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Date: 18th OCTOBER 2020 ( MONDAY)

Association of Water and Energy Research Malaysia (AWER) has prepared comments on 12th Malaysia Plan (12MP). These comments are based on previous reports and suggestions published by AWER as well as information in 12MP, 11th Malaysia Plan, 10th Malaysia Plan and 9th Malaysia Plan.

1.        National Water Services Industry Restructuring (NWSIR)

Government must correct the statements that misrepresent the water services industry in 12MP. The NWSIR process started in 2003 just 2 years after Indah Water Konsortium (IWK) was bailed out using taxpayers’ money. Many model for water services industry have failed to meet proper outcome. Based on NWSIR, all water operators needed to be consolidated under single company within the states (there were few states that had few concession holders) and government water agencies were required to be corporatised. This is an important move to ensure transparency. IWK needed to be ring fenced into state based entities by 2010 and begin merging with state water companies in stages between 2011 and 2015. This move will merge the water treatment, water supply and sewerage services under each state to improve operational viability and sustainability.

IWK and the ministry in charge of water basically did not follow the implementation of 9th, 10th and 11th Malaysia plan. The ministry basically omitted the implementation of NWSIR totally in the 12MP. NWSIR uses Water Services Industry Act 2006 (WSIA) model that was born after constitutional amendment approved by Conference of Rulers (Majlis Raja-Raja) and Parliament. If NWSIR was followed accordingly, Malaysia would have been a global hub for water in 2020 and not just some regional hub. The predicament water sector is facing now is the incompetent and “vested interest” human capital. Even if there is a plan to be Global hub by 2100, recycling the incompetent human capital will only result in repeated failure. Thus, it is imperative for the government to acknowledge this serious situation and make immediate corrective action. Recycling the same incompetent human capital within water sector will only waste taxpayers’ money and destroy our water services industry.

2.        Rural Water Supply

By 2025, the government is targeting to achieve 98% of rural population with water supply. We would like remind that rainwater harvesting system without proper treatment process does not qualify as treated water supply. The relevant ministry must publish accurate data on both treated and non-treated rural water supply to ensure actual rural water supply target can be determined. AWER would like the government to audit the past 2 decades’ allocation for rural water supply and its actual achievement versus targeted output. It is important for Malaysia to identify cost effectiveness, obstacles and potential lessons learnt to ensure the future operation, maintenance and upgrading works can be done in a more effective manner.

3.        Data-Driven Decision Making

It is the right time to include data driven decision making that has been absent in many water related government agencies. It is also important to note that Malaysia does not have complete annual report on water services sector (water treatment, water supply and sewerage) for “whole of a nation” approach propagated by 12MP. For example, Sarawak electricity industry is not regulated under Energy Commision but annual report and energy balance are published accordingly to represent a national report. Why is there such incompetency within water sector to produce basic reports that benchmark national progress in this sector? To enhance capacity and capability of professionals as well as related workforce, proper data release is vital. Issuing statements in 12MP is not sufficient as things are getting worst under current human capital in water sector.

4.        Strengthening Financial Sustainability of Water Services Provider

Strictly following NWSIR as well as WSIA model is vital to strengthen financial sustainability of water services industry. Unfortunately, the ministry in charge of water is breaking away from WSIA model due to knowledge vacuum of minister in charge. Transparent Tariff Setting Mechanism (TSM) is a must and it is using benchmarking method agreed upon in 2009. TSM also must impose profit cap on top of regulated profit margins. Water services industry is not a profit reaping avenue as water is growth enabler. Non-tariff businesses are derived from tariff businesses and under WSIA model, the income from non-tariff business must be ploughed back to tariff to reduce the liabilities. AWER would like to alert the government on possible abuse and derailment by the ministry from WSIA model that will be detrimental in the long run. Similarly, it is inane to benchmark water sector with electricity sector. It only shows that the “experts” has no clue about the vast difference between both industries and the primary reason NWSIR and WSIA model was introduced. Electricity sector operates using Weighted Average Cost of Capital (WACC) and such benchmarking will cause the water sector to collapse further. We urge the government to stop many wrongful moves within water services industry spearheaded by ministry in charge of water. These moves will impart irreversible damage and affect future resilience of water sector in Malaysia.

5.        Promoting “Innovative” Financing

The funding mechanism for water services industry is crystal clear. This is part of the WSIA model. The main issues here is the government officers do not even understand the NWSIR and WSIA model properly or it is a deliberate attempt to derail from the restructuring process due to lobbying and vested interests. Establishing “licensed entities to build new sewerage infrastructure” is clearly against WSIA model and NWSIR. The government must stop introducing privatisation to water services again that has piratised country’s resources and caused insecurity to our water services industry while leaving the liabilities to the future generation. What the officers have in between the two ears which drive them to repeat the same inane steps that lead to NWSIR to start in 2003? 

6.        Reducing Non-Revenue Water (NRW)

The government set 25% NRW target for year 2020 and failed to achieve it due to turf fight on which agency should control the funds and claim glory of reducing NRW. WSIA gave SPAN direct power to manage NRW and funding mechanism is already available via Pengurusan Aset Air Berhad (PAAB). We need to note that NRW reduction failure since 8th Malaysia Plan is purely a management related issue as technologies and solutions are available. Furthermore, the water ministry’s senior management should step down for setting an easy target of 25% NRW in 2025.

7.        Optimising Water Resources Through Cost Effective Measures

Since 2014, AWER has suggested government to carry out cost effective measure to build multi-function dam and comprehensive studies must be done to ensure the contradicting dam functions does not affect overall output. This is a step in the right direction. However, AWER would like to urge the government to carry out detailed studies on the plan to build underground dams. While it may seem harmless, underground dam affects natural groundwater flow and has potential to accumulate nutrients and other natural or introduced chemicals that may cause other complications in the long run. Keeping water table above natural conditions may give other implications to flooding and infrastructure development.

8.        Groundwater Utilisation

Reduction in forest cover and erratic weather pattern will impact the recharge rate of groundwater. Furthermore, Malaysia is facing failure in managing surface water and not scarcity of surface water. Therefore, misleading reasons must not be used to justify large scale extraction of groundwater that will give more serious environmental problems such as increase in peat fire, mobility of dormant chemicals, land subsidence, sea water intrusion, drop in water table, reduction in arable land, etc.

9.        Indah Water Konsortium Must Follow WSIA Model

IWK’s concession agreement extension is illegal and must be cancelled. The Federal Government must fulfill the promise to state governments to follow the NWSIR and WSIA model to make water services world class. If the government officers have followed WSIA model accordingly, Malaysia will be a global hub for water services that has achieved highest infrastructure development with affordable tariff by 2020. The government must break IWK’s operation into state based entities and merged with respective state water companies in 3 phases until 2025.

Phase 1: Selangor (Putrajaya and Kuala Lumpur), Johor, Melaka, Labuan and Penang to be completed by June 2022.

Phase 2: Kedah, Perlis, Perak and Negeri Sembilan to be completed by end of 2023

Phase 3: Kelantan, Terengganu and Pahang to be completed by end of 2025

10.      Regulating Pengurusan Aset Air Berhad (PAAB)

NWSIR via WSIA model also operates using PAAB as financing and project implementing entity. PAAB get its funding sources from bond market with government guarantee. Using this method, large water services infrastructure development can take a 45 years leasing period with good interest rates. Similarly, under WSIA model, the water services companies are allowed to loan other funding sources as long as it is lower than what PAAB is offering. Lately, there has been derailment from this practice to make interest rates offered by PAAB to increase. We urge Ministry of Finance (MOF) to follow original plan for PAAB to ensure development of water services infrastructures are in-line with NWSIR and WSIA model. It is also important for Suruhanjaya Perkhidmatan Air Negara (SPAN) to strictly regulate PAAB just like water services licensees. The delay in Langat 2 must be investigated and findings must be published for public knowledge as well as rectify all the problems.

11.      Non-Tariff Business in Water Services

Water services comprises water treatment, water supply and sewerage. There are components within the operation which are classified as waste and can be converted into monetary value. This was also part of WSIA model to increase financial sustainability of water services industry to partially fund development of infrastructures. At the moment, there are vested interest groups eyeing some components within water services industry to make profit and derail from NWSIR and WSIA model. Under NWSIR and WSIA model, the profits made from non-tariff business must be ploughed back into tariff to reduce overall liabilities which lead to affordable and equitable tariff. Non-tariff business will also be audited by SPAN to ensure there are no leakages.



Association of Water and Energy Research Malaysia (AWER)


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