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Restructuring Water Services
In Malaysia
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By Dato Ir. Syed Muhammad Shahabudin, President, The Malaysian Water Association (MWA)
M
alaysia is rich in water resources.
Hence, many do not understand
why the country is at times
short of water supply. This is evident in
recent times when the water supply
situation in some parts of the country has
changed drastically. Population growth,
urbanisation, industrialisation and cases
of indiscrimination land development
have lead to rapid-growing demands on
water. I t has also at the same time,
contributed to rising water pollution.
Constitutionally water was a state matter
and the role of the Federal Government
was limited. However the situation has
changed since January 2005 when the
Federal Constitution was amended to
allow for joint responsibility in water
between states in Peninsular Malaysia and
the Federal Government.
Main Issues Facing The Water Sector
At the moment, there is no single agency
in the country entrusted with overall
responsibility of holistic planning and
management of water. There are many
agencies with overlapping
responsibilities at the state and federal
levels and insufficient coordination of
agency activities in respect of meeting
national objectives.
In several states there are ineffective
regulatory structures and poor
enforcement, leading to inefficiency in the
operating systems. Water systems have
seen under investment in the past, in
terms of providing efficient service
facilities for customers. Privatisation has
also lead to varied success across various
water supply projects.
Course Of Action
The Federal Government has seen the
recent shortcomings in the provision of
safe and affordable water supply services
and this has prompted it to act decisively
by seeking to share responsibility with the
states to reform the water service industry
to ensure that it can become self-
sustainable.
At the moment, it appears that the priority
is for the Federal Government to deal with
the water supply and sewerage services
management before tackling the bigger
issue of water resources management or
integrated river basin management.
In order to be effective in the reform
process, the Federal Government needs to
be given the necessary legal rights. There
needs to be a system of shared
responsibility in regulating the water
service industry. The Federal Constitution
has, therefore, been amended to transfer
water supplies and services to the
Concurrent List in the Constitution.
However, land remains a state matter and
thus water catchments and water
resources continue to be vested with the
state Governments.
Water Supply Industry Reforms
The reform is to meet the following
national objectives:
G To create an industry structure that
will ensure long term sustainability
of the water supply and sewerage
services industry
G To regulate for the long-term benefit
of the consumers and develop high
consumer confidence in service
delivery
G To facilitate the development and
promote competi ti on so as to
enhance economic and technical
efficiency in the supply and delivery
of water and sewerage services to
the consumers
G To ensure the provision of affordable
services on an equitable basis to
improve the quality of life of all
Malaysians through effective and
effi ci ent provi si ons and
management of water and sewerage
services
G To establ i sh a regul ator y
envi ronment that wi l l l ead to
efficient allocation of economic and
fi nanci al resources through
sustai nabl e publ i c and pri vate
collaboration and partnership
G To establ i sh a transparent and
effective system of governance that
promotes excellence in all aspects of
provisions and service delivery
Editors Note: This article was reproduced from The Ingenieur Vol 28, Dec 2005 - Feb 2006 with permission
granted from Board of Engineers Malaysia (BEM)
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Basis For The Industry Model
Malaysia has made tremendous
achievements in many areas including the
provision of water supply and sewerage
services. Unfortunately, it has not been
able to effectively address and manage
water services sufficiently. An industry
model has been suggested to be based on
the following model.
G To ensure long-term sustainability of
quality water and sewerage services
through continued capital works
development facilitated by the Water
Asset Holding Company
G To ensure long-term sustainability of
services through consultative
participation in river basin
management with respective
authorities
sewerage services in peninsular Malaysia.
SPAN is the regulatory body that will
enforce the rules in the WSI bill.
Once the bills are passed as law, it will give
the Federal Government a say in the
development of the countrys water
sector via SPAN. The main areas covered
are as follows:
The WSI Bill
G Economic regulations, covering
licensing and duties and obligation of
licences to provide water supply and
sewerage services
G Technical regulations, covering
technical and scientific standards and
specifications, and permits and
certification of contractors and
plumbers
G Social regulations covering the
establishment of Water Industry Fund
and the Sewerage Capital
Contribution Fund and the
establishment of a Water Forum
G Consumer protection - this includes
quality of service, consumer
complaints and tariff setting
The SPAN Bill
G The establishment and members of
SPAN
G The functions and powers of SPAN
G Financial matters, including the
establishment of the SPAN fund
G General matters
Provisions In The Bills
Among the salient points in the provisions
of the bills are on policy objectives,
licensing, the establishment of SPAN,
offence of contamination of water and a
water forum and these are briefly
mentioned below.
Policy objectives
The policy objective includes the
establishment of a transparent structure
that will result in substantial improvement
in water management in the country,
conservation of water, promoting
financial self-sustainability and ensuring
security of the water supply system.
The Malaysian Water Association (MWA) is
of the opinion that the transparency
aspects are clouded by provisions in the
WSI bill which allows the Minister to make
decision which he deems fit. It will greatly
improve the perception on transparency
Suggested Policy Framework
In line with the objectives of the National
Water Service Commission, the policy
framework is:
G To ensure that there is a fair and
efficient mechanism for the
determination of water tariffs that is
acceptable to both users and
operators
G To determine and implement tariffs
that have been established through
the appropriate mechanism and tools
G To improve operational efficiency
through short, medium and long-term
programmes
G To ensure national development goals
are supported
G To ensure productivity through the
selection of competitive and efficient
operators and the monitoring of
operator compliance with stipulated
service standards, contractual
obligations and relevant laws and
guidelines
G To ensure that the demands of
consumers are accounted for through
stakeholder participation in relevant
decision making processes
G To ensure that consumers have a
clear channel for communication
through the establishment and
utilisation of an industry-related
consumer association, and
G To raise awareness on the
development of the industry through
the dissemination of key performance
indicators
Regulatory Matters
The government is proposing two bills to
tackle the present problems and to reform
the water industry. The two bills are the
Water Services Industry (WSI) bill and the
National Water Services Commission Bill
or Suruhanjaya Perkhidmatan Air Negara
(SPAN) bill.
The WSI bill sets out the legal framework
for the regulation of water supply and
Body Area of responsibility Description
Federal Policy matters Development of a holistic
Government water policy for the country by
setting policy directions
State Water basin matters Manage existing water
Government basins with the view of protecting
the quality of raw water and
identifying new water basins
when required
National Water Governance matters Ensures coordination with
Resources the various state
Council governments in the management
of the water basins
National Water Regulatory matters Regulate the whole water
Services industry based on the
Commission policy directions set out by the
federal government
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if the Minister allows the decision
making process to the commission,
except on three areas, namely, the
determination of national interest, the
determination of a situation that gives
rise to an emergency and the power to
make regulations.
The objective of conservation of water
has not been adequately addressed in
the bill. There are provisions for
punishing consumers for wasting water,
but this is a reactive approach. A
comprehensive provision that places
responsibility on both the commission
and the licensee is aimed to educate and
promote consumers to use water at
optimum levels. Further, a subsidiary
legislation is also deemed necessary.
The policy objective directed at
promoting financial self-sustainability of
the licensee is clear. But the provision in
the bill does not show clearly how it is to
be achieved. The facilities licensee as
defined in the WSI bill is not similar to the
concept of Water Asset Holding
Company (WAHCO) as promoted by the
minister on earlier occasions.
On the security of supply, although water
resources will remain in the domain of
the state authority and will not be
regulated by SPAN, the MWA is of the
opinion that in the absence of legislation,
the security of supply of raw water will
not be easy to manage. The idea of
legislation to cover this subject is
supported for and it is appropriate that
this is done now.
Operating Licences
According to the bills, all water supply
and sewerage services operators must be
licensed by SPAN. Those operating under
existing concession agreements, (CA) are
given the option to continue with the
agreements or to migrate to the new
regulatory regime. There are 16 CAs in
operation throughout Peninsular
Malaysia as listed in the WSI bill. If the
operators opt to migrate to the new
regime, they will be granted licences in
place of the agreements. Operators who
choose to continue under this CA must
register the agreements with SPAN. They
will then be authorised to continue with
their services and activities for two years
or more (if extended by SPAN). At the
same time they are required to
renegotiate the agreements.
In the fixing of tariff, the transparency
aspect must be upheld. The WSI Bill
provides that the Minister may make
regulations to provide the level of rates
but if it falls short of what it prescribes
the Minister must consider fixing those
rates. It is considered important that the
bill spells out those terms to give
assurance to both consumers and
licensees. The Water Forum must be
engaged in the decision making process,
otherwise it will be difficult for it to
function effectively as desired.
Time Frame
The two bills were to be tabled by the
end of the Parliamentary sitting in
December 2005. However, the tabling
has been deferred to March 2006, as the
Minister of Energy, Water and
Communications, Datuk Seri Dr. Lim Keng
Yaik wants to allow more time for the
public and non-governmental
organisations to study the contents of
the two bills.
Conclusion
The initiatives to restructure water
services in Malaysia was initiated by the
Malaysian Water Association for the
water industry almost ten years ago. It
was only in the past two years that
serious attempts have been made by
the government towards achieving this
objective with the birth of the Ministry
of Energy, Water and Communication. As
promoted, the objective was to have
economic regulation as this would
resul t i n the i mprovement of the
industrys efficiency, building investor
confidence to attract investment and
will encourage consumers to pay for the
services.
Forming SPAN and drafting laws for
water supply and sewerage services is
the best thing to happen to an industry
that is facing a crisis. Even though the
journey is long and complex, it is still
vital.
Acknowledgement
This article is based on a collection of papers
previously presented to the Government by
MWA and the response by MWA at the
dialogue session with the Ministry of Energy,
Water and Communication on November
10, 2005.
The Commission
A body corporate Suruhanjaya
Perkhidmatan Air Negara or SPAN when
established will, among others, be
responsible to regulate and maintain
uniformity in the countrys water sector.
The commission will have a Chairman
and between eight and ten persons as
members appointed by the Minister to
hold office for a term of two years. A
member of the commission shall be
eligible for re-appointment for not more
than five terms.
Offence Of Contamination Of Water
Any person who contaminates any water
source or the water supply system shall
be guilty of an offence.
G If the act results in death death
penalty or maximum jail term of 20
years and whipping
G If the act does not result in death but
the contaminant is radioactive or
toxic substance A maximum jail
term of 10 years or a maximum fine of
RM500,000 or whipping or all three
G In any other case A maximum fine
of RM100, 000 or a maximum jail term
of one year or both.
Punishments mentioned above appear
to be heavier than provisions in the
Environmental Quality Act (Act 127).
Provisions in WSI Bill are, however, more
precise and appear to be more
appropriate as deterrents.
Water Forum
The commission may designate an
industry body to be known as Water
Forum. Among the functions of the
Water Forum are:
G To represent the interests of
consumers of the water supply
services and sewerage services
G To promote consumer interest in
relation to the tariffs and standards of
the water supply and sewerage
services
G To give feedback and make
recommendations to the commission
on any matters concerning the
interest of consumers on the water
supply services and sewerage
services
The commission is required to have due
regard to the recommendation of the
Water Forum. MBJ