CHAPTER THREE

PUBLIC UNDERTAKINGS

LEARNING OBJECTIVES

Upon completion of this chapter, you should be able to:

- Explain the characteristics of public undertakings and reasons for its

growth

- Discuss the examples of public undertakings in Malaysia

- Classify types of public undertakings

- Describe on control over public undertakings

- Explain strengths and weaknesses on privatization

3.1 REASON FOR THE GROWTH OF PUBLIC UNDERTAKING

Public undertakings have become the order of the day in all democratic
countries. The reasons for the growth of public undertakings are:

a) It is considered as essential to promote economic regeneration of the

country, to improve socio-economic well being of the people, to maintain
public control over the basic resources of the country and to reduce
concentration of wealth and means of production in a few hands.
b) It is also has become an acceptable instrument of economic development.
A number of public undertakings were set up as a statutory corporation to
promote economic development of the country and its people especially
of the rural people.
c) To plan and develop select regions. A number of regions in the country
have been selected for integrated development these regions have been
subjected to comprehensive master planning. For purposes of
accelerated, comprehensive and integrated all around development of
such regions, statutory bodies have been set up. Muda Agricultural

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Development Authority (MADA) was set

up to promote, stimulate, facilitate and
undertake economic and social development
in the Kawasan Muda and to plan and
undertake therein such agricultural
development as may be assigned to it by the
State Authority.
d) To ensure a fair share to the Bumiputras in
the national economy. The Government’s
New Economic Policy envisages that the
indigenous people should have a 30%
financial involvement and employment at
all levels in industrial and commercial
sectors.

3.2 LEGAL CHARACTERISTICS OF A CORPORATION

The basic characteristics of an incorporated body whether statutory or non-

statutory is that it has legal personality of its own which is separate and distinct
from shareholders.

Although the government has a good deal of control over corporation’s working,
and even the entire capital of the corporation may be subscribed by the
government, the two, are deemed in law to have distinct personalities.

Its property is not government property; it does not enjoy any of immunities or
privileges available to the government. Its servants are not civil servants and it is
bound by law as much as any other person.

TAMLIN v HANNAFORD [1949] 2 ALL ER 327,

It was held that the property owned by a statutory corporation no being

government property is subject to ordinary law of the land as the property of any
other person and exemption available to he government from the law relating to
rent cannot be availed of by a corporation.

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Chapter Three: Public Undertakings

N.T.S. ARUMUGAM PILLAI v GOVT OF MALAYSIA [1977] 2 MLJ 62,

The court pointed out that the said corporation was establishes as a legal entity
under an Act of the State Legislature and, therefore, it cannot by any stretch of
imagination be equated with the Government of Malaysia.

3.3 EXAMPLES OF PUBLIC UNDERTAKINGS

a) FELDA (The Federal Land Development Authority) was established in

1959 under the Land Development Ordinance 1956, with a view to speed
up land development by clearing forests and making land available for
landless settlers.
b) MADA (Muda Agricultural Development Authority) was set up in 1972
to promote, stimulate. Facilitate and undertake economic and social
development in Kawasan Muda.
c) PERNAS (Perbadanan Nasional Berhad) was established in 1969 as a
public limited company registerewd under the Companies Act. Its
primary objectives is to further the financial and managerial participation
of the indigenous people in the industrial, commercial and financial
development of the country.
d) MARA (Majlis Amanah Rakyat) established in 1966.
e) UDA (Urban Development Authority) a statutory corporation set up in
1971 to promote development of the urban.
f) SEDC (State Economic Development Corporation) Each state has its
own SEDC. The primary objective of this corporation is to promote the
economy of the state concerned.
g) There are also public undertakings which have been privatized such as
Malayan Railway , National Electricity Berhad and Telekom Malaysia

3.4 CLASSSIFICATION OF PUBLIC UNDERTAKINGS

3.4.1 Financial Institutions

These bodies deal with financial matters. Bank Negara is the body falling
in this category. It is required to help build a sound financial structure for a
growing economy and, further, to assist, formulate and implement the country’s
monetary policy.

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Chapter Three: Public Undertakings

3.4.2 Promotional And Developmental Undertakings

The purpose of establishing such bodies is to sponsor and promote

specified developmental activities which in the formative stages require financial
assistance from the government. The bodies deal only with promotional and
developmental activities. Further these bodies can be sub-divided into
agricultural and non-agricultural. The example of these bodies are MARA,
FELDA and UDA.

3.4.3 Commercial And Industrial Undertakings

These bodies are production-oriented, or they undertake trading or

commercial transactions, and earn profits. Each of these undertakings either
offer services to the people or undertakes production, sale and purchase of
goods. For instance: FAMA, MAS and PERNAS.

Taking the role of the public sector undertaking into account, the fifth Malaysian
Plan divides them into the following three groups:

a) Socio-Economic: This group includes bodies like Rubber

Industry Smallholders Development Authority (RISDA),
FELDA, MARDEC and FELCRA.
b) Commercial and Industrial: In this group fall such bodies as
the National Oil Corporation (PETRONAS), MAS and the
Heavy Industries Corporation of Malaysia (HICOM).
c) Public Utilities: This group comprises such bodies as
electricity boards and port authorities.

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3.5 ORGANISATION OF PUBLIC ENTERPRISES

Enterprises in the public sector may be organized as departmental

undertakings, statutory corporations, or government companies registered under
the Companies Act.

3.5.1 Departmental undertakings

The Malayan Railway Administration falls within the portfolio of the
Transport Minister. All Property of the Malayan Railway is regarded as
government property is vested in the Federal Lands Commissioners. The entire
capital of the Malayan Railway is subscribed by the government. But it is
financially autonomous and self-accounting. It is run on commercial lines. The
employees are regarded as members of the public service of the Federation.

Departmental enterprises suffer from certain inherent weaknesses, example

rigidity of bureaucratic procedures, red tape, delay and lack of flexibility in
taking and implementing decisions. This may not be conducive to an efficient
management of a commercial enterprise.

3.5.2 Government Company

A government company is created by registration under the Companies
Act. It is like any other company registered under the Act and having
shareholder except that the government company may not have any other
shareholder apart from the government and the government may exercise some
measure of control over the affairs of such a company. PETRONAS and
PERNAS.

3.5.3 Statutory Corporation

A statutory corporation is created by a specific legislation. As for
example FAMA is created by the Federal Agricultural Marketing Authority Act
1965; and so on. Then the statutory corporation is usually authorized by its
Parent Act to set up further corporations.

Differences between statutory corporation and Government Company:

a) For statutory corporation, the necessary legislation to constitute the body id
to be passed by Parliament which can closely scrutinize its objectives and
constitutions. A company, the articles of association are settled
administratively and the matter may not come at all before Parliament.
b) Any changes need to e made in the statute concerning a statutory bodies, the

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matter was to come again before the Legislature which alone can amend its
own statute; in case of a company, articles can be amended administratively.

In conclusion, a government company type structure offers more flexibility of

operations than does a statutory body.

3.5.2 Public Undertaking of a Statutory Body

Here is a detailed example of a Public Undertaking of a statutory body. FAMA is

selected for the purpose. This Act has been passed with a view to incorporate
FAMA to supervise, co-ordinate and improve the marketing of agricultural
produce in Malaysia, to provide credit facilities for such marketing and for
matter connected therewith.

FAMA, a body corporate, has its apex body consisting of the following members
appointed by the Minister of Agriculture: a Chairman; a Deputy Chairman; a
representative of the Treasury; a representative of the Ministry of Trade and
Industry; a representative each from – the Ministry of Agriculture and Fisheries
and Agricultural Division of this Ministry, Ministry of Primary Industries;
Economic Planning Unit of the Prime Minster Department; and not more than
five other persons having experience of, and who have capacity in matter
relating to, agricultural production, marketing, finance or administration.

The Minister is to give due consideration to the need of the various regions in
Malaysia to be represented. The Minister is to determine the salaries,
remuneration or allowances payable to the members of the Authority. The
quorum for meetings of the Authority is seven.

The term of appointed is not specified in the Act. A member is appointed for
such term as may be specified in his instrument of appointment and is eligible
for re-appointment.

The functions of FAMA are specified in Section 3 of the Act. These are to co-
ordinate activities of various bodies and persons concerning marketing of
agricultural produce; to improve existing markets and marketing methods of
agricultural produce and promote new markets; to collaborate with persons and
bodies to promote efficient marketing of agricultural produce; to provide credit
Apex= top. Head
Remuneration= compensation, payment
Engage= deal

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facilities for agricultural marketing and to engage in agricultural enterprises

dealing in or processing agricultural produce.

The Deputy Chairman is responsible for the day-to-day administration and

management of the affairs of the Authority; he performs such duties and
exercises such powers as are entrusted or delegated to him by the Authority or
by the Chairman.

The accounts of the Authority are to be audited annually by the Auditor-General

or other auditor appointed by the Authority with the approval of the Minister. A
copy of the audited accounts is to be transmitted by the Authority to the Minister
who has to lay the same on the table of each House of Parliament. The Authority
is to transmit to the Minister a report dealing with its activities in the previous
year.

Expenditure on the activities of the Authority is to be defrayed from a fund

administered and controlled by the Authority. The Authority may borrow money
to carry out its functions on such terms as are approved by the Minister of
Finance. Parliament receives a copy of the annual report of the Authority and its
audited accounts.

3.6 CONTROL OVER PUBLIC ENTERPRISES

There is the important question of Government and Parliamentary control over

public undertakings. On the other hand, these undertakings are set up outside the
government departments as autonomous bodies with the specific objective that
they enjoy some autonomy in their operations and be not bound by the
government routine in their day-to-day working.

On the other hand, it is felt necessary to have some public control over them, and
not to leave them completely free, so as to make them act in public interest and
within the parameters of the government policy.

Transmit= send out

Defrayed= paid
Parameters= limitations

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3.6.1 Audit

In the ultimate analysis, the financial burden of these undertakings, if they do not
make good, falls on the government fund and thus on the taxpayer.

Under the Audit Act (Reprint 1983) the Auditor-General has been authorised to
examine and carry out audit on the accounts of statutory public enterprises if it is
so provided by law in any case.

The Auditor-General is also responsible to ensure that the funds are used for the
approved objectives and those efforts towards achieving the objectives are
carried out efficiently without wastage.

3.6.2 Parliamentary Control

In case of statutory corporations, usually the parent statute would provide that
their audited accounts be laid on the table of the Houses of Parliament. But
usually no discussion takes place in Parliament on these accounts.

Parliament is too large and busy body and cannot adequately probe into working
of the public enterprises as such. An opportunity to debate the operations of an
undertaking may arise if any money is needed to be appropriated by Parliament
to the undertaking. An annual report is submitted to Parliament by every
statutory enterprise.

Non-statutory corporations are not required to submit any such report to

Parliament. The annual accounts of the government companies do not come
before Parliament. In this way, statutory corporations are more accountable to
Parliament than the government companies are.

3.6.3Ministerial Control

Ministers, on the other hand, exercise a good deal of control over the public
enterprises both formally as well as informally. Each corporation is normally
responsible to a Minister who is in charge of the sector of functions in which the
corporation operates.
Laid on= made available
Exercise= use, apply
In accordance with= consistent with

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The Minister concerned has power to appoint the members of the corporation.
This power is conferred on the Minister concerned through the parent statute
creating the corporation.

In case of government companies, the Government being a chief shareholder has

certain powers over them under the Companies Act. As a majority shareholder,
the government can make such appointments and dismissals to the Board of
Directors as it sees fit at the company’s general meetings. In accordance with
parliamentary procedure, the Minister concerned has to answer questions in
Parliament concerning the corporation and has to defend its policies and
operations.

Every company having a share capital has to file an annual return with the
Company Commissioner of Malaysia giving particulars pertaining to the share
capital and membership of the company. The annual return is also accompanied
by a copy of the last audited balance sheet and profit and loss account of the
company.

3.6.4 Judicial Control

The courts exercise some control over public undertakings through the doctrine
of ultra vires. A statutory corporation or a government company is set up for
defined objectives and has defined powers.

The courts apply the doctrine of ultra vires to a company as well as to a statutory
corporation. It means that it must not act outside its objects clause in the
memorandum, or the parent statute, as the case may be.

Judicial control can be effective only when corporate powers are precisely
defined in the parent law or in the memorandum, but this is not usually done.

The point can be illustrated in the case of:

PETROLIAM NASIONAL BHD. (PETRONAS) v CHAEH KAM CHIEW,

[1987] 1 MLJ 25,

Doctrine= policy
A suit= a case brought to a law court
Litigation= lawsuit

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Where Petronas took over Bank Bumiputra. A member of the public filed a suit
as a matter of public interest litigation challenging the take-over on the ground
that acquisition of a bank or engagement in banking activity was not an activity
within the objective and purposes of the Petroleum Development Act 1974.

The plaintiff contended that his interest as a Malaysian citizen, a tax payer and a
member of the electorate of the Government of Malaysia had been affected by
the take-over. The suit raised significant legal points not only as regards the
interpretation of the scope of the object clause, but also whether an action by
way of public interest litigation could lie against public undertakings.

However, before the court could hear the matter, the suit was aborted by
Parliament amending the Petroleum Act. As a consequence, the High Court
awarded costs to the plaintiff. The Supreme Court later on refused to interfere
with the High Court’s discretion saying that the costs are within the discretion of
the Court.

3.7 PRIVATISATION

For some time now emphasis has been shifting in Malaysia from public
enterprise to privatisation. This means that the role of the public enterprise will
shrink and that of private enterprise expand.

Three main benefits are supposed to flow from this move:

a) This will effect reduction in the government civil service as many

persons servicing these undertakings will be transferred to privatised
concerns
b) This will involve reduction in financial commitment of the government
as many losing public undertakings will be taken off the government
financial support
c) There will be increase in efficiency in providing services to the people as
it is argued that private enterprise is more efficient than public enterprise.

Contend= argue
Abort= to end at an early stage
Plaintiff= somebody who begins a lawsuit against another person (defendant) in a civil court

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Chapter Three: Public Undertakings

Privatisation can lead to profitable government concerns being taken over by

private enterprise while leaving the losing concerns with the government. Also,
private enterprise has its own weaknesses which need government control,
supervision and help as the present economic recession in the country has
revealed.

Privatisation may lead to transformation of public monopolies into privatised

monopolies with all the evils of profiteering, inefficiency and inequities.
Therefore, privatised companies running public utilities may have to be
constantly subjected to detailed administrative supervision and regulation.

1. Briefly, explain the characteristics of undertakings and the reasons for its
growth.

2. Discuss the control over public undertakings.

3. What are the strengths and weaknesses of privatisation?

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