THE term “monopoly” often evokes a sense of inequity — that people are short-changed for not having choices and therefore prices are set and uncompetitive. This is certainly true for monopolies in consumer products, as the market would be distorted and end up with consumers paying a high price for substandard products or services.

However, not all monopolies are the same. Some monopolies stem from the structure of a particular sector, and the high capital outlay required to set up shop — creating what is known as a natural monopoly.

“Infrastructure projects tend to have some form of monopoly, given the high capital outlay, hence, why we sometimes also see government-linked companies taking on these projects,” Imran Yassin, head of MIDF Research, tells The Edge via email.

For example, if one were to follow the strict definition of a monopoly, PLUS Malaysia Bhd could be construed as a monopoly of the North-South Expressway. There are also various state monopolies in critical infrastructure, such as water and domestic waste management, he adds.

“Should the North-South Expressway be partitioned in chunks and sold to individual highway operators? As mentioned, some monopolies are structural as this is required to gain efficiency and allow for decent returns due to the huge capital outlay and maintenance needed,” stresses Imran.

Meanwhile, Julia Goh — senior economist (Malaysia) and senior vice-president, global economics and markets research, United Overseas Bank (Malaysia) Bhd — says there are situations where large companies are allowed to dominate a market.

This is especially if such situations involve building and operating large-scale essential infrastructure or areas that deal with sensitive information. However, there needs to be sufficient regulation and oversight as well as quality control, she says.

“Liberalisation has its benefits but a proper cost-benefit analysis needs to be done. If the overall benefits are deemed to be small while regulatory costs are high, then it would defeat the purpose of lowering costs and promoting efficiency.

“Many layers of regulation may be required to ensure proper functioning, especially if liberalisation leads to more fragmentation in certain markets. Hence, it may not be fitting for all sectors,” Goh says.

Prime Minister Datuk Seri Anwar Ibrahim has said that the government will be reviewing all monopolies in the country to ensure that the public enjoy fair and better services.

So, which are the companies that enjoy monopolistic status in the markets they serve? Should they be dismantled or the market liberalised so that new entrants can come in and become challengers to the monopolies? Who would benefit from the liberalisation of the markets?

To answer the first question, we ought to define monopolies. Unfortunately, there is no law in Malaysia that governs the actions of monopolies or prevents their creation, as the current Competition Act 2010 only covers dominant positions and anti-competitive agreements.

In fact, in certain cases, monopolies are excluded from the anti-competitive practices as described under Chapters 1 and 2 of Part II of the Act. Part II prohibits anti-competitive practices such as anti-competitive agreements (Section 4) and the abuse of a dominant position (Section 10).

Section 13(c) of the Second Schedule of the Act excludes “an enterprise … having the character of a revenue-producing monopoly in so far as the prohibition under Chapter 1 and Chapter 2 of Part II would obstruct the performance, in law or in fact, of the particular tasks assigned to that enterprise”.

Nevertheless, monopolies can still be identified. For example, Touch ’n Go Sdn Bhd (TnG) is a monopoly in the toll payment system, especially after the government abolished cash payments at all tolls in the country.

With the public unhappy with TnG due to some limitations on its functions, such as the inability for TnG cards to be linked to a user’s bank account and the charges imposed to use TnG to pay for parking fees, it was a low-hanging fruit for the government to pick.

In mid-March, Anwar said his government will review TnG’s monopoly on highway toll collection. As a result, the multi-lane free flow (MLFF) toll system that will be introduced on selected highways starting 2025 will be opened to other payment methods.

Since TnG operates a payment system, there are no reasons to support the need for it to have a monopoly these days as the proliferation of digital payment systems means that its unique selling proposition of being a cashless method has arguably been diminished.

TnG is wholly owned by CIMB Group Holdings Bhd. It started as Rangkaian Segar Sdn Bhd before assuming its current name in 2008, when CIMB took a 20% stake in the company. CIMB then increased its stake in TnG to 52.22% in 2010, before acquiring the rest of the company’s equity in 2019.

Apart from the MLFF, which will introduce other methods of digital payments, TnG’s domination of the public transport fare payment system and collection is also expected to be diminished in the near future.

The government has restarted the integrated common payment system (ICPS) project, through Transit Acquirer Sdn Bhd, a Ministry of Finance Inc wholly-owned subsidiary. The ICPS will allow commuters to pay public transport fares through any means of digital payment.

Theta Edge Bhd had put in a bid to acquire a 70% stake in Transit Acquirer, after MoF Inc called a request for proposal for the stake in January 2022. However, MoF has made no decisions on this.

Apart from transport, what are the other sectors where one or two players dominate?

Dismantling MAHB may lead to high PSC at smaller airports

While TnG is a clear case of a monopoly that Malaysians can do without, especially with the proliferation of digital payment options these days, it is not so clear-cut for Malaysia Airports Holdings Bhd’s (MAHB) dominance in the management of the country’s airports.

MAHB controls and operates 39 out of 42 airports and short take-off and landing ports (STOLports) in Malaysia. While, by definition, MAHB is not strictly a monopoly as it does not control and operate all 42 airports and STOLports, the group’s position in the airport sector is so dominant that it made up 98.2% of the revenue of all airport operators in the country in 2019, according to data by the Malaysian Aviation Commission (Mavcom) in its position paper on the airport industry released in December 2019.

According to Mavcom, the total passenger traffic at MAHB’s airports made up 96.4% of the total passenger traffic at Malaysian airports in 2018. MAHB’s share of international passenger traffic was 99% in 2018, while its domestic passenger traffic share was 93.8%.

All this shows that MAHB does have a dominant position in the airport industry, close to a monopoly position. In fact, for the domestic sector, MAHB is a monopoly, except in Johor, Terengganu and Sarawak. The three airports that MAHB does not control are located in these states. Domestic passengers from Kelantan flying to the Klang Valley and vice versa don’t have any other option but to fly through MAHB-operated airports.

While it looks like MAHB could be another easy pick for the government, or for it to liberalise the airport sector, economists and analysts The Edge spoke to do not agree that the airport operator’s dominant position should be taken away, or that the sector should be liberalised.

Breaking up the MAHB monopoly may actually serve the capitalistic profit-maximisation objective of private operators and work against the interests of the people, says Raymond Yap, regional transport research analyst at CGS-CIMB Research.

“In Malaysia, only the international airports are profitable, such as the Kuala Lumpur International Airport (KLIA), Subang, Penang, Langkawi, Kuching and Kota Kinabalu, as the international PSC (passenger service charge) is much higher than the domestic PSC. As such, MAHB’s international airports indirectly subsidise the low PSC at domestic airports such as Kuantan, Alor Setar and others that are likely unprofitable,” says Yap.

He adds that, typically, private operators want to muscle in on and take over the profitable international airports or certain terminals at these international airports, or develop new international airports in the vicinity of existing profitable international airports that may cannibalise business for the existing international airports.

In short, private operators do not want to take over unprofitable domestic airports.

“Hence, in the extreme case that private operators achieve their goals and take over all of the profitable international airports, then MAHB will be left with only the unprofitable domestic airports and will need to raise PSCs substantially to cover the cost of running these domestic airports.

“This will be damaging to the public’s ability to afford domestic travel and may cause consternation among the rakyat,” says Yap.

Imran of MIDF Research concurs. He says that if MAHB’s monopoly in the airport sector were to be dismantled, the new operators would have to take on a package of airports, whereby profitable airports would have to subsidise unprofitable ones.

Nevertheless, KLIA, once ranked as one of the top 10 airports in the world, has seen its placing among global best airports decline over the years. For this reason, Lee Heng Guie, executive director at the Associated Chinese Chambers of Commerce and Industry of Malaysia’s Socio-Economic Research Centre, believes that perhaps the time has come for Malaysia’s airport industry to be opened up to raise its competitiveness and efficiency and raise the ultra-user’s experience from the moment travellers and tourists set foot on Malaysian soil.

“To be one of the jewels in the crown of Southeast Asian airports, Malaysia has to put in more effort in all aspects — management, talent, digitalisation, customer service and delivery platform, shopping and eateries, security and immigration services.

“Competition can bring along the much-needed experience and expertise in operating our airport and [regain its] reputation as one of the world’s best-ranked airports,” says Lee.

KLIA, the country’s mainstay international airport, dropped five notches to 67th in Skytrax’s World’s Top 100 Airports 2023 from the 62nd position in 2022. It was behind Singapore’s Changi, which topped the list, but ahead of Thailand’s Bangkok Suvarnabhumi, which was in 68th place.

In contrast, KLIA was ranked second in 2001, fifth in 2010, ninth in 2011 and eighth in 2012.

The cleanliness of restrooms, the breakdown of the aerotrains at KLIA as well as flooding at the Penang International Airport are some of the issues that air passengers have raised about Malaysian airports. Some parties argue that their poor performance is a direct result of MAHB being a monopoly, therefore, for the country to get back into the game of having the world’s best airports, the sector must be liberalised to introduce competition. However, not everyone agrees.

“Breaking up the MAHB monopoly is a non-starter, in my view; a better option is for Mavcom to regulate, and proposals [for this] are currently in progress,” says CGS-CIMB Research’s Yap.

A second player was introduced into the local airport operations market in 2003, when the concession to manage and operate the Senai International Airport in Johor was granted to Senai Airport Terminal Services Sdn Bhd (SATS), which is owned by MMC Corp Bhd.

If the airport industry is liberalised, it would not be too far-fetched to think that MMC could be one of the companies that might be looking to expand its footprint in the airport operations sector through SATS, since the company already has a wealth of experience in the sector.

Meanwhile, Capital A Bhd was known to want to build its own low-cost carrier terminal in Labu, Negeri Sembilan, prior to the development of klia2.

In 2021, WCT Holdings Bhd, through its 60%-owned Subang Skypark Sdn Bhd, had also proposed to take over the Sultan Abdul Aziz Shah Airport, commonly known as Subang Airport.

Pharmaniaga’s monopoly in MoH’s drug procurement system

Another company that has always been touted as a monopoly is Pharmaniaga Bhd. The group is said to have a monopoly in the Ministry of Health’s (MoH) pharmaceutical procurement, which it denies.

It has maintained that about 35% of MoH’s pharmaceutical spending has been via Pharmaniaga, which means that the group does not have a monopoly of the public healthcare system’s supply of medicines and other pharmaceuticals.

According to Imran of MIDF Research, Pharmaniaga is in what could be considered a duopoly, along with Duopharma Bio­tech Bhd. However, in the broader pharmaceutical market, he says Pharmaniaga is hardly a monopoly, given that there are many pharmaceutical companies offering various medical products.

However, Dr Rais Hussin and Ameen Ka- mal of EMIR Research in a recent commentary argue that Pharmaniaga is a monopoly for the items under the MoH’s Approved Product Purchase List (APPL). It claims that more than 700 products are listed under the APPL, representing over a third of the government’s medicine needs.

“The MyCC (Malaysia Competition Commission) report on the pharmaceutical sector in 2017 defines the APPL as a ‘list of items supplied by Pharmaniaga Logistics Sdn Bhd under its concession with the MOH’,” the piece says.

It adds that Pharmaniaga has an exclusive concession to supply products under the APPL programme. According to MyCC, all tenders for APPL items must go through Pharmaniaga Logistics. Thus, any expansion of the APPL by the MoH directly and automatically benefits Pharmaniaga without competition, say the EMIR Research economists.

This leads to a lack of choice among suppliers to provide the APPL products to MoH, as all of them would have to deal with Pharmaniaga. This could lead to supply contract deals that are unfair to both the MoH and the vendors, say the EMIR Research economists.

Secondly, having Pharmaniaga as the sole supplier to MoH for products under the APPL puts the supply chain at risk of being disrupted in the event of operational or financial problems at the company.

Pharmaniaga announced on Feb 27, 2023, that it had become a Practice Note 17 listed issuer, as its shareholders’ equity position turned negative after making a provision of RM552.3 million for its slow-moving Covid-19 vaccine stock.

For the financial year ended Dec 31, 2022 (FY2022), Pharmaniaga posted a net loss of RM607.3 million, or a loss per share of 46.36 sen against a net profit of RM172.15 million, or 13.15 sen a year earlier. Its revenue fell to RM3.51 billion from RM4.81 billion in FY2021.

When asked whether the supply of medi­cine to MoH needs to be liberalised, Imran of MIDF Research says that it really depends on factors such as safety and the capabilities of the suppliers.

“Medicine is not like consumer products. The question that we should be asking is: ‘Are there industry players that are capable of supplying medicine safely and efficiently?’ Then there is a question of supposed cost savings.

“In theory, yes, we have to also understand that monopolies in Malaysia are not pure price takers, and in some cases, the consumer or customer is only one, which is the government. This gives leverage in terms of pricing to the consumer as well as it is the only off-taker,” says Imran.

Pharmaniaga remains a monopoly under the Pakatan Harapan-led unity government. Last Tuesday, Minister of Health Dr Zaliha Mustafa said that the MoH will continue its concession agreement with Pharmaniaga for the provision of medicines and medical supplies to MoH facilities.

Pharmaniaga is 52% owned by Bou­stead Holdings Bhd, which in turn is 59.42% owned by Lembaga Tabung Angkatan Tentera, which has a direct 8.6% interest in Pharmaniaga.

Bernas and the plight of poor paddy farmers

Padiberas Nasional Bhd (Bernas) is the sole importer of rice into the country, and also has a significant presence in rice milling services. It is also the buyer of last resort for local paddy.

As the sole importer of rice, Bernas’ role is to ensure the sustainability of rice supply in the country because it would know how much rice needs to be imported to ensure a sustained supply in the market.

In recent years, the role of Bernas has been questioned by many, including politicians. While Bernas declares huge dividends to its shareholders, the local paddy farmers are still among the poorest people in the country. It paid out more than RM744 million in dividends from FY2017 to FY2021, with a bumper payout of RM670.02 million in FY2020.

The company is wholly owned by billionaire Tan Sri Syed Mokhtar Albukhary’s Perspective Lane Sdn Bhd, except for a golden share held by the Ministry of Finance.

Economist Dr Nungsari Radhi disagrees with the notion that Bernas plays a role in ensuring the sustainability of rice supply in Malaysia. He says the objective of Bernas’ predecessor, Lembaga Padi dan Beras Negara (LPN), was not to ensure food security but to promote the welfare of domestic paddy planters.

“That was the main objective of LPN. Paddy is the only food that Malaya grows on any scale, but the economics of paddy are [so] bad that paddy farmers have always been subsidised. And we never as a country have been able to be self-sufficient in paddy. Thus, the control of rice importation from LPN days. “Without import controls, cheaper — and many argue better quality — rice will overwhelm domestic supply to the detriment of domestic farmers. Hence, LPN controlled the import of rice as well as managed the subsidies given to farmers,” says Nungsari.

However, he argues that the decision to privatise LPN was a bad one because the commercial value of LPN is its monopoly of rice importation. So, the state monopoly was sold to private parties who then enjoy what economists call monopolistic rents on rice imports.

“Why should a single entity be given that market power? And why should companies be protected from the vagaries of the market? Malaysia currently imports a whole range of food items, from fresh produce to processed food. They are functioning fine.

“There is competition, there is variety and sufficient supply. Of course, their prices would fluctuate with global prices and fuel prices as they are imported. If anything, there should not be any control on who can import what,” says Nungsari.

There are, of course, a lot of other monopolies or duopolies that control the supply of certain commodities, such as Central Sugars Refinery Sdn Bhd and MSM Malaysia Holdings Bhd’s duopoly in the sugar market, as well as the import of certain foodstuff by approved permit holders.

There are also natural monopolies such as Tenaga Nasional Bhd in the electricity distribution or power transmission sector. Telekom Malaysia Bhd’s monopoly in landline telecommunications could also be a natural monopoly that does not need to be dismantled.

Must all monopolies be dismantled or all of the monopolised markets be liberalised?

“In my view, all monopolies created through privatisation over 30 years ago should be seriously looked into and liberalised,” says Nungsari. “Beyond that, regulatory bodies should be effective and independent.

“Most of all, the competition commission, which looks into competition, as a whole must be empowered to ensure the existence of competition as well as fair competition,” he says.