public of the failed privatisation processes in the country. Second, the issue brings into question the role that tycoon Syed Mokhtar has and continues to play in the Malaysian economy, through his private as well as public (government-linked) entities.

Let us first explore the issue of privatisation. In a market-driven economy, it is clear that the private sector contributes hugely to the economy through the growth of healthy businesses, the multiplier effects of foreign direct investment which have a direct impact on local job creation and industry development.

However, the government needs to ensure that the private sector exists under conditions that allow for a level playing field and healthy competition. Malaysia has now enacted a Competition Act, and established the Malaysian Competition Commission to enforce this in 2010. But this is a fairly recent affair, and there are also limitations within the Act itself. As a result, when the federal government talks incessantly about the importance of promoting the private sector, one must distinguish the difference between an environment for free and fair competition versus one in which only select key players are allowed to operate.

Malaysia has a great number of government-linked companies (GLCs), all of which are involved in major public sectors. In fact, Pemandu announced last year that plans were underway for the government to divest its shares in 33 GLCs, the proceeds of which would be channelled to an account meant to “service the country’s deficit, invest in existing funds and facilitate the government’s involvement in certain businesses”, although the latter reason given effectively renders the entire exercise futile.

The unfettered nexus between government and business that continues to flourish in Malaysia means that the government has deep links with the so-called free-moving “private sector” such that these private companies are basically operating with the government’s interests in mind.

The criticism of the privatisation model in Malaysia is therefore that it has in reality not conformed to the ideals of privatisation at all, but has grown to resemble an economy based on monopolies and oligopolies, in which small and medium enterprises have little say in the economy.

Some relevant examples come to mind immediately, for instance the water privatisation fiasco in Selangor (which my past columns in this magazine have elaborated on at length) in which public utilities are privatised to a concession holder under a lucrative contract for many years, oftentimes the actual cause of inefficient delivery and eventual bailout, pressuring the country’s fiscal position even further.

Photograph: Yam Phui Yee

This begs the second question then, on the concentration of national wealth to a select set of individuals. Syed Mokhtar controls a number of large public utilities such as power, water, ports, rail and toll businesses, as well as Proton. Listed as the seventh richest man in Malaysia, and 459^th in the Forbes list of billionaires, he controls DRB-Hicom, the Malaysian Mining Corporation (MMC) and Tradewinds Malaysia Berhad, under which many other subsidiary companies operate. 

His interests are equally widespread within the state of Selangor. He has been reported to show an interest in acquiring a Yayasan Selangor building as part of the redevelopment in Jalan Bukit Bintang, and also owns a large stake in MMC-Gamuda, the joint venture company undertaking the first phase of the MRT project under a tunnel contract for the 51km Sungai Buloh-Kajang line.

Member of Parliament Tony Pua recently unveiled that despite his large empire, Syed Mokhtar’s group of companies has a combined debt of RM34.3bil or more than 10% of all local corporate bonds as of 2011 with only RM7.8bil cash as of May 2012. Two major problems arise – first, such a large concentration of wealth in the hands of one individual corroborates the growing income gap between the rich and the poor in the country. Eighty per cent of Malaysians earn an average of RM2,500 a month, and 60% of Malaysian households earn less than RM6,000 monthly.

The second issue is the risk posed on the Malaysian economy by the large debt accumulated by his businesses, a figure that would surely grow if and when this particular port deal actuates.

The anecdotes surrounding the present issue at hand, Penang Port, as well as other historical case studies where losses have been incurred such as Telekom Malaysia, DRB-Hicom, Star and Putra LRT, Tenaga Nasional, and Syabas in Selangor, amongst others, only lead Malaysians to ask questions about the bigger picture – how is the national economy being run, and for whose benefit?

It is as yet unclear whether the Cabinet will go ahead with the privatisation of Penang Port. In the meantime, however, other factors need to be considered. The Penang Chief Minister has stated that portions of land in the port actually belong to the state, led by the Pakatan Rakyat coalition. The Penang Port Commission on the other hand is led by Malaysian Chinese Association (MCA) president Datuk Seri Dr Chua Soi Lek.

There are bound to be disagreements as to how the port is to be treated in the near future. One issue is that of port dredging, which will increase the port’s effectiveness and efficiency, the responsibility for which is being pushed around and is at present not stated as a requirement under a contractual agreement with Seaport Terminal.

Criticisms against such a privatisation model are not new. It is unfortunate that this has to be repeated – the risk is undoubtedly high that when public entities are privatised, profits are privatised and costs are socialised. Any individual’s private debt should not in any way be translated into public debt, as this would be detrimental the welfare of future generations. In this instance, we can but hope that wise minds will prevail.