CONFERENCE ON “MANAGING CHALLENGES TOWARDS

SUSTAINABLE WATER RESOURCES AND ENVIRONMENT”

WATER AND WASTE WATER GOVERNANCE

THE CHALLENGES AHEAD

BY
LEE KOON YEW
WATER SUPPLY DEPARTMENT
MINISTRY OF ENERGY, WATER & COMMUNICATIONS

26-27 March, 2007,

Grand Bluewave hotel, Shah Alam
Kuala Lumpur, Malaysia
1
 ISSUES
• No single agency with overall
responsibility for holistic planning and
management of water
• Ineffective regulatory structures and poor
enforcement in the States
• Insufficient funds and revenue to meet
high capital cost of works
• Low cost recovery from low tariffs
2
 ISSUES
• CAPEX – Predominantly Financed by
Public Sector
Ninth Malaysia Plan Water Supply RM8.2 billion
Sewerage RM3.5 billion
• High NRW – varies from 20% to 50%
• Assets in poor conditions (water supply &
sewerage)
• Customer service standards almost non-
existent
• Water Privatisation : Non holistic except
Johore, Penang, Trengganu, Kelantan
3
 Key
Key challenges
Challenges in the
for the Industry industry

Efficiency and Funding

effectiveness • Partial cost recovery
• Inefficient operations • No long term funding
• Ineffective structures • Unsustainable funding
• Ineffective regulatory structure
• Tariff disparity among • Under-investment
states • State debts
• Poor customer relations • No ring-fencing
management

Key Challenges
• Promote efficiency and effectiveness in the industry
• Derive a sustainable business model in long term
• Adequately address long term funding issue
• Efficient customer relations management 4
KEY FACTS REGARDING THE WATER INDUSTRY
 THE NEED TO REFORM THE WATER
SERVICES INDUSTRY

• To ensure an efficient and effective quality

delivery system to meet the rising
aspirations of the people

• To ensure long term availability and

sustainability of water supply including the
conservation of water
5
MOVING FORWARD Overview of the WSI Act and NWSC Act
 WHAT’S REQUIRED

• REQUIRE TO IMPROVE PERFORMANCE

STRUCTURE AND GOVERNANCE CHANGE NECESSARY TO
IMPROVE LEVEL OF SERVICE

• REQUIRE ALTERNATIVE SOURCE OF

FINANCING
LARGE CAPITAL REQUIRED FOR NEW WORKS,IMPROVEMENT
AND REHABILITATION OF EXISTING INFRASTRUCTURE

MOVING FORWARD Overview of the WSI Act and NWSC Act 6

Shaping Efficiency and
Effectiveness
Run as a
social
organisation Transparency
Independence and
Ineffective accountability
regulatory
structure
Transformation
Absence of of Water and
benchmarking Sewerage
regime Industry

Conflicts of
interest
Checks and Competitive
controls industry
structure
Absence of
long term
sustainability

Current industry Impending Changes in the industry landscape

shaping forces 7
Shaping the Funding Challenge

Deficit cash-
flow
Long-term
Cheap finance funding
Absence of
long-term
funds
Tariff Sustainable
long-term
increase funding
guarantee structure

Guaranteed
returns
Long-term Medium-term
sustainability Government
support
Absence of
long term
sustainability

Current industry Impending Changes in the industry landscape

shaping forces 8
INDUSTRY REFORM : NATIONAL OBJECTIVES

• To create an industry that will ensure long-term sustainability of the

water supply and sewerage services industry

• To regulate for the long term benefit of consumers and develop high
consumer confidence in service delivery

• To facilitate development and promote competition so as to enhance

economic and technical efficiency in the supply and delivery to
consumers

• To establish a regulatory environment that will lead to efficien t

allocation of economic and financial resources through sustainab le
public and private collaboration and partnership

• To establish a transparent and effective system of governance th at

promotes excellence in all aspects of the service delivery and
provision.
9
MOVING FORWARD Overview of the WSI Act and NWSC Act
 Shaping
Shaping theEfficiency and Effectiveness
Funding Challenge

Provisions of WSIA will address the issues above:

Comparative
Regulations /
Business Benchmarking
KPIs/
Plan Standards

Integration of
water and Addressing
sewerage Inefficiencies and
Licensing
services Ineffectiveness

Furnishing of
Information
Regulated
Water Forum Tariff
10
MOVING FORWARD Overview of the WSI Act and NWSC Act
 Addressing Funding Challenge Through
WAMCo

Fund
Federal
Government
Dams
Ownership
Lease

Water Asset Lease Payment

Bond / Capital Management (Based on affordability)
Operators
Company
market (WAMCO)

Lease
Build asset –
WTP, Dist.
Network etc.

11
MOVING FORWARD Overview of the WSI Act and NWSC Act
 Objectives of SPAN

Suruhanjaya Perkhidmatan Air Negara (SPAN) would effectively be the first centralised
national economic regulator. The role of SPAN should serve to fulfill two key objectives
for an integrated water and sewerage services industry

OBJECTIVES

To support and provide an To protect the interest of all

operating climate that is viable uses and consumers of
for operators to provide water and sewerage services
effective management of in the industry
water and sewerage services

12
MOVING FORWARD Overview of the WSI Act and NWSC Act
Challenges facing the operators
and
concessionares
Impending Changes

13
 Consequences of WSIA

 State Water Enactments to be repealed/amended

 State regulatory bodies to focus on water resources areas
 States may impose a royalty on sales of raw water
 New rules and regulations will be issued by SPAN
 All existing approvals and consents will be recognised
 Sewerage Services Act 1993 will be repealed with respect to West
Malaysia and Labuan
 No more new privatised concessions after WSIA. New operators will
be granted licenses

 Existing concessionaires are encouraged to migrate to the new

licence

 Those who remain with concessions shall also be regulated

14
Challenges facing the operators and concessionares
 IMPENDING CHANGES

• Federal Government takes over control and regulation of

water supply and sewerage services from States

• A National Water Services Commission will be set up

• All existing water supply services run by State Governments

will be corporatised

• The WAMCo will be formed to :

 take over State Water existing assets and Federal loan liabilities
 fund and develop water supply infrastructure.
 leased back to water service providers existing & new assets

• A 30 year capital expenditure business plan to be submitted to SPAN

Challenges facing the operators and concessionares 15

 IMPENDING CHANGES
• The Water Industry Fund will be set up to assist States to maintain
water resources. Licensed water service providers will contribute to
the kitty

• The Sewerage Capital Contribution Fund will be set up.

Developers contribute to it

• Certifying agencies will be set up to approve plans, certify

contractors and monitor compliance with subsidiary legislations

• There will be an Appeal Tribunal to review decisions of the

Commission

• Consumers will have a voice in the Water Forum

• Consumers get some protection through regulation of workmanship,

materials used, contractors certification and licensing of service
providers
16
Challenges facing the operators and concessionares
 IMPENDING CHANGES
• All water industry players must be licensed to treat, distribute it and
own a facility

• Current concession holders can migrate to the licensing regime by

re-negotiating their agreements with the Commission within a
specified time period

• If they do not migrate, they stay only until the end of their
concession agreement period. After that this they can no longer take
part in the industry

• Licensed holders must submit three-year rolling business plans.

They can be penalized for not keeping to the plan

• Span can take over the operation if the company becomes

insolvent, unable to meet obligations or contravene principal duties.
Challenges facing the operators and concessionares
17
 ROLES OF SPAN

Pipe
Water Storage Treatment Distribu - Sewerage Reve - Customer
reticula -
catch- facilities services tion services nue relations
tion
ment services Manage & Fittings
ment

Liaise with Licensing Licensing Licensing Licensing Set Permit for Water
States, standard of pipe Forum
DOE, Plan and Define Monitor Set revenue contractors
operators monitor standards NRW standards assurance and Monitor
on raw storage for water for plumbers customer
water capacity treatment Monitor sewerage Set demand
quality plants treated services standard of Piping and and reach
Define water collection fittings
SPAN

standards Monitor quality Monitor efficiency Standard

for dams water performance and specs
and production Water Tariff
reservoirs pressure setting

Bulk
Supply
Rate

Business
Plan 18
Challenges facing the operators and concessionares
 Role of Operators

Water Storage Treatment Distribution Sewerage Billing Internal Customer

catchment facilities process systems services system plumbing relations

Monitor raw Monitor water Treat water Maintain Treat Install and Advise 24X7 service
water quality loss distribution sewerage maintain billing consumers
Maintain piping system system Prompt
Maintain treatment Maintain response
reservoir and plants Repair piping treatment Read meters
dams plants Courteous and
Monitor Maintain Quality helpful service
water loss adequate water Deploy quality revenue
pressure material and assurance Facilitate
Ensure equipment program payment
Operators

adequate Rectify stagnant through

production water 24X7 service Achieve counters, online
collection means, post
Deploy quality Minimize water Process of efficiency office, banks
material and loss continuous and collection
equipment improvement Program of agencies
Deliver water meter
24X7 service quality replacement Communication
on channel
Process of Deploy quality Process of
continuous material continuous Information
improvement improvement availability
24X7 service

19
Challenges facing the operators and concessionares
 The future outlook for the
water industry
Expectations from consumers and
service providers

20
 Industry Reform : Proposed Model

• Separation of Policy, Regulation and Delivery

• Transparency
• Consumer Participation
• Independent Regulation
• Integrated Planning Process
• Full-cost Recovery (Sustainability)
• Performance Measures
• Licence or Contract Review

The future outlook for the water industry

21
 NEW INDUSTRY MODEL
Body Area of responsibility Description
Policy matters Development of a holistic water policy
•Federal Government for the country by setting policy
directions.

Water basin matters Manage existing water basins with the

•State Government view of protecting the quality of raw
water and identifying new water basins
when required.

Governance matters Ensures coordination with the various

•NWRC State Government in the management of
the water basins.

Regulatory matters Regulate the whole water industry based

•SPAN on the policy directions set out by the
Federal Government.

SPAN will be the regulatory body to regulate the water services industry, including sewerage
services. Ownership of water catchment areas will remain under the respective States,
however any development affecting water sources in the water catchment areas should
require the concurrence of SPAN. 22
The future outlook for the water industry
A NEW PERSPECTIVE ON WATER SERVICES

• WATER SUPPLY
• SEWERAGE

SERVICE: It not just about delivering

or taking away so many gallons of
water. It's about providing a
service.

The future outlook for the water industry

23
 CONCLUSION
• WAY FORWARD FOR MALAYSIA IN WATER
MANAGEMENT:
• Good governance – clear regulations on performance
stds and source of revenue to finance infrastructure
• Economic regulation to improve industry’s
efficiency, building investor confidence and
encourage consumers to pay for services
•Benefit : sustainability, security of supply, of the right
quantity & quality ALL THE TIME & at the right
price.
24
CONCLUSION
25