The AES in Pakatan Rakyat states
(From Penang Monthly, December 2012 issue)
The Automated Enforcement System (AES) has emerged as another issue which the Pakatan-led states, namely Penang, Selangor, Kedah and Kelantan, have come to a common policy agreement not to implement for the time being. The controversy is centred on a traffic summons service that is privatised to two companies, ATES Sdn Bhd and Beta Tegap, under a Public-Private Partnership with the Road Transport Department ( JPJ).
Under the agreement, cameras, which are able to automatically capture images of cars either speeding or running the red light, will be installed in all states of the country over the next 18 months. In an interview, Dr Radin Umar Radin Sohaidi, who headed the Malaysian Institute of Road Safety Research and came up with the AES, states that its objective is to eventually reduce speed-related and red light-running “Killed and Seriously Injured” cases (The Star, November 11, 2012).
However, the issue has more to do with the financial benefits accrued to the companies under the agreement. The amount due to both companies comes up to RM700mil in total; RM80mil each for the first five million summonses and RM540mil under the second tier of the agreement. But in order to hit this RM700mil, a total of 13.6 million summonses of RM300 each would have to be issued. A five-year term is given to the companies. This is just for the break-even amount; to make any additional profit on top of this, additional summonses would need to be issued. (Facts and figures as reported by The Malaysian Insider on November 6, 2012).
This has drawn a number of detractors, chiefly from Pakatan leaders. Criticisms are levelled on the basis of the following: one, that it is not an appropriate solution to solve road accidents, injuries and death; two, that the project is being privatised at all; and three, that these two companies will stand to profit with large margins at the expense of people’s summons fines.
On the first point, Member of Parliament William Leong states that other factors also cause road accidents, including the lack of motorcycle lanes, pedestrian crossings and proper street lighting. However, according to the Transport Minister, there has been a drastic fall in the number of offences in the 14 areas where the cameras have already been installed. Selangor has suggested that an independent evaluator should study the AES, assessing it for its feasibility, effectiveness and steps required for its implementation; while Penang’s Chief Minister has asked for its suspension pending review.
Even more interesting are the second and third issues, of the privatisation of public services and the profits that will eventually be earned by the private companies. A similar approach has been adopted in the UK and is also being heavily opposed. The local council of Barnet is facing backlash against its proposed local government privatisation, a £1bil “One Barnet” scheme that will see up to 70% of its public services privatised.
The theory is that privatising public services would bring about greater efficiency, since private companies would have sufficient capital to invest towards improving infrastructure and other things necessary to ensure best service delivery, for which the government may not necessarily have the funds. Malaysia followed suit in the 1990s by privatising a number of state-owned enterprises such as Tenaga Nasional, Malaysia Airlines, Telekom Malaysia, Indah Water Konsortium and Proton. Water services were also gradually privatised, the results of which we see today, especially in the state of Selangor whose industry is fractured into four separate concession companies, and which has suffered as a consequence (I have written previously about the water problems in the state, to which the reader may refer).
However, the Malaysian experience has been such that the very public nature of these privatised entities means that “the government is unable and unwilling to allow such enterprises to fail because of the essential nature of these goods and services, and the social and political costs involved” ( Jomo and Tan, United Nations Public Administration Network [Unpan], 2003). As a result, the government had to bail out most of these companies that were in the red, many of which were renationalised, costing the country billions of ringgit. Good and effective regulatory systems are required for any privatised scheme to work, but this system is “only as effective as the state’s ability to enforce sanctions to ensure compliance” ( Jomo and Tan, Unpan, 2003).
Because of such appalling history, it comes as no surprise that Malaysians are naturally inclined to have suspicions regarding any sort of privatisation; they have been burnt too many times to trust that competent companies are being selected.
Is privatisation inherently flawed? For the specific context of public services, certain criteria must be set for privatisation to work. First, the regulatory body in charge of setting, monitoring and enforcing rules that apply must be given tremendous independence from the Executive, something almost impossible to achieve in this country. In the UK, the Water Services Regulation Authority (Ofwat) is given such independence in the economic regulation of all water and sewerage sectors.
Second, the market rules governing economic incentives – which in turn are meant to promote competitiveness and efficiency – must be maintained. In the Malaysian examples given, the government provided support for capital expenditure in the form of soft loans or state guarantees to secure commercial loans, both of which significantly tamper with the incentives to companies to compete towards their best possible performance.
Finally, the rule of law which stipulates that elements of good governance must apply – transparency, accountability, publicly available information, open tenders and so on – ought to be adhered to. This would significantly reduce the likelihood that unfair contracts and concession agreements are signed, with dubious parties and individuals, and with grossly favourable terms to the private partner (as a result, unfavourable to the government). Malaysia has far too often experienced large contracts given to privileged friends and family members under loose conditions.
Returning to the specific case of the AES, there are conflicting messages emerging from the government. For example, the police mobile speed trap cameras will be maintained alongside the new AES, which may result in redundancy. Second, the terms of agreement must be thoroughly justified by the government. Why were these companies chosen? What is their competitive advantage? What happens if the number of summonses is insufficient to even break even? Does the contract have clauses requiring the government to make up for any losses?
Under market circumstances, the incentive of a private company is to maximise profits, thereby supposedly enhancing efficiency. In this context, would the AES companies be incentivised to create conditions that would increase the number of summonses being issued? Can Malaysians be assured that the regulatory body – in this case the Transport Ministry or JPJ – will operate transparently, with integrity and independence, enforcing strict terms and conditions on ATES and Beta Tegap? Until these numerous questions and doubts are clarified, it seems highly unlikely that the Pakatan Chief Ministers and Menteri Besars would allow the AES to begin operations within their respective states.
