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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
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(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
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(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
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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..)
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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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I I . THE SOLUTIONS (cont..)
(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
I I . THE SOLUTIONS (cont..)
(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
I I . THE SOLUTIONS (cont..)
(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
I I . THE SOLUTIONS (cont..)
(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
I II . THE WSI A (cont…)
(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
I II . THE WSI A (cont…)
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:
I II . THE WSI A (cont…)
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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:
I II . THE WSI A (cont…)
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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.
V. W HAT HAVE BEEN DONE SO FAR (cont..)
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(3) Industry Progress Roadm ap
Camp 2 (Consolidationphase)
Base Camp (As-Is – Non-sustainable )
Camp 1 (Stabilizationphase)
Camp 3 (Progress tofull cost recovery)
V. W HAT HAVE BEEN DONE SO FAR (cont..)
Oct 2008 Oct 2008
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THE END
THANK YOU
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