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TASK 3

Student’s Name:Reshminder Kaur

Matrix No:A 132843

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

:Dr. MUHAMAD NAZRI BIN BORHAN

:Puan NORLIZA BINTI MOHD AKHIR

PROBLEM

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.

SOLUTION

This problem can be solved by the method of privatisation of the project itself. Privatisation is

the transfer of ownership of property or businesses from a government to a privately owned

entity. Privatisation is a good way to develop the research project because it is can generate very

fast development, with lower cost to be worried an more optimization on laborers. It is a lot more

cheaper because it leads to lower prices and greater supply and least corruption. Beside, the

municipal wouldn’t have to worry about the cost as it is develop by the private company itself,

operates by them, and maintained by them. The municipal just have to monitor the project and

this will lead both party benefits. Privatisation will give a chance to many private company to

handle more bigger project.

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But privatisation is expensive and generates a lot of income in fees for specialist adviser such as

banks and professional workers. As well as the government being motivated by short term

pressures, this is something private firms may do as well. To please shareholders they may seek

to increase short term profits and avoid investing in long term project.

Responsibilities of Parties Involved

a) Governments

Governments have to specify their scope of goal that intended to be achieved and select most

suitable company through open tender.The most important criteria in selection of company is

their property and fund owned.The richest company have a very bright chance to be chosen due

to their higher capacity to fund the project and reduced risk of the project being abonded.

Furthermore,the governments will be responsible for the transfer of the land title to the developer

with a reduced price.Also,give assistance to get necessary approval from Federal and Local

Authority.Apart from that,Government shall allow construction of Hotels and certain commercial

building for the benefit gain of the private company’s investors.Meaning,the investments of

private companies considers their profits in the long run.

b) Developer

The developer shall proposed detail Master Plan for the project.according to the specification and

scope provided by Goverments.They also shall upgrade existing road infrastructure surrounding

the development with construction and maintenance of public garden for recreational purposes.

c) Operation and Management

This department must hire workers for operation and manage the complex until the concession

ends.

d) Financial Management

This department must manage all the financial of this project before, during and after the

completion of the project until the operation.

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e) Maintenance

This department must take safety measures to all aspect including workers, public and

environment.

BENEFITS

Save Taxpayers’ Money

By applying a variety of privatization techniques to state services, infrastructure, facilities,

enterprises, and land, comprehensive state privatization programs can reduce program costs.

Over 100 studies have documented cost savings from contracting out services to the private

sector. Cost savings vary but average between 20 and 40 percent, depending on the service. For

some services, such as prison construction and operation, savings are generally less, while for

others, such as asphalt resurfacing, savings are often greater. Competitive bidding whenever

possible and careful government oversight are crucial to sustained cost savings.

States can also realize large one-time windfalls from the sale or lease of state infrastructure and

facilities. Moreover, privatization can put an end to subsidies to previously government-run

operations.

Privatization also creates a steady stream of new tax revenues from private contractors and

corporations who pay taxes and license fees, while state units do not.

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Increase Flexibility

Privatization gives state officials greater flexibility to meet program needs. Officials can replace

the private firm if it isn't meeting contract standards, cut back on service, add to service during

peak periods, or downsize as needed.

Improve Service Quality

A number of surveys have indicated that public officials believed service quality was better after

privatization. In a survey of 89 municipalities conducted in 1980, for example, 63 percent of

public officials responding reported better services as a result of contracting out.

If competitive bidding is instituted for a service, service quality can improve even if the service

is retained in-house. The reason is simple: competition induces in-house and private service

providers to provide quality services in order to keep complaints down and keep the contract.

Service quality is not assured, however, by privatization. Contracts must be well-designed with

performance standards that create incentives for high quality service. Furthermore, diligent

monitoring of the contractor's performance through customer surveys and on-site inspections

must also be performed by government in its oversight role.

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Increase Efficiency and Innovation

Private management can significantly lower operating costs through the use of more flexible

personnel practices, job categories, streamlined operating procedures, and simplified

procurement. Private companies have more profit incentive to cut costs and this lead to a more

efficient development. If we work for a government running a project, managers do not usually

share in any profits. However, a private firm is interested in making profit and so it is more likely

to cut costs and thus optimizing the efficiency of the development.

Private ownership can stimulate innovation. Competition forces private firms to develop

innovative, efficient methods for providing goods and services in order to keep costs down and

keep contracts. These incentives, for the most part, do not exist in the public sector.

Allow policymakers to steer,rather than row

Privatization allows state officials to spend less time managing personnel and maintaining

equipment, thus allowing more time to see that essential services are efficiently delivered.

Streamline and Treamline and downsize Government

Privatization is one tool to make bureaucracies smaller and more manageable. Large private

corporations often sell off assets that are underperforming or proving too difficult to manage

efficiently. Under new owners and leaner management, such divisions often receive a new lease

on life. Entrepreneurial governments can replicate this experience.

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Improved Maintaince

Private owners are strongly motivated to keep up maintenance in order to preserve the asset

value of the investment in the facility. Public owners often defer maintenance due to political

considerations, increasing overall long-term costs.

Lack of Political Interference.

It is mainly known that governments make poor economic managers. They are motivated by

political pressures rather than sound economic and business sense. For example a state enterprise

may employ surplus workers which is inefficient. The government may be reluctant to get rid of

the workers because of the negative publicity involved in job losses. Therefore, state owned

enterprises often employ too many workers increasing inefficiency.

Shareholders

It is argued that a private firm has pressure from shareholders to perform efficiently. If the firm is

inefficient then the firm could be subject to a takeover. A state owned firm doesn’t have this

pressure and so it is easier for them to be inefficient.

Increased Competition.

Often privatisation of state owned monopolies occurs alongside deregulation such as policies to

allow more firms to enter the industry and increase the competitiveness of the market. It is this

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. However,

privatisation doesn’t necessarily increase competition, it depends on the nature of the market.

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DISADVANTAGES

Services get Worse

Private companies do not have a social purpose, their legal priority is making a profit for

shareholders, not putting people first. This means they may end up cutting corners, or

underinvesting in our services. They have a duty to make as much money as they

can. Water companies ignore leaks instead of investing in infrastructure, while private company

involvement in the National Hospital Services has been bad for patients. Private companies also

have 'commercially sensitive' contracts, so they don't share information with others; this makes it

harder for them to work in partnership to provide an integrated service.

Costs goes Up

Government pay more, both as a taxpayer and directly when paying for public services. Value

for money goes down because private companies must make a profit for their shareholders and

they also pay their top executives more money. This means either we the people, or the

government, or both, end up paying more than they did before.

Difficult to hold certain private companies accountable

If the local council runs a service, we know where to go to complain. But if a private company

runs a service, they are not democratically accountable to goverment. That makes it harder for

goverment to have a voice.More severe,project might get abonded.

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Staff are undermined

A Europe-wide study found that privatisation has had ‘largely negative effects on employment

and working conditions’. There are often job cuts and qualified staff are replaced with casual

workers, who are paid less and have worse conditions. This has a knock-on effect on the service

being provided – for example, in the cases of care workers or court interpreters.

It’s difficult to reverse

Once our public services are privatised, it's often difficult for us to get them back. Not only that,

we lose the pool of knowledge, skills and experience that public sector workers have acquired

over many years. We also lose integration across different services (private companies often

don't share information because it's 'commercially confidential').

Problem of regulating private monopolies

Privatisation creates private monopolies, such as the water companies and rail companies. These

need regulating to prevent abuse of monopoly power. Therefore, there is still need for

government regulation, similar to under state ownership. As the research park has been

developed, there will still be need monitoring by the municipal itself. The municipal must

enforce regulations and laws so that the private sector must follows and less dominate the field.

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CONCLUSION

The primary rationale for privatisation is based on the argument that privatisation increases

efficiency. Thus, it is implied that welfare will be maximised with privatisation. Privatisation is

undertaken to reduce government involvement in business, which is done to avoid the crowding-

out of private sector investments and to reduce the costs of government intervention in business.

However, the privatisation record in Malaysia shows that the government involved itself in

business in different ways: it continued to intervene, but perhaps less directly.

If the government had deliberated more careful on drawing an institutional framework(various

institutions are considered necessary for economic growth, such as property rights, regulatory

institutions, institutions for macroeconomic stabilisation, institutions for social insurance and institutions

for conflict management (Rodrik, 1999). Rodrik (1999) emphatically states that participatory political

regimes deliver higher-quality growth) that emphasised efficiency, transparency and good

governance, it is possible that cronyism could have been curtailed.

The Malaysian experience demonstrates the importance of soft issues, such as institutional

reform, because 'hard' outcomes are compromised when such issues are ignored. Although there

was a need for privatisation, it should have been preceded by the establishment of

appropriate institutional mechanisms.