A Doctor in The House: A Memoir of Tun Dr Mahathir Mohamad (78 page)

We next turned our attention to the road system, which needed to be improved by replacing the old winding roads with expressways. Traffic volume was increasing and the narrow, two-lane roads could no longer cope. Good roads, we believed, would stimulate business and speed up the development of the country. I reasoned that if we built an expressway from the north to the south of the Peninsula, new towns would also grow and new businesses would be generated because of improved transportation of goods and employees. But the Government lacked the money to build this highway. If at all, we could only do it very slowly, over many years, and the country’s development would be impeded.

Tolls were largely unknown in Malaysia then. In former times, to travel up the East Coast you had to cross a number of rivers by punt-ferry. At each, there was a charge for every vehicle. But people did not remember that, or else they saw the payment as a fee or gratuity rather than a toll. There was one bridge in Perak which was tolled. The PAS government in Kelantan also had to charge a much-resented toll for use of the bridge it built in the 1960s across the Kelantan River at Kota Baru. So Malaysians had some experience with paying tolls.

Motorists may not like having to pay tolls but I believed that users should pay for better roads. If the Government were to build a free road, then people not using the highway would have to pay the cost through other taxes. This would be unfair to the majority of the motorists who might never use the highway. We also needed to improve the roads in the cities and towns where cars would pass several times in a day. Tolling there would be difficult so expressway users would also be using the toll-free urban roads built by the Government. It seemed to me that they should at least pay for something. I felt that paying to drive on wide, six-lane highways with dividers was a fair compromise. Besides, if they liked they could still use the old toll-free roads. They may save on toll payment but the wear and tear on their vehicles would still be a cost to them, apart from having to use more petrol on the winding, longer, old roads.

The Cabinet agreed that the North-South Expressway should be privatised but few contractors were interested in attempting something so new. Eventually a group of Malay contractors was persuaded to build and operate the expressway. They would take on the project, they said, if they could be convinced that it would be profitable. They pointed out that if the Government set the toll rates, the project might not be viable. On its part, the Government feared that high toll rates would be met with protests from motorists and the general public and the Government would lose popularity. We insisted that we should fix all toll rates and they should be low. To ensure that the contractors and the operators would not lose money on the construction work, we agreed to transfer the completed sections of the new road to the operator for free, that the needed land should be acquired by the Government, and that a soft loan be given to the highway company to enable it to make a profit even though the toll rates were low.

These were not subsidies to the company. They were, in fact, subsidies to the road users to ensure they would not have to pay high tolls. If the rates were too high motorists might not use the highway and the project would fail. The cost of failing would be huge to the company and the Government alike, so it was far more preferable to subsidise the highway users by lowering the construction cost. The traffic volume was also crucial because it had to grow at a certain rate to make the project viable. If it did not, then the Government would have to compensate the company. If on the other hand it grew higher than projected, then the Government should have a share in the extra earnings.

Construction on the North-South Expressway began in 1988 and progressed in phases until it was completed in 1995, 15 months ahead of schedule. It now stretches for 772km from Thailand to Singapore. The North-South Expressway was initially a success, but the 1997 financial crisis affected its income and the Government had to take over the company. Now it is profitable again.

As proof of its success, once the North-South Expressway was completed the private sector clamoured to build other tolled highways. Malaysia now has the best road system in Southeast Asia. Relieved of the need to build highways, the Government was able to improve urban and rural roads. The elevated highways in the cities and towns are largely public freeways. Rural roads now cover the whole countryside. But for privatisation, these would not have been possible to build. We now have urban tolls as well but the charges are minimal and many people use them on a daily basis, Motorists now regard toll payment in the same way as paying for fuel.

Once the principle of privatisation was accepted, the Government examined all its facilities and functions to consider the possibility of their being transferred to the private sector. Power generation and supply, water supply, post offices, the national airline, the automotive industry, and many other government functions and companies were eventually privatised. Some were only partially privatised while others were merely corporatised, as was the case of the Institut Jantung Negara (IJN), or the National Heart Institute. Still others were limited to outsourcing services to the private sector. A few government-owned companies remain. Of these, PETRONAS is the largest and it is the exception that proves the rule, for it has managed to prove that a 100 per cent, Government-owned company could also succeed. It has done so largely because it is not run like a government department but like a commercial entity with little public interference.

Some companies inevitably failed, especially during the 1997 recession and financial crisis. But by and large, privatisation has succeeded in Malaysia and the country owes much of its rapid development to it. Ports which handled only a few hundred thousand containers annually when they were government-owned now handle four or five million containers a year. Their expansion to cope with this increased demand no longer needed government funding. The work was paid for from earnings or, if money was borrowed, the ports were able to pay off those debts from their earnings.

Granted, the Government sold assets at much lower prices than their theoretical market value. But these assets were not earning us anything—they were old and had been acquired or installed a long time ago. We might have sold the properties on the market but this would only have increased the cost to the privatised company. Had we transferred these assets at market value, these businesses would not have been viable, and a failed business is of no use to the Government. Should it involve an essential service such as electricity supply or telecommunications, failure entails an even greater cost to the country and people as a whole. The privatised entity must be viable and the public must not be made to pay high charges. If the sale of government assets at below market value is seen as providing a subsidy, it is a subsidy to the public.

Many people think that privatisation is a capitalist evil, but we turned to privatisation because nationalisation had been repeatedly proven to be a socialist mistake. Even the communist countries have turned to the private sector for economic rejuvenation. Nationalisation did not work because of a lack of incentive. All too often, bureaucracy tended to protect itself, and not to advance the substantive purpose which it was established to promote. Without the profit motive, no extra effort was made to improve services and earn bigger profits. While having to support its non-performing or resistant bureaucratic management, the Government also had to make allocations for running the company and even subsidising its activities. Government-run companies are often managed like government departments. Frequently the Government had to provide allocations of funds in the annual budgets.

Privatisation does not guarantee success but is more likely to provide better services at lower costs. It releases the Government from having to shoulder the cost of running the company, and reduces government staff and staffing costs including salaries, wages and allowances. Often the Government can quickly recover its financial support through the taxes on the company’s profits and the profits of its subsidiaries. These profits may be so big that to reject privatisation on ideological grounds would be really foolish.

Another criticism of privatisation is that it has benefited the Government’s cronies. This charge is difficult to refute simply because whoever receives any privatised project is immediately perceived and branded as a government crony. The logic of the accusation is circular and self-fulfilling. If every privatisation exercise is proof of cronyism, the only way to forestall that accusation is to refuse to privatise anything. But without privatisation, the Government could not have supplied all the services and utilities that our rapidly-growing economy and population needed. We simply did not have the money to do that ourselves and borrowing has its limits and problems. In the end, privatisation was the only way to go.

The big privatisation project, however, is not for everybody—it must go to people who have the capacity and a proven record of success. The requirements of the NEP further reduced the number of eligible companies. An open tender may seem like the correct thing to do, but choosing between bids is never easy. Eager to win the tender, bidders are prone to under-quote. Yet if the project is not awarded to the lowest bidder, there is a great hue and cry, including accusations of foul play and corruption. In the end, the Government must use its best judgment. It must find a way to award contracts and privatisation ventures to people who have the capacity to carry out the projects, will succeed, and will be able to relieve the Government of some of its burdens rather than add to them by failing. It must also seek to secure a fair price, one that will give the contractor a reasonable return from the contract.

We introduced the negotiated tender procedure in which a few companies were asked to submit a tender. The one selected according to predetermined criteria must then hold negotiations to reduce the cost and to ensure that the specifications are met. Once a bidder has performed well it is difficult not to consider him again for other projects, especially those in the same category. Unfortunately, despite meeting all the criteria, when he gets this new contract, he is perceived as a government favourite or crony. In an attempt to avoid this accusation and from a sincere desire to distribute opportunities fairly, projects were frequently given to incompetent bidders who subsequently failed. Many hospitals and schools have not been completed years after the time specified in the contract. We eventually learned to rely upon people who had a good track record, even if the Government was accused of cronyism. I would rather face such accusations than risk failure, which invariably cost the Government more.

Tenders also posed another problem—as soon as one bidder submitted his tender, three or four others would make almost identical bids, suggesting that tender documents were leaked to interested parties. The first bidder may lose out when others submit more competitive figures, so bidders became reluctant to submit their tenders to the relevant office. They insisted instead on submitting them directly to the relevant Ministers. This ensured that, if other bids were forthcoming, they would be different and not modified clones of the initial bid. Yet the practice of submitting tenders to the Minister rather than the department posed its own problems, as it encouraged further accusations of favouritism, cronyism, and establishing a political inside-track. Passing the bid to the officials, as some chose to do, would not insulate the Minister from suspicion. These charges were inescapable but we could not be deterred by them. There was work to be done and decisions to be made.

I suspect that foreign criticisms of Malaysian privatisation were largely due to the policy to allow only Malaysian companies to take part. Had we allowed the big foreign corporations to bid and acquire the privatised entities, there would have been few critics.

Whatever arguments or criticisms are offered, there can be no doubt that without privatisation Malaysia would not have developed as quickly as it did. The country’s development was phenomenal. Over 30 years or so, it was transformed from a rather poor agricultural country into the world’s 17th biggest trading nation, with 82 per cent of total exports of over USD100 billion made up of manufactured goods. Malaysia’s infrastructure is comparable to that of developed countries and includes a network of first-class highways that crisscross the country and reliable electricity and water supplies.

After I stepped down, new criticisms were levelled against privatisation. These were political in character. An article in a local paper announced that the former head of the national power authority was against the privatisation of power generation. That this person was head of power generation and distribution when Malaysia suffered one of its worst nationwide blackouts
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 was not mentioned. That incident caused our manufacturing industries to lose hundreds of millions of ringgit as sensitive processes suddenly stopped. Industries also demanded compensation. Following this breakdown in the electricity supply, the Government issued the first licence to an independent power producer (IPP). Unfortunately, the government negotiators were not familiar with drawing up power supply agreements with IPPs. They followed a US model which included a Take or Pay clause: a certain payment had to be made to the IPP whether or not the national power company sourced power from it, and that IPP made huge profits as a result. We did try to renegotiate the agreement but the IPP company refused. Subsequent agreements on power off-take from IPPs did not have this provision.
 

Sometimes the private sector itself proposed totally new projects. We kept an open mind in such cases and considered giving our approval if the proposal was good and did not involve any special government allocations. One of these projects was the ERL, or Express Rail Link from the new Sentral Railway Station to the new Kuala Lumpur International Airport. Malaysia’s old railway system used a metre-gauge track, but the ERL proposed to use broad gauge. The new airport would be about 50km by road from the city centre, and travel time would be quite long. A fast train seemed like a good alternative. It was built entirely from private investment and has proven to be a success since it was launched in April 2002. The fare is reasonable, and the convenience of checking in at the Sentral Station in Kuala Lumpur made it very popular.