Water Services Reform in Malaysia

WATER SERVICES REFORM IN MALAYSIA
14 – 16 May 2007
WATER MALAYSIA 2007
Kuala Lumpur Convention Centre
1 SURUHANJAYA PERKHIDMATAN AIR NEGARA

OUTLINE OF PRESENTATION
1. Key Challenges
2. Shaping Efficiency and Effectiveness
3. Addressing Funding Challenges
4. Policy and Institutional Framework for Reform
5. Legal and Regulatory Framework

 Water Services Industry Act
 National Water Services Commission Act
6. Water Services Reform – What’s Next?

WATER AND SEWERAGE
SERVICES STATISTICS
A) WATER
Total Population 27,100,190

Urban Coverage 97 %
Rural Coverage 91 %
Total Production 12,468 MLD
Total No. of Dams (Water Supply) 54
Total No. of Treatment Plants 462
Total No. Reservoirs / Tanks 3,623
Total Length of Pipes 98,648 km
Total No. of Connections 5,585,724
Total No. Personnel 14,721
Total Expenditure RM 3,415,836,374
Total Revenue RM 3,574,960,824
Source : Malaysia Water Industry Guide 2006
WATER AND SEWERAGE
SERVICES STATISTICS
B) SEWERAGE
Population connected 15,932,582

Length of sewers 16,267 km
Total No. of Pumping Station 611
Total No. of Regional ST/ Plants 65
Total No. of Local ST/ Plants 8,473
Total No. of Septic Tanks 990,836
Operating cost (Year 2006) ~RM 400 Million
Source : IWK
REDUCING DISPARITY IN
TARIFFS
Lowest – Penang (RM0.31)
Highest – Labuan, Johor & Sabah (RM0.90) Domestic, 2007
Average – RM0.66
0.9 0.9 0.9
0.9
0.77
0.8 0.73
0.72
0.68
0.7 0.66
0.6 0.57 0.57 0.56

0.53 0.55
0.52
RM/m3
0.5
0.4
0.31
0.3
0.2
0.1
0
s
an
a
ng
ng
k
r
an
h
an
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or
A
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ak
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wa
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bil
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Pe
bu
Pe
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Jo
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Ke
Sa
AY
la
la
ra
Pa
Pe
M
La
ng
Ke
Se
Se
Sa
AL
re
N.
M
Te
States
* Average for First 35m3

SURUHANJAYA PERKHIDMATAN AIR NEGARA
REDUCING DISPARITY IN
TARIFFS
Lowest – Labuan & Sabah (RM0.90)
Highest – Johor (RM2.93) Industry, 2007
Average – RM1.43
2.93
3
2.5 2.27
2
1.59 1.6
1.4 1.45 1.43
1.5 1.3
RM/m3
1.21 1.25 1.19

1.15
0.9
0.94 0.9
1
0.5
0
rlis
k
a
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ng
ng
h
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tan
r
ho
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lak
IA
k
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wa
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bu
Pe
Jo
l an
YS
lan
ga
Ke
Me
Sa
mb
Pa
Pe
ra
La
LA
ng
Ke
Se
Sa
Se
re
MA
N.
Te
States
* Average for First 500m3
ADDRESSING LOSSES DUE
TO HIGH NRW
Lowest – Penang (19.4%), Highest – Sabah (57.2%), Average – 37.7%
MALAYSIA 37.7
Labuan 24
Sarawak 24.7
Sabah 57.2
Terengganu 34.7
Selangor 38.4
STATES
Penang 19.4
Perlis 36.3
Perak 30.6
Pahang 49.7
N. Sembilan 53
Melaka 28.8
Kelantan 40
Kedah 43.8
Johor 35.5
0 10 20 30 40 50 60 70
% SURUHANJAYA PERKHIDMATAN AIR NEGARA
INCREASING EFFICIENCY THROUGH
EFFECTIVE OPERATION MANAGEMENT
(Revenue vs Expenditure)
2005 3575
3416
2004 3056
3502
2003 2747
3150
Year
2002 2447
2688
2001 2227
2765
1896 Revenue
2000
1787
Expenditure
1999 1608
1937
1998 1375
1608
0 500 1000 1500 2000 2500 3000 3500 4000

RM Million SURUHANJAYA PERKHIDMATAN AIR NEGARA
ADDRESSING THE KEY CHALLENGES
Funding
Efficiency and effectiveness • Partial cost recovery
• Inefficient operations • No long term funding
• Ineffective structures • Unsustainable funding structure
• Ineffective regulatory • Under-investment
• Tariff disparity among states • State debts
• Poor customer relations management • No ring-fencing
• Segmented approach in regulating • Some consumers do not pay sewerage bills
water and sewerage services • Insufficient Revenue to meet OPEX for
• State Governments as service
some states
providers • High cost to finance rural water supply
KEY CHALLENGES
• Promote efficiency and effectiveness in the industry
• Derive a sustainable business model in long term
• Adequately address long term funding issue
• Efficient service levels
• Efficient customer relations management
1. Key Challenges


SHAPING EFFICIENCY &
EFFECTIVENESS
Below cost
recovery Transparency
Regulatory
Ineffective Independence and
regulatory Accountability
structure
Absence of
benchmarking
regime Transformation
of Water and
Absence of Sewerage
long term Industry
sustainability
Public
perception
Checks and Competitive
Government Controls Industry
as Service Structure
Provider
Current industry Impending changes in the industry landscape

shaping forces (moving towards corporate management)

1. Key Challenges


ADDRESSING FUNDING
CHALLENGES
Deficit cash-
flow Low-Interest Long-Term
Finance Funding
Absence of
long-term
funds
Sustainable
Tariff long-term
increase funding
guarantee structure
Guaranteed
returns
Long-Term Medium-term
Absence of Sustainability Government
Support
long term
sustainability
Current industry Impending Changes in the industry landscape

shaping forces

1. Key Challenges


POLICY & INSTITUTIONAL
FRAMEWORK
ON WATER SERVICES REFORM
AREA OF
BODY RESPONSIBILITY DESCRIPTION
Federal Government Policy matters Development of a holistic water

(Ministry of Energy, Water policy for the country by setting
and Communications) policy directions.
State Government Raw Water matters Regulate raw water abstraction and
catchment management
National Water Resource Water Resource Ensures coordination with the

Council (NWRC) – chaired matters – Cross various State Government in the
by Prime Minister boundaries / Inter management of the water basins.
state / Issue of
National interest
National Water Services Regulatory matters Regulate the water services

Commission (SPAN) industry (water and sewerage
services)

CLEAR DEMARCATION OF
JURISDICTION
Amendments to Federal Constitution 2005 enables Federal
Government to regulate water services and State Government retain
rights to regulate raw water in the value chain of water cycle
TION DIST
RI B
C
RA UTI O
ST N
AB TREATMENT
OF WATER CONSUMERS
WATER
SOURCE
TREATMENT
OF SEWAGE
R
DIS WATE
CH
AR S TE
G WA
E
STATE FEDERAL
16
WATER CYCLE SURUHANJAYA PERKHIDMATAN AIR NEGARA
1. Key Challenges


NATIONAL POLICY
OBJECTIVES
National Policy Objectives for the Water Supply
and Sewerage Services Industry includes:
To establish a transparent and integrated structure for
water supply services and sewerage services that
delivers effective and efficient service to consumers
To ensure long term availability and sustainability of

water supply including the conservation of water
To facilitate the development of competition to

promote economy and efficiency in the water supply
services and sewerage services industry
To regulate for the long-term benefit of the consumers
To regulate tariff and ensure the provision of

affordable services on an equitable basis
WATER SERVICES INDUSTRY ACT
2006
An Act to provide for and regulate water

supply services and sewerage services
Objective : to establish a licensing and

regulatory framework for regulatory
intervention to promote national policy
objectives for the industry.
Does not affect general applications of

existing laws on environment quality and land
matters and existing State powers on water
source.

CLASSIFICATION OF PROVISIONS
OF WATER SERVICES INDUSTRY ACT
Economic Regulations
Technical Regulations
Consumer Protection
Social Regulations

PROVISIONS UNDER WSIA THAT ADDRESS
THE ISSUES OF EFFICIENCY AND
EFFECTIVENESS
Comparative
Regulations / KPIs/
Business Benchmarking Standards
Plan
Integration of
water and Addressing
sewerage Inefficiencies and Licensing
services
Ineffectiveness
Furnishing of
Regulated
Information
Water Forum Tariff

LICENSING STRUCTURE
Two types of Licences:
TYPES OF
LICENCES
INDIVIDUAL CLASS
(Public Systems) (Private Systems)
•Strict conditions •Less conditions

•Limited numbers •Unlimited numbers
•Comprehensive obligations •Minimum obligations
•Approval by Minister, upon SPAN’s •Approval via registration
recommendation

LICENSING STRUCTURE
INDIVIDUAL
(PUBLIC SYSTEMS)
WATER SEWERAGE
Facilities Services Facilities Services

 Owned water facilities  Provide services
 Owned sewerage facilities
Treatment Distribution

TECHNICAL REGULATIONS
TECHNICAL & Examples:

PERFORMANCE • KPIs – response time, coverage, water
STANDARDS quality, pressure, continuity, NRW
• Standards & specifications of systems
FOR & equipment
OPERATORS • Qualification of persons operating the
system
TECHNICAL REGULATIONS
Examples:
PERMIT & • For construction, connection,
CERTIFICATION modification or repairs of pipes
OF • Maintenance services of system
CONTRACTORS • Desludging services

CONSUMER PROTECTION
CONSUMER
PROTECTION
Rates and
Quality of Service Deposits
• Deal reasonably with • Regulations on rates made

consumers by Minister upon SPAN’s
• Address consumer recommendation
complaints

SOCIAL REGULATIONS
SOCIAL
REGULATIONS
Sewerage Capital Water Industry

Fund Water Forum
Contribution Fund
 Contributions from  Contribution from licensees
 Commission to designate
developers
 Purpose:
 Purpose:  Functions:
1. Protection and preservation of the
1. Supplement capital watercourses 1. Give feedback and make
expenditure required for recommendations to the
sewerage assets 2. Ensure sustainability of water
supply from the watercourses Commission
2. Implementation of a 2. Represent the interest of
regional sewerage system 3. Improvement of water quality at
the watercourses consumers
4 Provision of water and sewerage 3. Promote consumer’s interest in
services in rural development relation to the tariffs and standards

ADDRESSING FUNDING CHALLENGES
Federal Government has formed a

wholly-owned Water Asset Management
Company (PAAB) under Minister of
Finance Incorporated to address the
funding requirement of the industry
PAAB will also address the outstanding
loan of State Government to Federal
Government

LEGAL AND REGULATORY
FRAMEWORK
National Water Services

Commission (SPAN) Act 2006

NATIONAL WATER SERVICES
(SPAN) ACT 2006
Functions and powers of SPAN include:

To advise the Minister on the national policy objective
To implement and enforce the provisions of WSIA
To supervise and monitor water supply services and
sewerage services activities
To review and recommend tariffs
SPAN is the economic and technical regulator

Chairman and CEO appointed on 1 March 2007
8 other members appointed on 2 April 2007
Temporary office at Block E4/E5, LEO Building, Parcel
E, Putrajaya Malaysia

1. Key Challenges


WATER SERVICES REFORM
– What’s Next?
MISSION :
- Efficient
- Reliable
- Affordable
- Sustainable
WATER AND SEWERAGE SERVICES
IMPLEMENTATION
Requirement- PAAB
Effectiveness- SPAN
Corporatisation of
Water Authorities-
WATER FORUM
Participation-
Consumer
Efficiency &
Funding
STATE
National Water Services Commission Act 2006
FRAMEWORK
POLICY &
LEGAL
Water Services Industry Act 2006

31 Constitution Amendments 2005
THANK YOU

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WATER SERVICES REFORM IN MALAYSIA

1 SURUHANJAYA PERKHIDMATAN AIR NEGARA

2. Shaping Efficiency and Effectiveness

3. Addressing Funding Challenges

4. Policy and Institutional Framework for Reform

5. Legal and Regulatory Framework

6. Water Services Reform – What’s Next?

2 SURUHANJAYA PERKHIDMATAN AIR NEGARA

Total Population 27,100,190

Population connected 15,932,582

0.6 0.57 0.57 0.56

* Average for First 35m3

1.21 1.25 1.19

0 500 1000 1500 2000 2500 3000 3500 4000

2. Shaping Efficiency and Effectiveness

3. Addressing Funding Challenges

4. Policy and Institutional Framework for Reform

5. Legal and Regulatory Framework

6. Water Services Reform – What’s Next?

10 SURUHANJAYA PERKHIDMATAN AIR NEGARA

Current industry Impending changes in the industry landscape

11 SURUHANJAYA PERKHIDMATAN AIR NEGARA

2. Shaping Efficiency and Effectiveness

3. Addressing Funding Challenges

4. Policy and Institutional Framework for Reform

5. Legal and Regulatory Framework

6. Water Services Reform – What’s Next?

12 SURUHANJAYA PERKHIDMATAN AIR NEGARA

Current industry Impending Changes in the industry landscape

13 SURUHANJAYA PERKHIDMATAN AIR NEGARA

2. Shaping Efficiency and Effectiveness

3. Addressing Funding Challenges

4. Policy and Institutional Framework for Reform

5. Legal and Regulatory Framework

6. Water Services Reform – What’s Next?

14 SURUHANJAYA PERKHIDMATAN AIR NEGARA

Federal Government Policy matters Development of a holistic water

National Water Resource Water Resource Ensures coordination with the

National Water Services Regulatory matters Regulate the water services

15 SURUHANJAYA PERKHIDMATAN AIR NEGARA

2. Shaping Efficiency and Effectiveness

3. Addressing Funding Challenges

4. Policy and Institutional Framework for Reform

5. Legal and Regulatory Framework

6. Water Services Reform – What’s Next?

17 SURUHANJAYA PERKHIDMATAN AIR NEGARA

To ensure long term availability and sustainability of

To facilitate the development of competition to

To regulate for the long-term benefit of the consumers

To regulate tariff and ensure the provision of

An Act to provide for and regulate water

Objective : to establish a licensing and

Does not affect general applications of

19 SURUHANJAYA PERKHIDMATAN AIR NEGARA

20 SURUHANJAYA PERKHIDMATAN AIR NEGARA

21 SURUHANJAYA PERKHIDMATAN AIR NEGARA

Two types of Licences:

•Strict conditions •Less conditions

22 SURUHANJAYA PERKHIDMATAN AIR NEGARA

Facilities Services Facilities Services

23 SURUHANJAYA PERKHIDMATAN AIR NEGARA

TECHNICAL & Examples:

24 SURUHANJAYA PERKHIDMATAN AIR NEGARA

• Deal reasonably with • Regulations on rates made