PRIVATIZATION Privatization in Malaysia, Regulation, rent-seeking and policy failure

Malaysia’s national sewerage system 87• refurbishing poor and non-functioning STPs and pump stations;• constructing new STPs for Jelutong and Bayan Baru in Penang (whereuntreated sewage was being released into the sea);• undertaking sewerage connection projects in Labuan, Port Dickson andLangkawi, and twelve connected sewerage projects in Johor Baru, KualaLumpur, Ipoh, Seremban, Melaka, Kangar and Kuching;• replacing all biosoil type plants; and• constructing new sludge treatment facilities (National Audit Department,Malaysia 2000).IWK’s refurbishment and capital cost estimates were based on data providedby all local authorities for 1,500 STPs. However, it later discovered thenumber of STPs in fact exceeded 6,000, raising operating and capital costs.Furthermore, an estimated 80 per cent of STPs handed over by the localauthorities were in a state of disrepair or disuse, requiring additionalrefurbishment costs, and failed to meet effluent standards. 9 A refurbishmentstrategy was formulated and plans drawn up to upgrade sewerage systems,with refurbishment works to improve safety and aesthetic aspects givenpriority to address public dissatisfaction with the condition of STPs.Refurbishment works were also carried out to restore the mechanical andelectrical systems to working order.Between 1995 and 2000, IWK spent RM181 million refurbishing 481 STPs(Prime Utilities 2000). However, 81 per cent of the 6,205 STPs had not beenrefurbished by 2000 (National Audit Department, Malaysia 2000). IWK alsocarried out a total of 38 capital projects as part of Phase 1 of its capital worksprogramme between 1995 and 2000. The total amount committed to theseprojects was RM224.3 million, with 37 projects completed by 2000 at a costof RM145.2 million, and another 11 projects worth RM99.8 million atvarious stages of completion (Sewerage Services Department, Malaysia2001). This compares to the target of RM600 million in capital investmentfor Phase 1. IWK thus failed to carry out critical infrastructure work dueunder the terms of the concession, including construction of new STPs. 10Service deliveryIWK was to desludge all septic tanks in local authority areas in accordancewith a schedule to ensure compliance with the original design requirements,generally once every two years. It was estimated that on-schedule desludgingwould reduce the pollution load of surface water sources by more than halfwithin two years as 99 per cent of septic tanks were found not to have beendesludged since 1980 11 (Sewerage Services Department, Malaysia 1998).IWK was expected to desludge 736,797 individual septic tanks for theoperational areas between 1994 and 1997, but only carried out 324,308 firstroundseptic tank desludgings (44 per cent) (Sewerage Services Department,Malaysia 1998). By 2000, IWK had desludged 491,685 out of 906,785 septic