Amongst the initiatives announced by Datuk Seri Dr Lim Keng Yaik, Minister of Energy, Water and Communications in revamping the water supply sector in this country are the deferment of water supply privatization projects and renegotiation of the terms of the various water treatment concession contracts.

It has been the public contention that in Selangor, the privatization of water supply has not been carried out on a holistic basis, as only the water treatment plants, which are the easiest and most lucrative part of a water supply system, have been privatized. It is sad that only with the change of ministerial responsibilities for water supply was the folly highlighted.

Why were the government officials who were in the know all along so dumb all these years?

It was reported that Perbadanran Urus Air Selangor (PUAS) was paying 82 sen per cubic meter (/m3) of treated water to the water treatment concessionaires. With non-revenue water (NRW) at over 40% of supply, the cost to PUAS of water reaching the consumers' taps would be 137 sen/m3. But the weighted average water tariff is calculated to be only 108 sen/m3, i.e. 28% less than the cost of treated water on account of loss of revenue through NRW alone. Is it any wonder that PUAS has been running at a loss, to say nothing of the added costs of water distribution and billing?

It is interesting, if not significant, to note that, according to the Malaysia Water Industry Guide 2003, the total operating expenditure for Selangor, Kuala Lumpur and Putrajaya in 2001 was RM1,495 million while the revenue was only RM734 million, i.e. less than 50% of expenditure! If water tariff were to be revised based on the "full cost recovery" concept, the current water tariff would have to be revised upwards by more than 100%!

The only alternative is for the authorities to significantly reduce NRW, improve efficiency of water distribution and billing, and drastically reduce the rate of treated water paid to all the water treatment concessionaires. But why neither action has been taken to date?

Not only will hefty increases in water tariff not go down well with consumers, but also, as access to safe drinking water is a fundamental human right, we must not treat it as a commodity or an entitlement for only those who can pay for it. And it is for this reason that Dr Lim Keng Yaik has specifically mentioned that the current water tariff need not be revised if we do it the right way.

But when Dr Lim Keng Yaik boldly announced that all water supply privatizations are to be put on hold and that renegotiations are to be carried out with all the water treatment concessionaires for better deals, he has obviously chosen the more arduous, and most logical, route to revamp the water supply services in this country.

However, reducing NRW and improving efficiency in operations is a long-term process; requiring a comprehensive plan and costly to implement. But as the saying goes, the journey of a thousand miles begins with the first step and with Dr Lim at the helm, there appears to be a political will to carry it through.

But renegotiation with the water-treatment-plant concessionaires is not going to be a walkover.

In Selangor, all water treatment plants have been privatized to three concessionaires in three totally different kinds of contracts. It has been reported that in one contract, payment to the concessionaire is based on the total design capacity of the treatment plant irrespective of the amount of water that the concessionaire is putting into the system! It will, therefore, be difficult to standardize all the terms and conditions of the three contracts to ensure uniformity in standards and payments.

A case in point is that the Selangor government had awarded the contract to operate the state's water supply system to Selangor Water Supply company (Syabas) before water was transferred from the Ministry of Works. This company was to be 70% owned by Puncak Niaga Holdings Bhd (PNHB), which is also one of the three water treatment concessionaires in Selangor.

If the government believes that privatization of water supply system will lead to cheaper water and more efficient use of water resources, then PNHB does not fit into the equation.

Like any privatization company, PNHB is essentially driven by profit, that is, the more water it sells, the more profit it will make. But privatization is being put forward as the solution to resolve the high percentage of NRW and to promote efficient use and conservation of water. Therefore the need to create profits and conserve water at the same time is a conflicting proposition.

In the final analysis, if Dr Lim, who knows that the game is up, should go ahead with a complete and holistic privatization of water services in Selangor; take steps to annul all the three water treatment concession contracts, but with inevitable compensations; and let everything to be started on a clean slate. But this is easier said than done.

In the final analysis, Dr Lim, who knows that the game is up, should go ahead with a complete and holistic privatization of water services in Selangor; take steps to annul all the three water treatment concession contracts, but with inevitable compensations; and let everything to be started on a clean slate. But this is easier said than done.

Note:

An edited version of the above was published in The Star on 10 Sept 04.