APPLICATION OF PUBLIC-PRIVATE

PARTNERSHIP CONCEPT IN A TOURISM

DESTINATION: A CASE STUDY OF PENANG
HILL

MOHD FIRDAUS BIN HABIB MOHD

UNIVERSITI SAINS MALAYSIA

2018
 APPLICATION OF PUBLIC-PRIVATE
PARTNERSHIP CONCEPT IN A TOURISM
DESTINATION: A CASE STUDY OF PENANG
HILL

by

MOHD FIRDAUS BIN HABIB MOHD

Thesis submitted in fulfillment of the requirements

for the degree of
Doctor of Philosophy

September 2018
 ACKNOWLEDGEMENT

Alhamdulillah to Almighty Allah and Rasulullah (pbuh) for giving me the

strength, courage, patience and inspiration to finish writing this dissertation. I would

like to dedicate this dissertation to my parents, Zubytha binti Majid and Habib Mohd

bin Mohamed Sha and my younger sister, Noor Hayati and brother-in-law, Nor

Izzudin, who sacrificed so much for me throughout the duration of my study.

I am also very grateful and wish to thank my main supervisor, Professor Chan

Ngai Weng, for his guidance and supervision throughout my candidature in Universiti

Sains Malaysia (USM). My gratitude also extends to Professor Suriati Ghazali,

Professor Badaruddin Mohamed and Professor Amran Hamzah for their invaluable

inputs and advice in improving this thesis.

I wish to thank Dr Mohamed Amiruddin Fawzi Bahaudin, Associate Professor

Dr Azizan Marzuki and colleagues in Politeknik Sultan Abdul Halim Mu’adzam Shah

(POLIMAS) for their advice, assistance and support. I wish to also extend my gratitude

to the Dean and the staffs of the School of Humanities USM for providing me with the

research facilities. To friends, especially Faizul, Mastura, Ratna, Faezah, Jaspal,

Mages, Sofiyah, and Fairuz, I wish to convey my gratitude for their generous support

throughout the duration of my study. I would also like to express my appreciation to

all the respondents for their support.

I would also like to express my gratitude for the funding provided by

MyBrain15 because without the financial support, I would have never been able to

realize the completion of my dissertation.

ii
 TABLE OF CONTENTS

ACKNOWLEDGEMENT ii

TABLE OF CONTENTS iii

LIST OF TABLES x

LIST OF FIGURES xi

LIST OF ABBREVIATIONS xiii

ABSTRAK xv

ABSTRACT xvi

CHAPTER 1 - INTRODUCTION

1.1 Introduction 1

1.2 Problem Statement 4

1.3 Research Objectives 8

1.4 Research Questions 9

1.5 Research Context of Penang, Malaysia 9

1.5.1 Penang Hill 10

1.5.2 Penang Hill Corporation (PHC) 13

1.6 Research Significance 14

1.7 Study Organization 15

CHAPTER 2 - LITERATURE REVIEW

2.1 Introduction 17

2.2 Government Centric Model 17

2.2.1 Government Centric Model, Penang Hill Corporation (PHC) 19

iii
2.2.2 Government Centric Model, Chief Minister Incorporation (CMI) 23

2.3 Privatization Model 24

2.4 Public - Private Partnership (PPP) Model 26

2.5 Public-Private Partnership (PPP) in Malaysia 30

2.6 Governance Public-Private Partnership (PPP) in Malaysia 33

2.7 Public-Private Partnership (PPP) Model and Environmental

Protection 34

2.8 Management Model in Relation to Good Governance and

Environmental Protection 36

2.9 Types of Public-Private Partnership (PPP) 37

2.9.1 Supply and Management Contracts 38

2.9.2 Turnkey Contracts 49

2.9.3 Lease 40

2.9.4 Concessions 41

2.10 Critical Success Criteria of Public Private Partnership (PPP) 42

2.11 Public Private Partnership (PPP) Practice in Penang Hill 44

2.11.1 Lease of State Government’s Own Bungalows 45

2.11.2 Lease Crag Hotel 47

2.11.3 Development of Penang Hill Hawker Center or Astaka 48

2.11.4 Eco-Tourism Venture or The Habitat 49

2.12 Sustainable Management Model 52

2.13 Theoretical and Conceptual Base 56

2.14 Stakeholder Theory 56

2.15 Conceptual framework for Sustainable Management

of Penang Hill 58

2.16 Summary 61

iv
CHAPTER 3 - METHODOLOGY

3.1 Introduction 62

3.2 Research Design 62

3.3 Qualitative Interview 64

3.3.1 Case Study 64

3.3.2 Research Population and Sampling 67

3.3.3 Sourcing Interview 68

3.3.4 Face-to-face In-depth Interviews 72

3.3.5 Usage of Existing Secondary Data 74

3.4 Data Analysis 75

3.4.1 Transcription of Interviews 75

3.4.2 Thematic Analysis 76

3.5 Limitation of Study 80

3.5.1 Generalizability 80

3.5.2 Accuracy 80

3.5.3 Validity and Reliability 80

3.6 Summary 82

CHAPTER 4 - STUDY AREA

4.1 Study Area, Penang 84

4.2 Penang Hill 87

4.2.1 Location of Penang Hill 90

4.2.2 Population of Penang Hill. 91

4.2.3 Land Use 92

4.2.4 Development Plans of Penang Hill 94

v
 4.2.5 Water Catchment Area 94

4.2.6 Physical Feature, Topography

and Climate 9

4.2.7 Vegetation and Agriculture 97

4.2.8 Natural Heritage, Flora and Fauna of Penang Hill 99

4.2.9 Special Features of Species, Endemism, and Rarity

and Highland Specialty 100

4.2.10 History and Memories of Penang Hill via Writings

and Paintings and Heritage Views 101

4.2.11 Heritage Buildings, Gardens and Landscape. 106

4.2.12 Heritage Trails 108

4.2.13 Transportation and Accessibility 110

4.2.14 Penang Hill Funicular Train 112

4.2.15 Infrastructure and Utilities Drainage 112

4.2.16 Solid Waste, Water Supply and Sewerage 113

4.2.17 Electricity Supply and Telecommunication 114

4.2.18 Tourism 115

4.2.19 Tourists Arrival 115

4.2.20 Management and Organization 116

4.2.21 Carrying Capacity 117

4.3 Summary 120

CHAPTER 5 - RESEARCH FINDINGS AND DISCUSSION

5.1 Introduction 121

5.2 Stakeholders’ Background 122

5.3 Management Aspects of Penang Hill 125

vi
5.4 Management of Penang Hill 125

5.4.1 Selections of Managers and Decision-Makers 125

within Penang Hill Corporation (PHC)

5.4.2 Independent Management Groups 127

5.4.3 Mismanagement of Publicly Owned Properties 128

5.4.4 Human Made Attractions of Penang Hill 131

5.5 Public-Private Partnership (PPP) and Management 135

of Penang Hill Corporation (PHC)

5.5.1 Suitability of Public-Private Partnership (PPP) 135

5.5.2 Public-Private Partnership (PPP) Will Not Be 140

Suitable

5.5.3 Public Private Partnership (PPP) Projects in Penang

Hill 141

5.5.4 Involvement of NGOs and Professional Bodies 149

5.6 Public-Private Partnership (PPP) and Environmental

Protection 151

5.6.1 Public-Private Partnership (PPP) as a Tool 152

to Safeguard the Environment

5.6.2 Hill Clearing 155

5.6.3 Illegal Farming 156

5.6.4 Illegal Collection of Flora and Fauna 160

5.6.5 Establishing Hill Botanic Garden 159

5.6.6 Reintroduction of Flora and Fauna 160

5.6.7 Penang Hill as a Research Center for Tropical 161

Hill Biodiversity

5.6.8 Forest Park 163

5.7 Summary 164

vii
CHAPTER 6 - CONCLUSION AND MANAGEMENT FRAMEWORK
OF A HILL STATION AND APPLICATION OF THE
PPP CONCEPT

6.1 Introduction 167

6.2 Stakeholders’ Background 167

6.3 Management Aspects of Penang Hill 168

6.3.1 Management Aspects of Penang Hill Corporation

(PHC) with Regards to Selection of Personal 168

6.3.2 Independent Management Group 169

6.3.3 Mismanagement of Publicly-Owned Properties 169

6.3.4 Human Made Attractions of Penang Hill 172

6.4 Public-Private Partnership (PPP) and Management of

Penang Hill Corporation (PHC) 171

6.4.1 Suitability of Public-Private Partnership (PPP) 171

6.4.2 Public-Private Partnership (PPP) Will Not Be

Suitable 172

6.4.3 Public-Private Partnership (PPP) Projects on Penang

Hill and the Comparison with The Habitat 173

6.4.4 Involvement of NGOs and Professional Bodies 176

6.5 Public-Private Partnership (PPP) and Environmental Protection 178

6.5.1 Public-Private Partnership (PPP) as a Tool to

Safeguard the Environment 178

6.5.1(a) Environmental Protection of Penang Hill 178

6.5.1(b) Nature Tourism as Conservation Effort on

Penang Hill 180

6.6 Sustainable Management Framework of Penang Hill and Public,

Private, NGOs and Professional Bodies Partnership (PPNPP) 181

6.7 Management Aspect of Penang Hill 182

6.8 Environmental Protection of Penang Hill 184

viii
6.9 Theoretical and Practical Contributions 188

6.10 Review on Methodology Used for This Research 188

6.11 Practical Implication of Proposed Framework 188

6.12 Limitations of the Research and Future Studies 189

6.13 Conclusion 190

REFERENCES 192

APPENDICES

LIST OF PUBLICATIONS

ix
 LIST OF TABLE

Page

Table 2.1 Tourist Arrival and Receipts to Malaysia from 1998-2016 20

Table 3.1 Selection of Respondents based on Cooper et al. 2009 71

Table 4.1 Tourist Arrivals to Penang from 2005-2016 87

Table 4.2 Trails of Penang Island 110

Table 4.3 Number of Tourist Arrivals to Penang Hill from

Year 2007 – 2017 116

Table 5.1 Respondents’ Background 123

x
 LIST OF FIGURES

Page

Figure 2.1 Evolution of Public-Private Partnership (PPP) chronology

in Malaysia 31

Figure 2.2 Main building of Crag Hotel 48

Figure 2.3 The Habitat’s nature trails 51

Figure 2.4 The Habitat’s Langur Way 55

Figure 2.5 Sustainable management model by Elkington, 1997 51

Figure 2.6 Diagram showing the relation between government and

private model, PPP and sustainable management 55

Figure 2.7 Conceptual framework for this study 60

Figure 3.1 Visual model of the coding process in qualitative research 77

Figure 3.2 Illustration of Themes for this research 82

Figure 4.1 Total Population of Penang by District (2010) 86

Figure 4.2 Map of Penang 86

Figure 4.3 Location of Penang Hill 90

Figure 4.4 Population of Penang Hill in year 1980, 1991, 2000 and 2010 92

Figure 4.5 Population by Gender, Age group and ethnicity in Penang Hill 92

Figure 4.6 Land Use of Penang Hill 93

Figure 4.7 Water Catchment area of Penang Hill 96

Figure 4.8 Heritage View Corridors of Penang Hill 103

Figure 4.9 Trials of Penang Island 109

Figure 4.10 Accessibility in Penang Hill 111

Figure 4.11 Penang Hill railway from 1930 – Present 112

Figure 4.12 Existing Land Use and Core Development Area of Penang Hill 119

xi
Figure 5.1 Shows the condition of the Fernhill bungalow owned by

the state government 131

Figure 5.2 Penang Hill entrance 137

Figure 5.3 The Habitat’s canopy walk 149

Figure 6.1 The Proposed management framework for Penang Hill 187

xii
 LIST OF ABBREVIATIONS

AAGR Annual Average Growth Rate

BOT Build-Operate-Transfer

CC Client’s Charter

CMI Chief Minister Incorporated

CSR Corporate Social Responsibility

DBFO Design-Build- Finance-Operate

DBO Design-Build-Operate

EIA Environmental Impact Assessment

EPU Economic Planning Unit

GM General Manager

HUL Historic Urban Landscape

LA Local Authorities

MBPP Majlis Bandaraya Pulau Pinang

NCER Northern Corridor Economic Region

NGO Non-Government Organization

NPM New Public Management

OUV Outstanding Universal Value

PBAPP Perbadanan Bekalan Air Pulau Pinang

PDC Penang Development Corporation

PFI Private Finance Initiatives

PHC Penang Hill Corporation

PHSAP Penang Hill Special Area Plan

PPP Public Private Partnership

xiii
PPNPP Public Private NGO Professional Body Partnership

PSDP Penang Strategic Development Plan

PWD Public Work Department

RFP Request for Proposal

TDCM Tourist Development Corporation Malaysia

TOL Temporary Occupied License

UN United Nation

UNEP United Nations Environmental Programs

UNWTO United Nation World Tourism Organization

VFM Value for Money

WHS World Heritage Sites

WTO World Tourism Organization

WTTC World travel & Tourism Council

WWF World Wildlife Fund

xiv
 APLIKASI KONSEP KERJASAMA AWAM SWASTA DI KAWASAN

PELANCONGAN: KAJIAN KES BUKIT BENDERA

ABSTRAK

Aspek pengurusan lestari stesen bukit sememangnya mempunyai pertalian

langsung kepada alam sekitar dan komuniti. Terdapat banyak konsep pengurusan

kearah pengurusan yang lebih baik pada masa ini. Walau bagaimanpun, hanya terdapat

sedikit kajian ilmiah sahaja mengenai konsep pengurusan destinasi pelancongan.

Penggunaan konsep PPP semasa di Bukit Bendera telah dianalisa dan dibandingan

dengan konsep PPP The Habitat. Konsep PPP sedia ada tidak memberikan tumpuan

mendalam kepada pengurusan sebuah perbadanan dan kaitannya kepada penjagaan

alam sekitar. Bagi meninjau fenomena ini Bukit Bendera dan Perbadanan Bukit

Bendera (PHC) telah dipilih. Kajian kes kualitatif telah digunakan dengan temubual

mendalam ke atas sepuluh orang pihak berkepentingan di Bukit Bendera. Data yang

telah dikumpul telah dianalisis mengunakan kaedah thematik. Kajian ini mendapati

bahawa model yang digunakan oleh The Habitat adalah lebih menyeluruh jika

dibandingkan dengan model-model PPP sebelumnya. Kajian ini juga mendapati

konsep kerjasama ini perlulah diperluaskan dengan menambah organisasi bukan

kerajaan (NGO) dan badan professional dengan menjadikannya sebagai kerjasama

awam, swasta, NGO dan badan professional (PPNPP). Bagi aspek penjagaan alam

sekitar, konsep PPNPP telah dicadangkan bagi mengatasi isu alam sekitar dan sebagai

panduan kearah pengurusan Bukit Bendera. Konsep PPNPP dicadangkan sebagai

kerangka pengurusan kerjasama antara awam, swasta, NGO dan badan professional ke

arah pengurusan Bukit Bendera yang lestari.

xv
 APPLICATION OF PUBLIC-PRIVATE PARTNERSHIP CONCEPT IN A

TOURISM DESTINATION: A CASE STUDY OF PENANG HILL

ABSTRACT

Sustainable management aspects of a hill station are directly related to the

environment and the community. There are currently numerous management practices

for hill station management. However, scant attention has been paid to the approach

of partnership in the management of a tourism destination. Current PPP approach on

Penang Hill were analyzed and comparison with The Habitat’s approach was done.

The existing PPP concept has very limited association with the management of a

corporation and its link to environmental protection. In order to explore this

management approach, Penang Hill and Penang Hill Corporation (PHC) are chosen.

Qualitative case study is used with in-depth interviews conducted with ten primary

stakeholders of Penang Hill. The data collected was analyzed thematically. The study

finds that The Habitat model of PPP on Penang Hill is more inclusive compared to the

previous approach. The study also finds that the partnership should be extended to

Non-governmental organizations (NGOs) and professional bodies and the concept of

PPP should be Public, Private, NGO and Professional Bodies Partnership (PPNPP).

With regards to environmental protection, the PPNPP concept is found to overcome

the environmental threats and to guide PHC towards better management. The PPNPP

concept is proposed as a management framework to guide the partnership between

public, private, NGOs and professional bodies towards a sustainable management of

Penang Hill.

xvi
 CHAPTER 1

INTRODUCTION

1.1 Introduction

Hill stations were initially developed as sanatoria for colonists living in hot humid

climates (Spencer & Thomas, 1948; Barr & Desmond, 1978; Aiken, 1994; Kennedy,

1996; Chatterji, 2003; Estoque & Murayama, 2014). Hill stations in Malaysia include

Cameron Highlands, Maxwell Hill or Bukit Larut, Fraser’s Hill and Penang Hill. Plans

are continuously underway to develop these hills. Cameron Highlands for example has

experienced appreciable growth, and that came mainly from the development of

commercial agriculture, not from its role as a health and recreation resort (Freeman,

1999; Aiken, 2002; Barrow et al., 2009). In recent years, Cameron Highlands has been

developed into a tourist attraction with a large number of short stay visitors being lured

to tea estates, vegetables and flower farms and this contributed to the enhancement of

Cameron Highlands as a tourist’s destination (Chan, 2009; Herman et al., 2014;

Weebers & Idris, 2016).

The East India Company established Penang Hill in the late 18th century, and

since then, has been a place for colonialists to retreat to a place that has weather similar

to the English weather to get respite from the tropical climate of George Town. Penang

Hill is also one of the most significant and important places in Penang. As a hill resort,

Penang Hill is very popular and is still attracting tourists even without many strong

attractions apart from the view and cool climate. The Hill is located 830 meters above

sea level and connected by hill railway that has been operating since 1922. The

funicular railway was upgraded in the year 2011. Another way to access the hill is by

a jeep track from the Botanical Garden. Penang Hill offers bio-diverse flora and fauna

1
which need to be protected from being destroyed by developmental works. Sustainable

management will ensure the biodiversity of Penang Hill is conserved and at the same

time, contribute to Penang’s economy by being an important tourist attraction.

In Malaysia economic activities come under the purview of statutory and non-

statutory bodies in this country. A statutory body is established under an act or

enactment while non-statutory bodies are registered under the Companies Act 1965

(Abdul et al., 2013; Chong et al., 2011; Hussain, 2010). Public corporations are

incorporated by the government, whether through law or established under the

Companies Act for specific purposes (Hussein et al., 2014). Public corporations or

semi government agencies are legally established by either the parliament or the state

assembly. This research is on Penang Hill Corporation (PHC) who are the custodian

of Penang Hill. PHC is a state public corporation set up in accordance with the Penang

Hill Corporation Enactment, 2009.

According to Manaf & Hazilah (2011), the delivery of public services has not

been efficient and effective to satisfy the needs and wants of the citizens, its red tape

and bureaucracy have often been perceived to be less efficient compared to private

sector services which are market-driven. In this regard, the public sector in Malaysia

has not been spared from criticism of its incompetence. The former Chief Secretary to

the Government, Tun Ahmad Sarji (1993) said:

“The public service was more than not associated with bureaucracy; which

conjures in the minds of people inefficiency and the worst of organizational

nightmares. The people who have been to the bureaucracy experience it as red tape,

inflexible policies, and being hard to do business with when decision seems to take

forever”.

Public services in Penang has been criticized for poor management too. Chan (1998),

2
mentioned that high demand for land on the island has made developers to turn to the

hill, which has led to many environmental problems. In spite of this, the Penang State

Government decided to lift the freeze on hill development. This criticism is supported

by an article which concludes that Penangites feel that the State Government does not

have their interests at heart (New Straits Times, 2017). The sale of state-owned land to

developers and mega development projects are among the concerns of the public in

Penang, specifically with the way Penang is being governed by the State Government.

A coalition of Penang based NGOs called for a forum and listed down their concerns

with the governance issues in a memorandum that was sent to the State Government.

Their apprehensions include weak agreements which have led to loss of land rights on

reclaimed land and discontinuing the practice of allowing politicians to sit in boards

of government linked companies (Penang Forum Agenda, 2018).

Penang Hill Corporation was established after Penang Hill Corporation

Enactment 2009 approved by Penang State Legislative Assembly. There are seven

divisions in PHC namely, Management Services Division, Promotion and Marketing

Division, Finance and Strategic Planning Division, Technical Planning and

Development Division, Internal Operation Division and Funicular Engineering

Division (Summugam, 2015). The PHC has experienced management issues as well,

involving not only the management and financial aspects, but also in terms of its

maintenance of the funicular trains which might pose a danger to visitors (Malaymail,

2014). The issues of governance need to be addressed seriously as it will affect tourists

who visit Penang Hill. A media report in 2016 stated, hundreds of frustrated tourists

had to trudge down Penang Hill here yesterday after the Penang Hill funicular train

broke down (New Straits Times, 2016). There are evidences which proves Penang Hill

is not governed affectively enough thus this research will focus on better management

3
efforts for Penang Hill.

As mentioned above, Penang Hill is very well known for its natural resources

of untouched sub-mountain forest, rich with flora and fauna (Khor et al., 1991). The

hill is also an important water catchment area for Penang. Penang Hill needs to be

managed sustainably to maintain its delicate functions of being a forest reserve, water

catchment area as well as one of the main tourist attractions. This research studies the

management of Penang Hill via public-private partnership approach from the

perspective of primary stakeholders.

Public-private partnership (PPP), or joint venture is one of the means used to

maximize the pros of private and public sector in terms of performance. PPP has

existed in Malaysia at least since the mid-1980s (Singaravelloo, 2017; Ismail & Harris,

2014). Malaysia has been using the concept of PPP for the development of some

government projects. This concept has also been used in the UK where PPP is seen as

a partnership to develop public infrastructure projects with financial assistance from

the private sector. Examples of the usage of this PPP concept in Malaysia can be seen

in the development of 12 Universiti Teknologi Mara (UiTM) campuses by the Prime

Minister’s Department of Malaysia. PPP concept has never been examined in Malaysia

in terms of the management of a hill station. Hence, this research aims to identify and

compare PPP practice on Penang Hill. Besides that, this research also outlines the

possible introduction of the PPP concept for the internal management of PHC. Finally,

suggestion of a management framework based on the concept of PPP will be made

towards environmental protection of Penang Hill.

1.2 Problem Statement

Positioned in a strategic location, Penang Hill has always been seen as another money

4
making development scheme and has been eyed by many for years. The hill is a major

target for tourism related development. Proposals for more hotels, tourism facilities

and cable car to connect the hill station and botanical garden are among the proposals

for the development of Penang Hill. The sensitivity and the pressure for development

of Penang Hill is immense as the hill is one of the top hill stations in Malaysia. It is a

challenge for Penang Hill to strike a balance between developing the hill and

maintaining and conserving nature. Even though the National Physical Plan (2010-

2030), outlines a development control policy for the safety of the people and to

conserve the quality of the environment and biodiversity of Penang Hill, throughout

the years, many developers have submitted proposals to further develop the hill.

Besides the National Physical Plan, the Draft Local Plan for Penang Island (2008) and

the Special Area Plan for Penang Hill (2017) also take into consideration the

conservation of the natural heritage of Penang Hill.

Berjaya Plan, a massive resort development proposal by a private developer,

was a wakeup call on the need for a more systematic governance of Penang Hill. As a

result, an NGO called the Friends of Penang Hill in 1991 managed to put a stop to a

development proposal which would have caused serious environmental degradation to

Penang Hill (Khor et al., 1991). The Penang Hill Local Plan was commissioned to

overcome this issue and this local plan spelt out development control measures on

Penang Hill. The establishment of the PHC in the year 2009 is an effort not only to

promote tourism but also as an institution to oversee the development projects on

Penang Hill. However, its performance and management have been criticized

(Summugam, 2015; Mike, 2017). A corporation, whether state or federal-owned, is as

important as any other government agency in Malaysia. However, to this date, no

research has been done to look into the governance of a corporation. This might be

5
because the management of a corporation should be in a better position to do so as they

have autonomy in terms of finance and internal management compared to other

government agencies. Unfortunately, this is not the case in this country as corporations

have been slapped with issues, ranging from bad management, poor governance,

cronyism and corruption. In Ishak’s (2011) opinion, although the aim to establish

corporations, owned either by the state or federal government, is to benefit the state,

in recent years, their performance is being affected by poor management. Many

scholars have studied the administration and governance of other public institutions,

for example, studies on the governance and efficiency of local authorities (e.g., Nooi,

2006; Abdullah & Kalianan, 2008; Zaherawati et al., 2014; Muhammad et al., 2015).

This research focuses on the concept of partnership between the public and private

sectors from the stakeholders’ perspective. Besides that, identification and comparison

of existing PPP approaches on Penang Hill are also undertaken. It is hoped that

adapting PPP’s values for the internal management of PHC can be materialized.

Finally, an assessment of whether or not the concept of PPP will contribute towards

environmental protection is also carried out.

The PPP concept has often been used for public sector projects, including on

Penang Hill. This is because the public sector is often faced with limited financial

resources (Ismail et al., 2014; Singaravelloo, 2017). The definition of PPP is spelt out

in the Ninth Malaysia Plan (2006), as the transfer to the private sector the responsibility

to finance and manage a package of capital investment and services, including the

construction, management, maintenance, refurbishment and replacement of the public

sector assets which create a standalone business. Ismail & Azzahra (2014), confirmed

that the introduction of PPP in the Ninth Malaysia Plan (2006), is another method to

avail revenue for Malaysia by involving the private sector in public services. It is

6
widely known that the PPP initiatives were introduced to have a win-win situation for

both sides. This is because there are concerns and uncertainties with total privatization

when it comes to an environmentally sensitive area, like Penang Hill. Total

privatization will not be a good initiative due to the possibility of environmental

destruction and threats to the water catchment area. According to a study done by Goh

(2014), a privatization program was introduced in Kinabalu Park, Sabah in 1998 to

manage the tourism facilities however, the private sector failed to fulfil the objectives

of sustainable tourism. This proves that total privatization is not an excellent solution

in a tourism destination with natural attractions and resources, like Penang Hill. The

reason why the PPP approach is being utilized on Penang Hill currently is because of

the lack of financial and human resource capability of existing public agencies. The

PPP approach in fact, has always been used since the year 2000, albeit in a fragmented

manner by excluding the environmental and conservation agenda. For example,

development without looking into the environmental impact on the hill. However, the

PPP approach is still being used as a way to bring more development to Penang Hill

until today. The latest PPP approach for the development of new tourism attractions

on Penang Hill is known as The Habitat. This study aims to identify and compare PPP

practices on Penang Hill with the latest PPP venture, The Habitat, to determine

whether or not this new approach should be the way forward for the further

development of the hill using the PPP concept.

Various studies have criticized the governance of public institutions in

Malaysia. For example, Abdullah & Kalianan (2009), mentioned that poor

management, incompetence, and often, lack of financial and human resources, make

the services provided by the Local Authorities (LA) in Malaysia to be problematic. So

far, no study has been undertaken to understand both the pros and cons of PPP in a

7
tourist destination. Hence, this research examines the introduction of the PPP concept

for PHC from the perspective of primary stakeholders. Bearing in mind the uniqueness

of a hill station, Penang Hill which has always been a very popular tourist attraction,

insights from primary stakeholders can offer a clearer understanding of how the hill is

being managed. The conflict between balancing the need to protect natural resources

and simultaneously fulfilling tourists’ need for protected areas, such as national parks

and forest reserves, has been researched by many scholars. For example, according to

Haukeland (2011), the managers of national parks need to find a balance between two

competing goals, i.e., making sure the visitors enjoy the nature and landscape by

providing them access and at the same time, preserving the environment. This is

clearly a huge responsibility as this delicate balance can be easily hampered due to

poor management. Input from the different stakeholders directly and indirectly

involved in managing Penang Hill can be an opportunity to understand the actual

governance and management processes of the hill. This claim has been agreed to by

many scholars as stakeholders can offer unique perspectives of more effective policy

decisions (Grimble & Wallard, 1997; Lester & Weeden, 2004; Sheehan & Ritchie,

2005; Buuren, 2009). Using PHC as a case study with primary stakeholders can allow

a detailed study of the management issues of PHC for the benefit of the future

generation, especially in terms of environmental conservation of Penang Hill.

1.3 Research Objectives

The objectives of this research are as follows:

i. To examine the management aspects of Penang Hill from the stakeholders’

perspective and to evaluate the adaptability of the PPP approach to the internal

management of Penang Hill Corporation (PHC).

8
ii. To identify and compare existing Public-Private Partnership (PPP) practices on

Penang Hill with The Habitat model.

iii. To develop a management framework for PHC based on the concept of PPP

and its contributions to environmental protection.

1.4 Research Questions

The following are the research questions derived from the research objectives:

i. What is the stakeholders’ perception of the management by Penang Hill

Corporation (PHC)?

ii. What are the existing PPP practices on Penang Hill and what is the possibility

of introducing the concept of Public-Private Partnership (PPP) in Penang Hill

Corporation (PHC)? And what are the differences of previous PPP approach

with The Habitat’s model?

iii. What is a suitable management framework for PHC that can contribute towards

the environmental protection of Penang Hill?

1.5 Research Context of Penang, Malaysia

Malaysia has been blessed with hill resorts which offer cooler temperature compared

to the excessive heat of the lowland. Besides having progressive economic

development, Malaysia is generally safe and politically stable as tourist heaven. Some

of the notable hill resorts in the country are Cameron Highlands, Maxwell Hill or Bukit

Larut, Fraser Hill and Penang Hill the country’s top destinations attracting both local

and foreign tourists. The tourism sector in Malaysia was the third biggest contributor

to the country’s economy in 2017 after the manufacturing and palm oil sectors.

Revenue generated from 25.9 million tourist arrivals in 2017 was RM82.2 billion. The

9
Tourism Ministry is targeting 33.1 million tourists in 2018 with a total income of

RM103 billion (Malaysian Digest, 2018).

Penang is one of the 13 states in Peninsular Malaysia measuring 1,046 square

kilometres in size, located in the Straits of Malacca. It is a melting pot of many

different cultures and traditions and was home to more than 1.8 million people in 2017.

Significantly Penang is a major international tourist destination because of its

historical significance as a UNESCO world heritage site in George Town. Penang’s

attractions are street food, the sun and sea with more recently as a destination for a hill

resort destination. With all these attractions, Penang has always been popular among

the holiday makers. Penang recorded more than 3.8 million tourist arrivals in 2017

which is a significant contribution to Penang’s economy. Sustainable tourism is among

the 10 tiers of the tourism vision by the Penang State government besides medical,

heritage and educational tourism (Khoo, 2001; Omar et al, 2017).

1.5.1 Penang Hill

Historically, Penang Hill was the first development project of the East India Company

in the 18th century. Modestly developed, the hill catered for the need for resort and

health facilities for British civil servants and military officers at that time. Because of

Malaysia’s hot climate, four hill stations were established by the British in Malaya,

namely Penang Hill, Maxwell Hill, Fraser’s Hill and Cameron Highlands. Cool breeze

and a panoramic view of George Town made Penang Hill the earliest hill station to be

set up by the British colonialists. Penang Hill is the oldest hill station of the British

Empire (Fisher, 1948; Carlson, 1980; Doran, 1997; Freeman, 1999; Aiken, 2002; Ang,

2012; Bhati et al., 2014). Penang Hill offered temporary refuge from the humid tropical

climate and was also used as a place to convalesce. It is still a retreat destination today,

10
and one of the many famous hill resorts in Peninsular Malaysia.

In terms of accessibility, the funicular train was constructed in 1923 and is now

a famous tourism landmark of Penang. The railway has been upgraded a few time and

is the main access besides a jeep track which is only accessible by the residents of the

hill. The construction of the funicular railway encouraged the development of

bungalows on the hill. A total of 44 bungalows occupy the hill currently with most of

them listed as heritage buildings. Amat (2006), documented the important heritage and

historical aspects of Penang Hill as follows:

i. Cultural and natural features that express the hill’s historic character.

ii. Relationship between buildings and open spaces.

iii. Pre-war buildings and their appearance (interior and exterior).

iv. Historic surroundings of buildings.

v. General historic ambiance of Penang Hill.

vi. Views and vistas.

vii. The Hill itself as a backdrop of Penang Island.

Penang City Council Plan (1987) for the development of Penang Hill states:

“Penang Hill shall be designated as an area of special characteristics. Its

natural vegetation, topography and character as a hill resort must be maintained and

conserved and development shall conform to and not destroy these special

characteristics. Penang Hill shall be enhanced as a hill resort by improving and

increasing the various lookout points and by the establishment and improvement of

paths and walkways, gardens, natural areas and other facilities”.

This proves that special characteristic of Penang Hill was always meant to be

11
maintained and conserved. Attempts to redevelop and revitalize Penang Hill began

since the early 1990s. However, the people of Penang strongly protested against the

development intention of Berjaya Group also known as the Berjaya Plan when it was

first published in the media. The Berjaya Plan is a development proposal from Berjaya

Corporation’s subsidiary, Bukit Pinang Sdn. Bhd. It comprised a large scale 900 acres

development project, including hotels, condominiums, an acropolis centre, shopping

malls, sports and golf centre in the year 1990. This proposal would essentially put the

management of Penang Hill into private hand, the privatization effort started since the

1980’s. The proposed development would occupy the forest reserve and water

catchment area of Penang Hill. Fearful of privatization of Penang Hill and destruction

of water catchment area, the protest led to the formation of Friends of Penang Hill

which resulted in a Save Penang Hill campaign. Throughout the campaign, public

forums and public petitions were held to request the state government to review the

Berjaya Plan. As a result, representatives from Friends of Penang Hill were invited by

the Department of Environment to sit on the Environmental Impact Assessment (EIA)

Panel, this has led to the rejection of the EIA twice. This issue became a political issue

in the 1990 elections. Following these events, this development proposal on Penang

Hill was neglected by the Penang State Government.

In April 1997, the Bukit Bendera Local Plan done by the local authority which

took public opinion into consideration was gazetted. Nevertheless, the development in

Penang Hill never took place until the revitalization initiatives were proposed recently

with the preparation of the Special Area Plan for Penang Hill. Still being treated as a

political issue today, the development of Penang Hill will always be a hot topic among

both the public and media.

A series of development plans started under the National Physical Plan

12
gazetted in August 2010, all of which emphasizes the protection and development of

natural heritage assets, including hill stations and highlands. The National Physical

Plan underlines Penang Hill as a major tourism destination with the provision of

support facilities and infrastructure. There is also a provision for a special area plan

for Penang Hill. Penang’s State Structure Plan gazetted in June 2007 recognizes

Penang Hill as a local centre with a special function as a hill station which should be

managed in an integrated manner. The Penang Draft Local Plan 2020 (Island) lists

Penang Hill as one of the ecotourism sites for Penang besides the Penang National

Park, Batu Maung and Pulau Jerejak. It has also identified Penang Hill as a heritage

zone with developmental control over its heritage buildings. The plan also spells out

the visual preservation of its green area for the island’s corridors. Penang Hill is ranked

as a local commercial zone and a gazetted area of hill land besides being identified as

an area with environmentally sensitive bio-diversity. Penang Hill currently has a

Special Area Plan gazette in the year 2017 which will determine its future

development.

1.5.2 Penang Hill Corporation (PHC)

In view of its importance as a tourist destination, the Penang Hill Corporation (PHC)

was established in 2009 by the state government to take over the function of Keretapi

Bukit Bendera (KBB). With the vision, “A hill with a heart that binds us together with

the environment”, PHC wishes to incorporate the principle of sustainable development

in its mission. PHC’s main objectives under the Enactment 2009 are to:

a) Ensure that this enactment is administered, enforced, given effect to, carried

out and complied with.

b) Propose the formulation of policies and advice the State Authority on any

13
 matter relating to the promotion, development and preservation in the area of

the Corporation.

c) Manage, operate and control and maintain the service of Penang Hill Railway.

d) Promote, encourage, facilitate and undertake the development of economic,

social and infrastructure development in the area of the Corporation.

e) Promote, develop and encourage the area of the Corporation as a tourism

destination.

f) Control and coordinate the performance of the activities mentioned in

paragraphs (c), (d) and (e) in the area of the Corporation.

g) Advice the State Authority on the activities in the area of the Corporation.

h) Carry out research or any activity relating to it in promoting and developing

the area of the Corporation.

i) Carry out such activities and do such things which are necessary or

advantageous and proper for the administration of the Corporation or such

other purpose consistent with this enactment.

As the custodian of Penang Hill, PHC’s role is very important to ensure the hill

will be a sustainable tourist site. The questions remain whether their current

management approach is effective enough. If it is not, can the PPP approach be

extended into the management of PHC? What are the existing PPP approach on Penang

Hill and can PPP concept contribute towards the environmental protection? This is

what this research aims to discover.

1.6 Research Significance

This research is unique as it takes into consideration the perspectives of stakeholders

on the management and governance of Penang Hill. Especially on their views on the

14
possible introduction of PPP towards sustainable management of Penang Hill. This

research will examine the examples of current PPP approach on Penang Hill with a

comparison with latest PPP venture called The Habitat. The Habitat is a PPP approach

involving the State Government of Penang and a private entity to focus towards nature

tourism and environmental conservation. This research then will suggest a

management framework based on the concept of PPP on how it can be used as a tool

for effective management focusing on sustainability and environmental protection. A

study to understand the view of stakeholders in terms of the management of a hill

station has never been done in Malaysia. Stakeholder’s insights are significant as it

will contributes towards sustainable management of the hill. In addition, this study

hopes to understand the advantages of the joint venture between the public and private

sectors towards more sustainable management of Penang Hill. The outcomes from this

study are expected to contribute to and assist in:

i. managing Penang Hill in a more sustainable manner.

ii. ensuring more inclusive management of Penang Hill using the PPP concept.

iii. development of a PPP model which will contribute towards environmental

protection.

iv. safeguarding and conserving Penang Hill’s environment, flora and fauna for

the future generations.

1.7 Study Organization

This research is organized into six chapters. Chapter one consists of the introduction

to the study, including problem statement, research objectives, research questions,

study area and research significance. Chapter two includes literature review related to

management, governance, model and theories, PPP concept and case study research,

15
including a conceptual framework used as a guide for this study. Chapter three outlines

the methodological approaches used for this research, including procedures for data

collection and data analysis. Chapter four provides a review of the study area and

explains in detail in terms of management, tourism and environment of Penang Hill.

Chapter five presents data analysis and discussion based on the findings. Chapter six

is the conclusion chapter with suggestion of a management framework based on PPP’s

approach, including suggestions for future research to be undertaken.

16
 CHAPTER 2

LITERATURE REVIEW

2.1 Introduction

This chapter discusses sustainable management of hill station in the context of and

management of public institutions and privatization. Explanation on public-private

partnership (PPP) is given by focusing on the concepts of good governance, PPP

practices on Penang Hill and how it can be a tool for environmental protection.

Specifically, management of an organization is examined to determine how this can

lead to determine sustainable management of environment, economy and society. The

researcher adopts the sustainable management approach which is a good balance

between economic development, environmental stewardship and social justice to

analyse the management of a hill station (Sikdar, 2003; Go’ncz et al., 2007).

2.2 Government Centric Model

Malaysia’s basic structure of government administration follows closely that of the

British system. The Malaysian government has inherited from the British the principles

of parliamentary democracy and incorporated them in its administration (Nooi, 2011).

The main theoretical foundation for the management of public institutions

began in the late 19th century. The theories were derived from Woodrow Wilson and

Frederick Taylor in the United States, (Hughes, 2012). Criticism of the traditional

management and administration model has resulted in the introduction of new method,

such as bureaucracy and political control to make sure the weaknesses of management

in public institutions can be minimized. The PPP concept is one of the means to

minimize the weaknesses of management in public institutions.

17
 The civil service in Malaysia is divided into federal and state civil service. At

the federal level, the administration of the country is undertaken by various ministries

and departments, while at the state level, the civil service system includes local

administration and local government. The fundamental differences between federal

and state civil service is to who they report to. The federal civil service ultimately

reports to the prime minister while state civil service reports to chief minister of the

state concerned. In the case of Local Authorities (LA), the mayor usually is a political

appointee chosen from among the civil servants in the LAs.

The economic and political context of Malaysia over the past decades has

proven that the public administration in Malaysia has adapted itself to the changing

situation in order to be able to play its new and emerging roles effectively (Mustafa,

2011). The role of Dr. Mahathir was very significant in Malaysian civil services as he

introduced several changes in the administration of the civil service. The Client’s

Charter (CC) was initiated by Dr. Mahathir in 1993 for the civil service. The focus was

on quality public services and public satisfaction (James, 2011). The main phase of

public management reforms in Malaysia began when the nation decided to adopt the

National Development Policy and Vision 2020. The New Public Management (NPM)

policy comprising reforms and changes in the public service was the result of the

financial pressures of the 1980s. NPM refers to a set of features aimed at responding

to the assumed failures of the traditional modes of public administration (Wan, 2010).

NPM is a strategy to introduce measures to enhance efficiency and give value for

money in public service operations (Butcher, 2003). Malaysia was among the nations

to quickly adapt to this policy as the nation depends heavily on international trade,

which left Malaysia with very few options but to engage with the NPM policy

(Siddiquee, 2010). The main aim of the public service in Malaysia is to implement

18
government decisions and policies towards achieving the country’s goals (Hussain,

2001). The civil service in Malaysia exists in all three tiers of the government: federal,

state and local governments. At the federal level, the administration of the country is

performed by the various ministries and departments; while at the state level, the civil

service system comprises the local government (Manaf & Hazilah, 2011). The civil

service has always been viewed as an independent body that shows no favoritism in

performing the policies of the government (Chin, 2011). Malaysia’s efforts to improve

the management of public institutions is ongoing. Special attention is paid to issues,

such as corruption, integrity and cronyism, to ensure a more sustainable delivery of

public services.

2.2.1 Government Centric Model, Penang Hill Corporation (PHC)

Tourism remains as one of the main economic contributors to the nation’s economy.

The tourism sector continues to play a vital role for Malaysia. It remains as an

important source of income with earnings of RM72 billion in 2014, an increase of

27.4% from RM56.5 billion in 2010. The tourism industry provided 2.2 million jobs

or 16.8% of total employment in 2013 (Eleventh Malaysia Plan, 2016). Due to

uncertain world economic conditions, between the year of 2014 and 2015, tourism

arrivals in Malaysia decreased from 27.44 million to 25.70 million with receipts from

RM 72.0 billion to RM 69.1 billion. This is highly contributed by the uncertainty of

world economy in the year 2015 and the figures are expected to increase this year too

(Penang Monthly, 2016). Table 2.1 shows tourist arrival and receipts to Malaysia from

the year 1998 to year 2016.

19
 Table 2.1: Tourist Arrival and Receipts to Malaysia from 1998-2016

Year Arrivals (Mil) Receipts (RM) (Bil)

1998 5.56 8.6
1999 7.93 12.3
2000 10.22 17.3
2001 12.78 24.2
2002 13.29 25.8
2003 10.58 21.3
2004 15.70 29.7
2005 16.43 32.0
2006 17.55 36.3
2007 20.97 46.1
2008 22.05 49.6
2009 23.65 53.4
2010 24.58 56.5
2011 24.71 58.3
2012 25.03 60.6
2013 25.72 65.4
2014 27.44 72.0
2015 25.70 69.1
2016 26.8 82.1
(Source: Tourism Malaysia’s website accessed June 2017)

Malaysia started focusing on the tourism industry as a main source of returns

in the 1980’s as tourism has become an increasingly important industry worldwide.

The establishment of the Tourist Development Corporation Malaysia (TDCM) in 1972

is an indication of Malaysia’s serious efforts in developing and promoting tourism

(Hamzah, 2004). Better and cheaper connectivity as well as the improvement in

communication has made Malaysia among the top tourism destinations in Asia.

Among the main reasons for this growth were increased personal income and leisure

time, improvement in international transportation system and greater public awareness

of other parts of the world due to improved communication (Yasak, 2013). Provision

for the development of the tourism industry started from the 2nd Malaysia Plan with an

allocation of RM 8.59 million which increased to RM 1,847.9 million in the 9th

20
Malaysia Plan. This proves Malaysia’s commitment to developing the tourism industry

to greater heights. This allocation was used to improve and increase the physical and

social infrastructure, facilities and services which are needed to support the future

growth of the tourism industry. The industry provides an important source of income

for the country’s continued growth. Because of this, it is very important that the

tourism industry remains both environmentally and economically viable. Realizing the

huge potential, strategies and policies were allocated for tourism development to

achieve sustainable growth in the 8th Malaysia Plan (2001-2005).

The development of the northern tourism sector in the 10th Malaysia Plan is

under the jurisdiction of the Northern Corridor Economic Region (NCER) which

includes the states of Kedah, Perlis, Pulau Pinang and the four northern districts in

Perak. NCER focuses on ecotourism and heritage as niche attractions. Tourism

continues to be among the major focus in the 11th Malaysia Plan (2016 – 2020) which

continues to focus on ecotourism where social inclusion and the expansion of modern

services are among its major efforts. Income from the tourism sector will continue to

contribute hugely to Malaysia’s revenue. However, the trend of tourism is moving

towards environmental conservation and a greater involvement of local community.

Sadly, environmental and social inclusiveness of this county still need major

enhancement.

Penang Hill Corporation (PHC) was formed in 2009 to take on the

responsibility of the management and maintenance of the hill. As a statutory body for

Penang State Government, PHC’s responsibilities covers the overall management and

development of Penang Hill besides the maintenance and operation of Penang Hill

Railway. The formation of PHC is to take over the function of a small unit called Unit

Keretapi Bukit Bendera under Penang Secretarial Office. This is because Unit Keretapi

21
Bukit Bendera only focuses on the funicular railway without much focus on the overall

management and development of Penang Hill. There are seven division in the

management of PHC namely, General Manager’s Office, Management Service

Division, Finance Division, Operation Division, R& D Division, Marketing &

Promotion Division and Safety & Security Division. The current core functions of

PHC include the promotion of the hill besides maintaining, managing and operating

the service of the Penang Hill Railway. PHC always wanted to increase the number of

visitors to Penang Hill by introducing more attractions. PHC wants Penang Hill to be

developed more than just for its nature attractions and breath- taking view

(Summugam, 2015). Until this days PHC is still facing management problems as

according to Summugam (2015), PHC has not focused on the overall development of

Penang Hill due to lack of human resources. Besides that, Penang is famous for its

ferocious and forceful NGO who are extremely sensitive when it comes to any hill

development. Even though stakeholders will always be invited to given their views on

the development of Penang Hill, it is not a compulsory for PHC to take all their views

into account.

PHC was established to be the facilitator of the hill without any forward

planning, for example, it did not have the financial capacity to develop tourist

attractions. This is the reason why the PPP concept has been introduced to tap into the

financial capacity and better services that can be availed by the private sector. Even

though the PHC has done a good job, PPP can better unlock the economic potential of

Penang Hill, by leveraging on the expertise of the private sector, for example, good

services and experience. Improved services can be provided and tourists will not mind

paying for the tourism experience. This research is aims to investigate on the

possibility of PPP to be utilized for a better management of Penang Hill. This is the

22
reason the researcher has chosen Penang Hill and PHC as a case study for this research.

2.2.2 Government Centric Model, Chief Minister Incorporated (CMI)

Chief Minister Incorporated (CMI) was established in 2009 to manage, invest, develop

and operate Penang State Government-owned land and properties. CMI is also

responsible for the promotion of Penang in terms of tourism. Besides that, CMI

initiates and spearheads infrastructure projects and encourages and supports

agriculture, livestock and fishery projects. CMI also focuses on public transportation

projects in Penang while formulating strategies to generate income or revenue from

assets of the State Government (Penang State Government, 2018). As a representative

of the Penang State Government, CMI has the authority to call for a (Request for

Proposal) RFP for new development and make detailed assessment of the RFP. RFP

for projects on Penang Hill comes under the jurisdiction of CMI. Besides calling for

RFP, CMI also reviews the RFP by engaging technical and evaluation committees.

PHC is one of the evaluation committees for RFP review on Penang Hill. CMI then

awards PPP projects to the selected company. CMI then spearheads the

implementation and procurement process while regularly monitoring the

implementation and producing relevant reports. CMI has been initiating and managing

RFP on the Penang State Government’s own assets, comprising land and buildings,

including the ones on Penang Hill. Existing PPP projects on Penang Hill unfortunately

have been done in a fragmented manner, this study compares the existing PPP projects

on Penang Hill with the latest PPP approach of The Habitat.

23
2.3 Privatization Model

Modern policies of privatization were created by Thatcher’s government in 1979 and

were then met with great scepticism by the public and professional economists

(Megginson & Netter, 2001). Privatization refers to any measured to a public sector

reform which has the effect of increasing efficiencies (Cook & Kirkpatrick, 1995).

According to Savas (2000), Privatization is the act of reducing the role of government

or increasing the role of private institutions of society in satisfying people’s needs, it

means relying more on the private sector and less on the government. The policy has

been adopted by many countries, for example, Japan and China have privatized their

state owned enterprises since the late 1970s and 1980s. Revenue from the investment

by the government is a major boost for privatization (Yergin & Stanislaw, 1998).

Besides being seen as a measure for the government to get funding from the private

sector, privatization has been subject to criticism. Among the common criticisms on

privatization is that it is actually an excuse for governments to step away from their

responsibility. Transforming a public agency into an independent authority or a

government corporation is also called privatization (Savas, 2000). Improvement in the

management of public enterprises is also the reason for privatization according to a

study done by Eckel & Singal (1997), on the British Airways. The study showed

improved performance after it was privatized. Poor management by the civil service

has paved the way towards privatization. General negative views towards public

institutions alone cannot be used as an excuse to introduce privatization. Internal

factors within the public institution itself, such as red tape, need to be addressed in

order to achieve better management.

The Malaysian government is among the first countries to go on board with

privatization. Spearheaded by the British and the US governments in the early 1980s,

24
privatization has become a fashionable economic policy around the world and

Malaysia was one of the first among the developing countries to start its privatization

program (Bakul & Dholakia, 1994). The Privatization Master Plan of 1991, has the

main purpose of providing guidelines for the implementation of the privatization

policy. Malaysia’s Privatization Master Plan defines privatization as a strategy by the

government of rolling back its involvement in favour of freedom, competition,

efficiency and productivity. Full privatization means a complete transfer of ownership

and control of a government enterprise or asset to the private sector. In Malaysia, such

a practice is not the norm as less than half of the assets or shares in the state-owned

enterprises (SOEs) are sold to the private shareholders with the government retaining

control through majority ownership (Jomo & Tan, 2003). According to Bakul &

Dholakia, (1994), Malaysia’s privatization policy is designed to achieve the following

objectives:

a) Relieve the financial and administrative burden of the government.

b) Improve efficiency and productivity.

c) Facilitate economic growth.

d) Reduce the size and presence of the public sector in the economy.

e) Achieve the national economic policy targets.

In tandem with Malaysia’s privatization policy, the Privatization Action Plan

(PAP) was introduced to assist in its implementation. The main objective of

privatization is to reduce the financial burden of the government. The sale of

government entities to private companies has generated RM 1.18 billion while saving

more than RM 8.2 billion in capital expenditure for infrastructural development (Jomo

& Tan, 2003). The attractiveness of privatization is determined primarily by its

25