JABATAN KEJURUTERAAN AWAM DAN STRUKTUR

FAKULTI KEJURUTERAAN DAN ALAM BINA

KKKH 4284 PERANCANGAN BANDAR LESTARI

SEMESTER 2 2013/2014

TASK 3: PRVILIZATION

NAME : YONG SIEW FENG

NO. MATRIC : A133075

LECTURER : Prof. Ir. Dr. RIZA ATIQ ABDULLAH BIN O.K. RAHMAT

Dr. MUHAMAD NAZRI BIN BORHAN

Kajang Municipality intends to redevelop the stadium into an Innovative Research Park.

The park is intended to take advantage of a number of universities and research centres in

Kajang area to turn the municipality into centre for innovative, high value added

industries. However the administration is in no position to fund the proposed project.

You are required to propose a viable solution to ensure the success of the project. Explain

the responsibility of all parties involved in the project, project component, the benefit of

your proposal and the problem that might occur in the future.

1.0 Concept of Privatization Programme

In this project, privatization is suitable to be used as a viable solution in order to

achieve the success of the project. The term “privatization” refers to the process

of private, usually for-profit businesses taking over the provision of public,

government provided services. This includes contracting with or selling to private

parties the functions or firms previously controlled or owned by governments.

Privatization covers a wide spectrum of government operations, management, and

ownership arrangements.

This approach is to facilitate the country’s 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. In respect of

ownership of wealth, the privatisation policy forms an integral part of the

Government's strategy in realizing active participation by Bumiputera in corporate

sector to correct the imbalances in the corporate sector participation. 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.

Some types of privatization which may be considered in this project are:

a. “Outsourcing” means that a government agency delegates some of its in-house

operations or processes to a third party. It is a contracting transaction where the

government agency purchases services from a private firm while keeping

ownership and ultimate responsibility for the underlying processes. They inform

the private firm of what they want and how they want the work performed. The

private firm can be authorized to operate as well as redesign basic processes in

order to ensure even greater cost and efficiency benefits.

b. “Design, Build, Operate (DBO)” means negotiating a contract with a private

firm for design and construction services with comprehensive operating

agreements for new, expanded, or upgraded facilities. The project components are

procured from the private sector in a single contract with financing secured by the

public sector. From design through operation, these contracts can extend for

periods of up to 20 years or more.

c. “Public-Private Partnership” refers to a cooperative arrangement between a

local government and a private organization in which both parties assume some

responsibility for operating a program or service. Each party brings something to

the arrangement that contributes to the operation of that particular service.

d. “Asset Sale” means the sale of government-owned assets to private companies,

such as the sale of water/wastewater and electric utility assets. Proponents of

privatization often point to success stories which demonstrate cost savings, while

opponents express concerns about accountability and undermining organized

labor, which results in jobs without health, pension, and other benefits.

2.0 Responsibilities Of Government And Private Company In Privatization

i. Responsibilities Of MPKJ

MPKJ should always be planned as part of an integrated public transport system,

not as a separate money-making venture. MPKJ should make sure that the tram

lines should go where the demand is (present or planned), not where there is a

disused railway line or other surplus land. Monitor of the tram service in the city

should be maintained. If a tram interchange is necessary it should be at-grade and

involve as short a walk as possible. Frequencies of all services should be good

enough that exact time keeping and connections are not necessary.

MPKJ have to monitor the cost structure and ticketing should be totally integrated

with the rest of the public transport system. All improvements to tram facilities

should be designed with potential conversion in mind. The release areas at the

edge of Kajang may be suitable as it can be planned for from the beginning. This

would be dependent on the population density being high enough to support a

line, and that tram would take people to at least a major centre without having to

change.

ii. Responsibilities Of Innovative Research Park Project

The innovative research park project in the city should be maintained. There are

many possible improvements. Promoters are the entrepreneurs who take the full

risk of the concert. They can be local (meaning they work only in one city or

area), regional (several states), national or international. If they lose, they can lose

big, but as acts get more successful they squeeze them and limit the promoter's

upside. The result is a friendly game of "hide the pickle" that promoters routinely

play in rendering statements of how much has been earned.

3.0 Benefits of Privatization in Redevelop Stadium into Innovative Research Park

i. The removal of political interference

In the private sector, decisions are made on the grounds of efficiency and profit.

Politicians may make decisions to further their own political ends and not those of

the industry in question.

ii. General increase in efficiency

State monopolies tend to create inefficiency, are poor innovators and restrict

consumer choice. The existence of consumer sovereignty in the private sector has

the potential for widening consumer choice, increasing quality and, through

increased competition, lower prices. Basically, the nation's resources will be used

more efficiently. Allocative efficiency and productive efficiency will be striven

for, and more likely to be achieved.

iii. Widening share ownership

Is this an argument for privatisation or an end in itself? It is certainly a nice idea

that more members of the general public own shares and, therefore, has a direct

say in the running of the private sector. But do any of these part-time shareholders

bother to go to vote on important issues, and how many of them sold their shares

as soon as they had made their overnight profit? Almost all of the

denationalisations involved under-valued share prices to encourage their sale.

With hindsight, this encouragement was not really required as there were

normally at least five times as many willing customers as there were shares.

Obviously the shares rocketed in value as soon as they were issued, giving these

new shareholders an instant profit of anything between 20% (British Gas) and

85% (British Telecom). Some cynics argued that wider share ownership was a

Thatcher end in itself as these lucky new shareholders were likely to vote

Conservative for the foreseeable future.

4.0 Possible Problems In Future

i. The abuse of the 'public interest'

Those who have opposed privatisation argue that the public utilities were

nationalised in the first place in the public interest. The utilities are products and

services that are essential to all members of the general public. A private company

in charge of one of these industries, interested only in profit, is likely to close

down or marginalize unprofitable elements of its operations. As nationalised

companies, unprofitable but essential services continue through cross-

subsidisation; unprofitable services being subsidised by the profitable services.

ii. The problem of externalities

Unexpectedly, all of the utilities create negative externalities (via pollution,

spoiling the environment, etc.) It can be argued that as public sector companies,

the government can regulate output and make sure that it is at the socially optimal

level (i.e. allow for externalities). In the private sector, maximisation of profit is

the only concern, so a socially damaging level of externalities will occur. It

should be noted, though, that the government could still achieve a socially optimal

output level by subsidising/taxing the privatised utilities until the desired outcome

is achieved (see the topic called 'market failure' if you are muddled).

iii. The redistribution of wealth

One can argue that the increasing inequality of the eighties was, in part, due to

privatisation. The government was selling off state assets (owned by everyone) to

a wealthier subset of the population, thereby increasing the gap between the rich

and the poor. Although it can be argued that the poorer have gained through

improved services, this is not true of all utilities and those at the top end have got

ridiculously wealthy.

iv. The loss of economies of scale

One of the major advantages of nationalized industries is that their sheer size

allows them to take advantage of economies of scale. Privatization normally

involves the break-up of a large entity into many smaller ones. This was

particularly true with the railways. These smaller units will not be able to take

advantage of economies of scale in the way that British Rail could in the past.

v. Job losses

Privatization forces the new private companies to be efficient, or at least find

some way of reducing their costs in order to make a profit given the strict pricing

formulae used by the regulators. By far the most popular way of cutting costs for

these firms was to shed labour in large quantities.