INTENSIVE 3

CHAPTER 7
PRIVATIZATION IN
MALAYSIA
The transfer of public assets,
operations or activities to
private enterprise.

Definition

Privatization is the process of

transferring ownership of a business,
enterprise, agency, public service or
public property from the public sector to
the private sector.
The business that operates for a profit or
non-profit organization.

WHY PRIVATIZATION in
MALAYSIA?
to facilitate the countrys economic growth,
reduce the financial and administration burden of the
Government,
reduce the Government's presence in the economy,
lower the level and scope of public spending and
allow market forces to govern economic activities and
improve efficiency and productivity in line with the
National Development Policy

HISTORY OF PRIVATIZATION IN
MALAYSIA
In Malaysia, two main policies that are directly associated
with privatization of public entities are the Privatization
Policy (Dasar Penswastaan Malaysia) and Malaysia
Incorporated Policy (dasar Pensyarikatan Malaysia).
Both policies were instituted in 1983.
The Government published the Malaysian Privatisation
Master Plan (PMP) in 1991 followed by Guidelines on
Privatisation to ensure that the privatisation effort is
channelled to appropriate priority areas to optimize the
impact of the policy implementation in terms of the
achievement of the policy objectives.

Methods of privatization
1. Sale of Equity
This method involves the transfer of three
organization-related components, namely
management responsibility, assets (together
with or without liabilities) and personnel. It
can be partial or complete sale of
shareholdings in state-owned public company.
Examples are Telekom, TNB, Proton.

METHODS OF PRIVATIZATION
2. Sale of assets
It involves the transfer of one, two or even all three
components. For example, the case of quarries in Selangor,
Perak, and Penang.
3. Lease of assets
It involves the transfer of rights to use assets for a specific
period of time, for a specific amount of payment. For
example, the lease of facilities to Malaysian Airport Bhd
&Malaysian Railway (KTM)
4. Management Contract
Some government services were contracted out to the private
sector. For instance, parking services and garbage disposal

Methods of privatization
5. Management-Buy-Out (MBO)
It involves top management personnel of a company taking
over the company that they are initially employed in.
6. Build-Operate-Transfer (BOT)
It entails the private sector constructing a facility using its
own funds, operating it for a period known as a concession
period and transferring it to the government at the end of the
period.
7. Build-Operate (BO)
The BO is similar to the BOT method. However, BO does
not involve the transfer of the facility to the government.
8. Build-Transfer
It is to accommodate innovative recommendations and
requirements submitted by private sector.

Benefits of privatization
1.
2.
2.
3.
4.

Enhancing economic growth

To relieve the governments financial burden
Improved efficiency
opportunities to be exposed to new technologies
Reduce the size and presence of the public
sector in the economy
5. Increased competition
6. encourage Bumiputera participation in the
economy

ENHANCING ECONOMIC GROWTH

Resources have been released for corporate expansion
through efficiency gains, although no evidence of this has
been produced.
Growth have been generated by allowing private
entrepreneurship in sectors previously monopolized by the
government (Jomo K. S. and Tan Wooi Syn 1985).
Examples : build-operate-transfer projects and licensed
activities are less than convincing since they merely involve
the private sector substituting for what the public sector
would otherwise have undertaken at lower cost to users, as
is clearly the case for the North-South Highway

To relieve the governments

financial burden

For the period 1991 to 1995,the

government saved RM51.59
billion on capital expenditure.

Improved efficiency and

productivity of the private sector
contributing efficiency and productivity of the
private sector. Example, Telekom, the return
on assets increases from 4.0% before
privatization to 9.3% after privatization.

TECHNOLOGY TRANSFER
Malaysian companies that collaborated with
foreign equity holders or management
contracts will have the opportunities to be
exposed to new technologies, expertise and
skills that will improve production.
Example, North-South Highway where
Malaysians learn to adopt and manage new
technologies in construction and
transportation.
The completed highway saves time and cost
of transportation, which led to an increase in
manufacturing activities.

Reduce the size and presence of the

public sector in the economy
Between period 1991 to 1995, there were
204 public entities were privatized, hence,
allowing the economy to be increasingly
led by private sector

Increased competition
policies to allow more firms to enter the
industry and increase the competitiveness of
the market.
increase in competition that can be the
greatest spur to improvements in efficiency
For example, there is now more competition
in telecoms and distribution of gas and
electricity.

Encourage Bumiputera
participation in the economy
Strategies that have been taken to implement
Bumiputera participation are as follows:
Implementing vendor-development programs to
develop SMI. For example, Proton, known as the
anchor company, has established the Component
Scheme program to source automobile parts from
64 SMI vendors.
The privatised entity should allocate 30% of its
equity to Bumiputera. Foreign participation in a
privatized entity is limited to a maximum of 25 %
of its share capital.

THANK YOU