Unraveling of BOT Scheme: Malaysia's Indah Water Konsortium

Abstract

Malaysia's privatization program, which began in 1983, has been praised by some, while others have been less impressed. This paper describes the return of a privatized infrastructure after seven years to government hands after it had been relinquished to the private sector. Right from the beginning the privatized national sewerage scheme was plagued with controversy—from selection of a concession company, charge structure, and performance to ownership changes. The award of the infrastructure facility was made in the absence of competition. The charge structure accepted by the government was never revealed completely to the public. Inefficiencies and management blunders aggravated public sentiment. The change of ownership three times in as many years gave the impression of industrialists out to make quick money at the expense of public welfare. Despite copious government assistance, Indah Water Konsortium, the concession holder, became infeasible as an independent operating company. This case study provides salutary lessons of what to avoid when structuring a privatization arrangement.