SAhmadbelon Presentation

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WATER SECTOR REFORMS IN MALAYSIA:WATER SECTOR REFORMS IN MALAYSIA:The Case For Central Regulation and The Case For Central Regulation and Corporatization Corporatization

by Sutekno Ahm adbelon Undersecretary, W ater Services Regulatory D ivisions M inistry of Energy, W ater and Comm unications, M alaysia

SEAWUN LEADERSHIP FORUM27-28 October 2008

Villa Santi, Luang Prabang, Lao PDR

The views expressed in this paper/presentation are the views of the author anddo not necessarily reflect the views or policies of the Asian Development Bank(ADB), or its Board of Governors, or the governments they represent. ADBdoes not guarantee the accuracy of the data included in this paper and acceptsno responsibility for any consequence of their use. Terminology used may notnecessarily be consistent with ADB official terms.



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Agenda

I. The Issues

II. The Solutions(1) Strengthening the governance structures

(2) Shaping Efficiency and Effectiveness

(3) Addressing Funding Challenges

(4) Advocating the water cycle concept

(5) Introducing the regulatory regime

III. Water Services Industry Act

IV. Suruhanjaya Perkhidmatan Air Negara Act

V. What have been done so far

OUTLINE OF PR ESENTATION



(1) Disparity in tariff structure

14 states with different tariff structuresDomestic: Lowest (RM0.31/m 3), Highest (RM0.90/m 3)

National Average (RM0.64/m 3

(average for 1st 35m 3)

Industry: Lowest (RM0.90/m 3), Highest (RM2.93/m 3)National Average (RM1.39/m 3)(average for 1st 500m 3)

Low revenue vs. high expenditureOperating revenue cannot cover cost

(Exchange rate: USD$1.00 = RM3.50)

I . THE ISSUES



(2) High Rate of Non Revenue Water (NRW)

Lowest (21%), Highest (58%)National Average (39% )Leakages due to aging pipes, theft, inaccurate meterreading

(3) Gap in Coverage Areas (Population served)

Urban – Lowest (72%), Highest (100%)Rural – Lowest (57%), Highest (100%)Average [Urban & Rural] – Lowest (62%), Highest (100%)National Average [Urban & Rural] (94% )

I . THE ISSUES (cont…)



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(1) Strengthening the governance structuresPrincipal role of Federal and State Governm ents

Regulate the whole water industry basedon the policy directions set out by theFederal Government. Promote anefficiency driven regime

Regulatory mattersSuruhanjayaPerkhidmatan Air Negara(SPAN)

( National W ater Services Commission )

Ensures coordination with the variousState Governments in the management

of the water resources.

Governance mattersNational WaterResources Council

(NWRC)

Manage existing water basins with the

view of protecting the quality of rawwater and identifying new water basinswhen required.

Water resources mattersState Government

Development of a holistic water policy forthe country by setting policy directions.

Policy mattersFederal Government

Description Area of responsibil ityBody

I I . THE SOLUTIONS



7Im pending changes in the industry landscape

IndependenceTransparency

andaccountability

Checks andcontrolsCompetitive

industrystructure

Transformationof Water andSewerageIndustry

Below costrecovery

Ineffectiveregulatorystructure

Absence of benchmarking

regime

Publicperception

Absence of long term

sustainability

Current industryshaping forces

Shaping Effic ienc y and Effec tiveness

(2) Shaping the industry efficiency and effectiveness

I I . THE SOLUTIONS (cont..)



8Im pending changes in the industry landscape

Cheap financeLong-term

funding

Long-termsustainability

Medium-termGovernment

support

Sustainablelong-term

fundingstructure

Deficit cash-flow

Absence of long-term

funds

Tariff increase

guarantee

Guaranteedreturns

Absence of long term

sustainability

Current industryshaping forces

Shaping the Funding Challeng eI I . THE SOLUTIONS (cont..)

(3) Addressing funding challenges

(cont…)



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(3) Addressing Funding Challenges (cont…) The approach – An Asset Light Water Operator

The mechanism – Water Assets Management Company

Water AssetManagement

Company(WAMCo)

FederalGovernment

Operators/Licensee

Lease

Lease Payment

Dams

Bond/Capitalmarket

Lease

Fund

Own

Build asset –WTP, distribution

networks etc.



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SCOPE OF WSIA

WATER SOURCE

ABSTRACTION TREATMENTOF WATER CONSUMERS

DISTRIBUTION

TREATMENTOF SEWA GE

WA STE WA TER

W ATER CYCLE

DISCHARGE


(4) Advocating the w ater cycle concept



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AddressingInefficiencies and

Ineffectiveness

Shaping the Funding Challeng e

(5) Introducing the regulatory regime

ComparativeRegulations /Benchmarking

KPIs/Standards

Integration of w ater andsewerageservices

Water Forum

RegulatedTariff

Furnishing of Information

Licensing

BusinessPlan


(cont…)



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SCOPE OF WSIA

The instruments:(1) The Water Services Industry Act 2006 (WSIA)(2) The SPAN Act 2006

WSIA governs both the provision of water services andsewerage services in West Malaysia and the FederalTerritory of Labuan based on the concept of water

cycle.

WATERSOURCE


(5) Introducing the regulatory regime (cont…)



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NATIONAL POLICY OBJECTIVES

(1) Outlining the National P olicy Objectives for the WaterSupply and Sewerage Services Industry that includes:

to establish a transparent and integrated structure forwater supply services and sewerage services that deliverseffective and efficient service to consumers;

to ensure long term availability and sustainability of watersupply including the conservation of water;

to facilitate the development of competition to promoteeconomy and efficiency in the water supply services andsewerage services industry;

to regulate for the long-term benefit of the consumers; and

to regulate tariff and ensure the provision of affordableservices on an equitable basis.

I II . THE WSI A



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(2) The principal provisions of the Act:

(a) Economic Regulations;

(b) Technical Matters;

(c) Consumer Protection; and

(d) Social Regulations.

I II . THE WSI A (cont…)



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ECONOMI C R EGULATIONS

LicensingChapter I

Public Sewerage

Systems

Private Sewerage Systems

& Septic Tanks

Supply of WaterChapter 2, Part I V

Provision of Information

Cl. 29

Water Supply & Sewerage SystemsChapter 1, Part I V

Sewerage ServicesPart 3, Chapter IV

Individual licenseClass license

ApplicationRevocationRenewalTransfer of license

Reduction or cessation of supplyRestriction of water supplySpecial powers during

emergency

Audit on informationPenalty – RM200 K Construction of water

supply system, seweragesystem and septic tanksQualifications to operate,etc. water supply systemand sewerage systemPermit for contractors


(3) Economic Regulations covers:

(cont…)



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Examples:• Standards & specifications of systems &

equipment• Qualification of persons• KPIs – response time, coverage, water

quality, pressure, NRW

Examples:• For construction, connection, modification or

repairs of pipes• Maintenance services of system• Desludging services


PERM IT & CERTIFICATION

OFCONTRACTORS

(Cl. 50)

TECHNI CAL MATTERS

TECHNI CAL & PERFORMANCE

STANDARDSFOR

OPERATORS

(Cl. 45)

(4) Technical Matters cover:



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• Deal reasonably with consumers• Address consumer complaints

• Regulations on rates made by Ministerupon SPAN’s recommendation

CONSUMER PROTECTION

Quality of Service(Cl. 68)

Rates andDeposits

(Cl. 84)

(5) Consumer Protection covers:




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Water Forum(Cl. 69)

Water I ndustry Fund(Cl. 171 )

Sew erage Capital

Contribution Fund(Cl. 172 )

SOCIALREGULATIONS

controlled and operated bySPANContributions to the Fund fromdevelopers

Purposes:1. To supplement capitalexpenditure required forsewerage assets

2. Implementation of aregional sewerage system

3. Such other purposes asthe Minister maydetermine

controlled and operated by theCommissionPurposes:

1. Protection and preservationof the watercourses

2. Ensure sustainability of watersupply from the watercourses

3. Improvement of waterquality at the watercourses

4 Provision of water andsewerage services in ruraldevelopment

5. Such other purposes as theMinister may determine

Commission to designatePurposes:

1. To give feedback and makerecommendations to the

Commission2. To represent the interest of

consumers3. To promote consumer’s interest

in relation to the tariffs andstandards

4. To identify and keep under

review matters affectingconsumer interest

(6) Social Regulations cover:




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(1) Outlining the functions and pow ers of SPANinclude:

to implement and enforce the provisions of WSIA;

to regulate, supervise and monitor water supply

services and sewerage services activities;to review and recommend tariffs; and

to advise the Ministry on the national policyobjectives.

IV. THE SPAN ACT



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SPAN to regulate all operators;State Government must corporatize their respectivewater authority;

The new entity will be granted a license and tooperate as an asset light company;Water Asset and liabilities including debts will betaken over by WAMCoWAMCo to provide new water asset to individualwater company

(1) KEY POLICY DECISI ONS BY GOVERNM ENT

V. W HAT HAVE BEEN DONE SO FAR



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State Water Enactments to be repealed, amendedor re-enacted;State regulatory bodies to focus on water

resources areas;No more new privatized concessions after WSIA,new operators will be granted licenses to operate;and

Existing concessionaires are encouraged tomigrate to the licensing regime, but those remainwith concessions shall also be regulated.

(1) KEY POLICY DECISIONS BY GOVERNM ENT(cont..)

V. W HAT HAVE BEEN DONE SO FAR (cont..)



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(2) Enforcing the regulatory instruments

The SPAN Act has been enforced since 2 February 2007;

SPAN was established on 1 Mac 2007;

The Water Services Industry Act has been enforced since

1 January 2008.




(3) Industry Progress Roadm ap

Camp 2 (Consolidationphase)

Base Camp (As-Is – Non-sustainable )

Camp 1 (Stabilizationphase)

Camp 3 (Progress tofull cost recovery)


Oct 2008 Oct 2008



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