Award only one single contract for water supply services

In announcing a marginal increase in water tariff, the Mentri Besar of Selangor, Datuk Seri Dr Muhamad Khir Toyo, also suggested that the current water producers should take over from PUAS the responsibility of distributing water and reducing the high level of non-revenue water (NRW). The rationale is that the water producers should carry the burden of providing a "cross subsidy element" to share the cost of NRW (The Star, Sept 20).

The proposal by Dr Khir is unwise, to say the least.

Privatization of water supply services should not be carried out in two separate contracts, one for water production and the other for distribution, even though one concessionaire may undertake both. The water treatment concessionaires are currently being paid based on the quantities of treated water they produce, while it is assumed that the water distributor would only be compensated from the revenue it collects from water consumers.

The current water treatment plant concessionaires in Selangor, like any privatization company, are essentially driven by profit - that is, the more water they produce, the more profit they make. If Dr Khir believes that privatization will lead to cheaper water and lower NRW, then trying to get the water treatment plant concessionaires to bail out PUAS does not fit into the equation. This is because to create profits and to reduce NRW at the same time is a conflicting proposition.

However, if water supply is to be privatised holistically, the Selangor Government has to rescind all water treatment privatization contracts and award a totally fresh contract to one who is genuinely capable of undertaking a complete water supply service in Selangor. And the compensation for this contract should not be based on the amount of treated water produced, but on payments received from water cosumers. This is the only way to promote efficient operations and encourage the concessionaire to reduce NRW.

On NRW in Selangor, it has never done down to less than 40% of production all these years. The 30% NRW as quoted by Dr Khir could be that portion of NRW due to leakage in distribution networks.

And the only way to reduce NRW is to establish a comprehensive and active NRW reduction and control program throughout the whole state. However, its success requires a strong political will, which has been lacking as witnessed by the action, or the lack of it, taken by PUAS all these years.


An edited version of the above was published in The Star on 27 Sept 04. 2007