Returning Malaysia's Rivers To L - Malaysian Water Association.

Country Focus
showed that 99.9% of such complaints were resolved.
Financial Resource Management
During 1998–2008, revenue growth of the water supply
service provider was strong, reaching an average
annual rate of 14%. In absolute terms, annual revenue
increased from RM399 million in 1998 to RM1.5 billion in
2008 because of expansion of new accounts. Operating
revenue rose significantly in 2002 after corporatisation,
reaching more than double the amount in 1998. Another
marked increase was in 2005 after privatisation when
SYABAS’s annual collections rose above RM1 billion. Annual
billings also increased although after 2006, these
declined largely because of a reduction in repeat billings
to recoup arrears.
Revenue collection efficiency estimated from 2003 to
2008 showed an improvement from 78 to 91%. There were
fluctuations in the efficiency rate but the decline was
likely due to changes in management during the period
reviewed.When Syabas took over in 2005, the efficiency
dropped but after the transition period, it reverted to
reach a high of 91% in 2008.
Annual debts arising from nonpayment of billed water
consumption declined as revenue collection efficiency
increased. On a monthly basis, improvements were
observed after privatisation, with accounts receivable
in month’s equivalent declining from about 3.5 months
during the transition period to less than two months in
2008. This was because SYABAS enforced the law to disconnect
water supply on errant accounts and to charge
reconnection fees.
The increase in revenue was accompanied by rising
annual O&M costs. While operating revenue increased to
more than 3.5 times the base year’s level by 2008, annual
O&M costs increased more moderately. The gap resulted
in a better operating ratio of 0.86 in 2008.
Grants were used to help the state water utilities. JBAS
received development grants from the State Government
of Selangor; it also borrowed from the federal government
to finance capital expenditure. In 2001, JBAS took a grant
of RM432.3 million to construct the Sungai Selangor Dam.
When water services were corporatised in 2002, the state
government stopped the grants. However, when SYABAS
took over, it managed to negotiate for a one-off grant
amounting to almost RM250 million to help resolve the
NRW issue.
Human Resource Management
The total staff strength of the water services industry
(excluding water treatment and sewerage services) increased
significantly from 1,317 in 1998 to 2,268 in 2005
when the service was privatised. SYABAS’s staff strength
was 3,021 in 2008.
The number of employees in the water distribution
services almost trebled when total connections in the
service area increased. The ratio of staff to connections
rose from 1.5 per 1,000 connections in 2005 to 1.9 in 2008
when SYABAS absorbed 95% of PUAS employees. This implies
that more employees were hired after the SYABAS
takeover.
The average annual salary of employees was estimated
to be in the range of RM30,000–RM41,000 during
2003–2008 . The large number of workers means that the
ratio of non-management and/or field staff to professional
staff is very high, which means that the implied monthly
salary of RM3,000 would be relatively high when compared
with that in the public sector.
In the case of highly skilled professionals, the gap in
remunerations tended to favour the private sector. The
annual remunerations of the four top management staff
(executive directors) in SYABAS averaged RM115,500 per
person in 2007. In 2008, the average remuneration was
RM186,100 per person. Compared to other large private
firms, this might not be very competitive, but against the
public sector, it was.
Lessons
PPP as a preferred model: The Kuala Lumpur experience
shows that privatisation has positive impacts on the delivery
of water services. When SYABAS took over, it faced
problems over high NRW and poor water quality. The
company installed a 24-hour helpline, embarked on a
pipe replacement programme, and reduced NRW from
38% to 34% within four years.
Initially, there was complete reliance on the private
sector for finances. But there were obstacles mainly in raising
funds from the private money market. The borrowing
terms could be relatively stringent and the private utilities
were unable to guarantee payments of debts.
To overcome this, private utility firms focused on improving
revenue collection and reducing operating costs.
This approach, however, was not sustainable nor were
they able to raise sufficient amounts for heavy capital
investment. In the case of IWK, the situation was even
more precarious as it was operating in the absence of a
legal framework to allow it to change the tariff structure
or take actions against defaulters.
While private sector participation is a way forward, it
is important to consider that the industry involves major
capital infrastructure investment, the costs of which are
high and often are beyond the private firms’ financial
capacity. It may be better to look into a PPP model as an
alternative. The PPP model brings the government into a
partnership with the private sector not only to undertake
and complete major infrastructure projects but also to
promote efficiency and accountability.
Establishing an appropriate legislative and institutional
framework: In Kuala Lumpur, the privatisation of water
services had proceeded with negligible federal regulation.
There was no federal oversight of the concessionaires
in terms of their performance, revenue generated, cost
ratios, tariffs, and investment.
The WSIA 2006 is thus an important legislation for the
water services industry in peninsular Malaysia. For the first
time, an encompassing legal framework is available to
regulate the industry.
Previously, each state had its own water arrangements.
The result was different water arrangements and tariff
structures. For states that had corporatised or privatised
water supply services, tariff increases were built into agreements
that allowed for periodic revisions of water tariffs
without corresponding checks on the utility’s improvements
and cost savings. With the WSIA 2006 and SPAN
Act 2006 coming into play, it is hoped that the disparity
in water tariffs among states would narrow and become
more uniform over time.
The exercise of drawing up the appropriate legislative
and institutional framework is referred to as the nationalisation
of the water services industry in the country. In
a federal structure like Malaysia, it is a “delicate” matter
WaterMalaysia 23