On 22 November 2011, AKU-ISMC faculty member Dr Jeff Tan gave a paper at the Development Studies Seminar Series organised by the Department of Development Studies at SOAS (School of Oriental and African Studies), University of London.
In his paper entitled “The Pitfalls of Water Privatisation: Failure and Reform in Malaysia,” Dr Tan argues that there is a fundamental mismatch between privatisation theory and the main characteristics of infrastructure privatisation. This has led to the failure of infrastructure privatisation as a means to increase capital investment and improve efficiency.
Dr Tan's paper provides evidence to show that private sector participation has instead centred on more profitable infrastructure sectors, segments and regions, with private investment in water being stagnant or declining, particularly in poorer regions and countries.
At the same time, very high costs, risks and universal service provision obligations have necessitated continued public subsidies for private water companies which have in turn diluted incentives. This is reflected in the global evidence for efficiency improvements which is inconclusive at best.
Looking at the case of Malaysia, the paper examines these themes in greater detail. Dr Tan argues that the failure of water privatisation in Malaysia illustrates the problems of infrastructure privatisation in general.
The failure of private water companies to finance capital investment and improve efficiency culminated in the renationalisation of the water sector. However, Malaysia’s water reforms were politically compromised in design and implementation in order to facilitate continued rent capture by the very same private concessionaires.
This, the paper argues, has implications not only for the efficiency of water services but also longer term private investment in more productive sectors; indeed it challenges the wisdom of promoting infrastructure privatisation in developing countries.
Dr Tan’s research on water privatisation builds on his interest in privatisation more generally and his work on Malaysia. Earlier this year, he published a review article on infrastructure privatisation in developing countries entitled, “Infrastructure Privatisation: Oversold, Misunderstood and Inappropriate” (Development Policy Review, 29.1 pp. 47-74). Dr Tan has also published a book with Routledge on this topic: Privatisation in Malaysia: Regulation, Rent-Seeking and Policy Failure (2008).
Dr Peter O'Neil
Research and Grants Officer