Introduction by CPI Director, Dr. Lim Teck Ghee
In the last few weeks an important battle has been waged by the Selangor Government under MB Khalid Ibrahim on behalf of all water users in the state to ensure that the public interests are not sacrificed on the altar of excessive private gain and benefiting various privatized concession companies.
As readers are aware, clean water is a basic human need and public access to affordable water – especially for the poor – is crucial. Has the Government really protected the interests of consumers and users? If not, what has gone wrong and whom should we take to task for the mismanagement, negligence or lack of foresight – the Federal Government, the past State Government or the present State Government?
In the next few weeks, CPI will provide a series of commentaries, analysis and opinion pieces focusing on the the reforms that are necessary to ensure a long term, affordable and sustainable supply of water to the Malaysian public. It is hoped that this series will help to educate the segment of our public as well as various parties in the Government and political parties committed to meaningful policy reform on a vital sector in which so much ignorance and lack of awareness is prevalent.
We begin with a tabulated summary of the “CRITICAL SUCCESS FACTORS” necessary for the Malaysian Water Services Industry. The table has been provided by Dr. YK Chin to whom we are indebted.
| Critical Success Factors | Issues to Address |
| 1. Recognize the State ownership of water catchment areas |
Water was wholly s State matter. The Federal Constituition had to be amended to transfer the regulatory function of water supply services to the Federal Government.In view that land (and hence resources that go with land) remains to be a State matter, we continue to recognize that raw water and the water catchment belong to the State.
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| 2. Compensate the States for the use of water assets (such as dams, treatment plants, piping) built by them |
The States should be compensated for the water assets and infrastructure that the States have expended on if the States dispose them of to PAAB. The model should recognise that there is a value to be placed on the assets. The recoverability of the value of the assets by PAAB hinges on the efficiency of the water services operations.
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| 3. Promote transparency in the award of contracts for supply of water services as well as the construction of water assets |
There are concerns on the manner capital expenditure have been spent in the past particularly with regards to the award of contracts that may have resulted in the overspending of capital expenditure. There is no standardisation on the construction of water infrastructure. The new model addresses the issue of greater transparency in capital expenditure sending and standardisation across the States. The new model seeks to achieve efficient capital spending.
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4. Facilitate inter-State transfer of water subject to royalty compensation |
In recognising that raw water is a State resource, the State should be compensated for the use of raw water, whether the raw water is sold to the operators treating and supplying the water to consumers within the State or to other States. In addition, SPAN will help facilitate Inter-State water transfer through the NWRC. The royalty for raw water will be set based on a tariff guide for all States with the view of eventually standardising the raw water tariff. The tariff should be affordable to the operators provided they achieve a certain level of efficiency.
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| 5. Fund raising |
It has been estimated that more than RM50 billion is required by the industry for the period to 2050. This amount excludes the investment required for sewerage services and the replacement of AC pipes and other assets. The new model is structured in a manner that taps on the capability of the water industry to collectively raise funding through PAAB.The States that have privatised the water services industry tend to place the burden on investment in water assets on the privatised entities. Private water operators will also have access to funding by PAAB.
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| 6. Reasonable return on investment |
It has been reported that privatised entities are expecting an IRR of 14% to 18%. If the private operators have to invest in capital expenditure, the IRR will apply to the whole investment sum, which can prove challenging. Further, the rate of return must correlate with industry risk. Water services being in a monopolistic industry do not warrant such a high rate of water. The new model takes into account the impact of funding on the operators. The IRR will be dependent on the effectiveness and efficiency of the operators.
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| 7. Take into account the current privatised entities |
Certain States have privatised the water services with the various concession agreements in place. The new model is sufficiently flexible to cater for the existing privatised concessions to co-exist.
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| 8. Keep water tariff in check |
There are concerns expressed on excessive increase in water tariff in the event that the water industry is totally privatised. The new model explores avenues of cost savings arising from efficient and effective operations.
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| 9. Holistic management of water services |
Certain States have privatised the water services in piece-meal where the treatment process is segregated from distribution. The segregation of the water services value chain has given rise to challenges in transfer pricing between the different operators and the fragmented approach does not necessarily promote an effective and efficient value chain. The new industry structure and operating model caters for operators who operate the whole value chain.
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Source:
THE WATER TABLET: Malaysian Water Reforms,
MINISTRY OF ENERGY, WATER & COMMUNICATIONS
KL 2008 PP 66-68