This article first appeared in The Edge Malaysia Weekly on September 27, 2021 - October 3, 2021

THE National Water Services Industry Restructuring (NWSIR) initiative, which began in 2003, has been years in the making, involving long and protracted negotiations between the federal government and state governments in Peninsular Malaysia, as well as requiring amendments to the Federal Constitution.

Now, 18 years after the NWSIR was first mooted by the federal government, industry restructuring appears to be taking a different step — one that has raised the ire of the Association of Water and Energy Research Malaysia (AWER).  To AWER, it appears that Putrajaya is attempting to centralise water services across the peninsula, a move that is against the spirit of the NWSIR and the Water Services Industry Act 2006 (WSIA).

“Under the WSIA model, concession agreements will be phased out and state governments will form companies to manage water treatment and supply to increase transparency and efficiency,” AWER president S Piarapakaran said in a Sept 9 statement.

“IWK is supposed to have been broken into state-based entities and merged with water services companies at state level by 2010. This was the model that was presented to state governments and the Conference of Rulers, which was agreed upon before the amendment to the Federal Constitution.”

AWER was referring to the Cabinet’s approval, on Oct 21 last year, of the extension of Indah Water Konsortium Sdn Bhd’s (IWK) concession to Dec 31, 2034.

Given that the concession was scheduled to end on March 31 next year, it appears to signal a change in Putrajaya’s earlier intention to parcel up IWK and transfer operations to the states.

Indeed, the federal government’s intention to create a centralised water services company is apparent, as in March, Environment and Water Minister Datuk Seri Tuan Ibrahim Tuan Man disclosed that Putrajaya was establishing a parent water utility company that would act like Tenaga Nasional Bhd.

In the Tenaga model, Tenaga is the sole company that operates the national grid, which traverses the peninsula. In the water equation, a similar “grid” that traverses the peninsula does not exist, as water services companies cater for multiple states and territories, but rarely apply to the whole region.

For example, Pengurusan Air Selangor Sdn Bhd caters for residents and industries in Selangor as well as the Federal Territories of Kuala Lumpur and Putrajaya, but not the whole of Peninsular Malaysia.

As for the Langat 2 water plant in Selangor, raw water from Pahang is treated for Klang Valley consumption.

Which model the national water company will adopt is still anyone’s guess. One point is clear, however, from Tuan Ibrahim’s statement in March. The national water company is set to be the umbrella company for all state-based water services companies.

The move towards a central water services company that houses different state-based companies has already started with the extension of IWK’s concession, although IWK has pointed out that it will continue to be a standalone entity for sewerage services.

“IWK has been given the mandate to operate and maintain the sewerage systems efficiently, and the extension is purely to extend the agreement period and allow IWK to explore non-tariff business opportunities,” IWK CEO Narendran Maniam tells The Edge.

The intention of the NWSIR is for the entire water services of each state to be merged and operated by the state but funded by the federal government. Water services are more efficient when managed from source to sewage.

According to AWER’s Piarapakaran, a combined water treatment, supply and sewerage system under one operator is better for managing the human consumption water cycle. This is because treated effluents from the sewerage will be released into rivers, and is a point of source pollution, he says.

He points out that the water treatment component needs good-quality raw water to minimise water treatment costs. At present, rivers are the normalisation ground. By merging the operations, the same company would not want to pollute the river water it uses as raw water.

Citing the Department of Environment’s (DOE) Environment Quality Report, Piarapakaran says IWK is the single-largest polluter of raw water sources, as various pollution sources have been recorded and linked to the company.

In 2008, some 17,633 pollution sources were recorded and 9,524, or 54%, were linked to IWK, he points out. In terms of the biochemical oxygen demand (BOD) load, domestic treated and partially treated sewage remained the largest contributor, with an estimated load of 944,533.8kg a day, he says.

In 2018, an estimated total of 653 tonnes a day of pollution load for BOD were generated, says Piarapakaran, still quoting the DOE report. Sewerage treatment plants (STPs) remained the largest BOD-load contributor, with a total load of 242 tonnes a day.

In the same year, the overall estimate of suspended solid (SS) loads was 835 tonnes a day, with STPs contributing 303 tonnes a day, or the second largest after piggery activities.

Ammoniacal nitrogen load in 2018 was estimated to be a total of 205.3 tonnes a day, in which STPs remained the largest contributor, with a total load of 162 tonnes a day, he says.

“The proof is published annually by DOE and there is no way IWK can deny it,” says Piarapakaran. “This is the reason DOE put requirements on IWK to upgrade its treatment plants.

“IWK will blame delays on tariff revision as a reason (not to upgrade) and it ends up as a chicken-and-egg situation. AWER does not see this as a chicken-and-egg situation, as IWK can follow the WSIA model to end capital drought.”

Nevertheless, IWK’s Narendran maintains that, as at August 2021, the total compliance rate of IWK’s STPs stood at 97% and its sewage load continues to be below the permissible level of DOE’s performance bar for pollution sewage.

Moreover, IWK stresses that the country’s sewerage charges were last updated more than 27 years ago and that it has borne the burden of rising operational expenditures to ensure environmental sustainability and good public health.

It says that various engagements have been carried out with the relevant ministry and departments — along with committees and the proposed tariff review, which is being held in phases and involves only minimal changes — have been well received by the stakeholders and are gaining traction towards materialising.

“IWK’s main challenge is to ensure that all the sewerage assets operate optimally and, at the same time, to upgrade the system and bring in new equipment. Since IWK started operating in 1993, the tariff for sewerage services to consumers has never been reviewed,” says Narendran.

The average maintenance cost of the sewerage system for linked premises is RM17 a month, compared with the current tariff of between RM2 and RM8 a month, he says. Currently, domestic consumers are billed every six months.

IWK’s financial performance has suffered. The wholly-owned company of Minister of Finance Inc posted a net loss of RM96.35 million in the financial year ended Dec 31, 2020, on the back of RM741.64 million in revenue. This was almost twice the net loss of RM49.5 million recorded in the preceding financial year, despite a 2.6% year-on-year increase in revenue.  In 2020, IWK’s total assets amounted to RM1.2 billion while total liabilities stood at RM3.2 billion. Retained losses were a staggering RM2.1 billion.

According to Piarapakaran, DOE has increased the wastewater discharge standard for IWK’s treatment plants to reduce pollution loading from the sewerage system. Using the increased standard by DOE as a benchmark, IWK came up with an estimate of RM60 billion to RM80 billion needed to upgrade its STPs, he says.

“We believe it is much lower and, if we break IWK into state-based entities and follow the WSIA model, we can keep the capital injection low and shut down many smaller plants, as bigger plants can perform better treatment processes than smaller and non-mechanical old plants,” says Piarapakaran.

“This can be done using critical, sub-critical and non-critical plant categories by coming up with a matrix of energy consumption, pollution loading, capital, savings and final output parameters. Following the WSIA model and holistic forward planning towards zero waste is the key to minimising capital expenditure.”

Under the WSIA model, state water assets are transferred to Pengurusan Aset Air Bhd (PAAB), with the assets then leased back to the state water operators. PAAB funds the development and upgrading of water assets through government-guaranteed debts, which are long term.

The long-term tenure of the debts makes it possible for capital costs to be lowered and much lower than what the private concessionaires, in the case of Selangor, could get. At the same time, the state government, which had developed its own water services companies previously, could offload the debt to PAAB.

Previously, federal government loans provided funding for states that did not privatise their water services. But the states were then saddled with huge debts that ate into their revenue.

For example, in March, Tuan Ibrahim said the federal government had written off RM699 million worth of debt owed by the Kedah government to supply water to rural areas in the state.

Another RM1.12 billion of Kedah’s water infrastructure-related debts were then absorbed by PAAB. The debt was restructured for a period of 45 years, and recovered through lease charges receivable from Syarikat Air Darul Aman Sdn Bhd.

Narendran says Suruhanjaya Perkhidmatan Air Negara (SPAN) had approved a budget of RM142 million in 2020 to upgrade 644 STPs to ensure proper functionality of these plants, resulting in better compliance to discharged effluent standards.

Up to the 11th Malaysia Plan, RM26.5 billion had been spent for the development and upgrade of STPs nationwide. In the 12th Malaysia Plan, RM1.3 billion has been allocated to upgrade and build centralised sewage treatment facilities nationwide, says Narendran.

“Under the Sewage Capital Contribution fund, we are currently upgrading 644 existing STPs to meet the Environmental Quality (Sewage) Regulations standard. We plan to further upgrade the remaining 2,306 STPs under the Phase 2 and 3 implementations within the next five years,” he says.

While the jury is still out on whether establishing a national water department and national water company will be a better move in restructuring the water industry, there are quarters that question the need for such a centralised body and company. This is because, at the federal level, the water industry is being regulated by SPAN while its assets are gradually being transferred to PAAB. How many government bodies are needed to govern, develop and manage water infrastructure in the country?  

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.