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Water Speech Marseille March 2012 Paper Version

Water Speech Marseille March 2012 Paper Version

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Published by: alamsekitarselangor on Mar 15, 2012
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Towards better water governance : Solutions of regional actors3rd International Conference of Local and Regional Authorities6th World Water Forum14th-15th March 2012, Marseille, FranceImproving cooperation between infra-state levels to prevent conflictsrelated to water resourcesFederalism and Inter-governmental Conflict: Water Management in thestate of Selangor, Malaysia14th March, 5.30-7.00pm
Mr. Michel Vauzelle, Chairman of Regions United/FOGAR ; Mr. DominiqueRamard, Vice-Chair for Europe of nrg4SD, Regional Counsellor for energy andclimate and President of the Environment Commission of the Regional council of Brittany ; Loic Fauchon, President of the World Water Council ; Benedito Braga,Chairman of the Forum
s International Committee;My fellow speakers from around the world, representatives of ministries, states,authorities and water associations from Canada, Mexico and other countries ;delegates, friends, and members of the media.Good afternoon. I would like to firstly thank the organisers of the conference, theWorld Water Council, the United Cities and Local Governments (UCLG) andRegions United-FOGAR for inviting me to speak at this important session onconflicts related to water resources. Although it is my first time attending theWorld Water Forum, I am aware of the tremendous progress you have made
 
over the years. I am pleased that the issue of local and sub-national authorities isbeing emphasised with regard to managing water resources. Water knows noboundary lines, and spans across geographical borders that governmentsartificially draw up. Local, state, regional and national level authorities are forcedto work closely together in ensuring water resources are managed efficiently,and sustainably for the long-term benefit of our citizens.I am here today representing the State of Selangor in Malaysia. As Chief Minister,I am proud to note our state is the lifeline of the country
it forms the majorportion of the Klang Valley, the central hub that is the primary contributor toMalaysia
s economic growth. As the most industrial, urban and thriving state,within which Kuala Lumpur our capital also lies, we are a state that needs thebest water management possible.But today I would like to present a case study to you, an ongoing case of conflict that we are still in the middle of resolving. This is a classic case of the country
sfailed attempt at privatising a public utility, made worse by two factors : theinextricable nexus between the political and business sectors, where privateindividual profitability is prioritised, and conflicting political interests.Allow me to trace the historical roots of this conflict. Malaysia is by constitution afederated nation, consisting of 13 state governments and three federalterritories. The water services industry in Malaysia was originally under thehelm of the individual state authorities. But following a wave of privatisationunder former Prime Minister Dr. Mahathir Mohamed, the decision was made toprivatise water services as well.Although Selangor
s water authority was doing well financially at the time,bringing in profits to the state, the government at the time decided to change thismodel. Over the years between 1997 and 2005, water treatment and distributionservices were corporatised and then privatised to four separate concessioncompanies. They were given lucrative contracts, lasting up to 30 years.
 
Now, privatisation as a theoretical model itself is not wrong. Many governmentsaround the world have also gone through a similar process. The reasons forprivatisation are plentiful : by transferring the decision rights and ability toprofit to a private owner, this ensures the private owner responds efficiently tothe positive incentives of financial gain. This was meant to address the budgetaryconstraints of government, removing the burden of capital expenditure fromstate authorities.Second, the assumption is that privatisation promotes competition, which is themajor driver of improved efficiency. Driven by market-determined forces,privatisation would ensure government, and therefore public, funds are not usedto bail out or subsidise any losses faced by a public utility body.But this did not happen in Selangor. The private concession companies chosen totreat and distribute water were not skilled nor experienced in the water servicesindustry itself. Without sufficient injected equity, the water distributioncompany began to compromise on its water quality and service delivery, forcinghigh tariffs on consumers. Some of the other problems arising included a non-holistic water planning and management system, ineffective regulatorystructures, unsustainable funding structure, low cost recovery, high capitalexpenditure (CAPEX), inefficient operations, lack of maintenance, poor asset conditions and high non-revenue water (NRW).These companies began to undergo huge unpaid bills, as the business model wassimply not feasible. Although the water treatment companies were makingmoney, the water distributor experienced severe losses. The federal government recognised the failure of the privatisation model and the fragmented situation inthe state. In 2006, the Parliament passed the Water Services Industry Act, whichwould consolidate the water industry. All water-related assets would betransferred to a newly formed body, and the constitution was also amended totransfer the jurisdiction over water services from the state governments to boththe federal and state governments. Another new body was formed, the National

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