Pengurusan Aset Air

Financial Initiatives For Water Industry Reform

Malaysian Chapter

15 May 2007

Presented by:

MALAYSIA’S WATER ASSET MANAGEMENT COMPANY

Ir. Abdul Kadir Mohd Din
Chief Operating Officer

24th Floor, Menara Multi-Purpose, Capital Square, No. 8, Jalan Munshi Abdullah, 50100 Kuala Lumpur, Malaysia
Tel: 603-2614 5555 Fax: 603-2614 5588 1
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 OVERVIEW OF MALAYSIA’S WATER INDUSTRY
 The respective States in Malaysia is responsible for their water supply services
prior to the amendments to the Constitution.
 In early 2003, the Federal Government began the restructuring process to
create a more effective and efficient Water Services industry.
 The Federal Constitutions was amended in Jan 2005 whereby water supply
services on treatment and distribution transfer to a joint responsibility with the
Federal Government.
 The National Water Services Commission (NWSC) Act and Water Services
Industry Act (WSIA) were established to provide framework and regulated the
water services.
 Existing Water Supply Departments to be corporatized.
 Establishment of Water Asset Management Company (WAMCO) as
government agency to hold the Facility License under the WSIA and facilitate
process of transformation into new water supply industry regime.

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DEVELOPMENT OF MALAYSIA’S WATER INDUSTRY

STAGES OF DEVELOPMENT IN MALAYSIA’S WATER UTILITIES

Division of Corporatized
Waterworks Water Privatized
Public
Works Department Board Bodies Bodies
Department

• Kedah • Pahang • Perak • Terengganu • Penang

• Perlis • Negeri Sembilan • Kuching & • Laku •Selangor
Sibu (Sarawak)
• Sarawak • Sabah • Johor
(Sarawak)
•Melaka
(Except • Kelantan
Kuching and
Sibu)
• Labuan

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OVERVIEW OF MALAYSIA’S WATER INDUSTRY
Current Positions of Malaysian Water Services
PRIVATE

PUBLIC WATER CO. JOINT DIVESTITURE.

MANAGEMENT OF WATER SERVICES

VENTURE
Penang (PBA) Penang (PBA)
Johor (SAJ Holdings)
Kelantan (Air CONCESSION
Kelantan) Johor (SAJ),
Kelantan (Air Kelantan)
BOT, BOOT etc
Selangor : SSP2 Puncak Niaga, SSP3 SPLASH
MIXED

CORPORATISATION
Selangor (PUAS) Sabah : JETAMA< TIMATCH, Lahat Datu

Terengganu (SATU) Perak : MUC, Innovest Lyonnaise

Sarawak (LAKU) Johore : Equiventures

Melaka
MANAGEMENT CONTRACTS
Puncak Niaga, ABASS, SPLASH, Taliworks,
Air Utara, Encorp Utilities, Southern Water

SERVICE
N
CONTRACTS
ATIO
STATE WATER ENTITIES G R
LE TE
Pahang, Sabah, Sarawak, DE WA E
TO IVAT R
PUBLIC

Labuan, N.Sembilan, Kedah,

PR CTO
Perlis, Perak, SE

PUBLIC MIXED (Leased) PRIVATE

OWNERSHIP OF ASSETS
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 MALAYSIAN WATER INDUSTRY
RESTRUCTURING FRAMEWORK
Body Area of Responsibility Description

Development of a holistic water policy for the country

Federal Government Policy matters
by setting policy directions.

Manage existing water basins with the view of

State Government Water basin matters protecting the quality of raw water and identifying new
water basins when required.

National Water Resources Ensures coordination with the various State

Governance matters
Council Government in the management of the water basins.

Regulate the whole water industry based on the

SPAN Regulatory matters
policy directions set out by the Federal Government.

Manage existing water assets and develop future

WAMCO Asset Matter
Assets.

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 RESTRUCTURING FRAMEWORK
Main Objective in the restructuring of the Water Industry Services: -

o Ensure high level of efficiency of services and operation .

 Development of water supply services and sewerage are manage efficiently
in statistic manner.
o Upgrade quality of water and ensure continuous and sufficient supply.
 Implement the upgrading and refurbishment program.
o Reduce the Non Revenue Water (NRW).
 Average national NRW is at 38%.
o Relief the State Water Operator’s financial burden.
 Responsibility and high CAPEX transferred to WAMCO.
o Develop a progressive and effective Water Services Industry.
 Achieve a full cost recovery level in long term.

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 ISSUES & CHALLENGES
Projected Domestic and Industrial Demand

Year Demand (MLD) % Increase

2000 9,655 -
2010 15,285 6.0
2020 20,338 3.3
2030 24,485 3.0
2040 28,131 1.5
2050 31,628 1.2

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 ISSUES & CHALLENGES

Capital Investments (For Water)

Period RM Million
2000 - 2010 22,180
2011 - 2020 15,241
2021 - 2030 6,921
2031 - 2040 6,371
2041 - 2050 1,220
Total: 51,933

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 ISSUES & CHALLENGES
Water Supply Operating Expenditure and Operating Revenue in Malaysia (2005
Expenditure Revenue Surplus/Deficit +/-
Water Supply Entities
(RM) 2005 (RM) 2005 (RM Million)
Johor 460,719,155 610,068,473 149,349,318
Kedah 128,992,142 163,057,712 34,065,570
Kelantan 42,740,565 57,567,766 14,827,201
Kuching 61,552,122 75,635,247 14,083,125
Labuan 17,953,773 10,981,311 (6,972,462)
LAKU 44,674,664 53,215,719 8,541,055
Melaka 113,224,827 115,833,562 2,608,735
N. Sembilan 114,412,817 163,514,394 49,101,577
Pulau Pinang 129,761,377 173,437,874 43,676,497
Pahang 149,096,558 103,814,746 (45,281,812)
Perak 185,524,761 231,512,378 45,987,617
Perlis 18,583,582 12,791,829 (5,791,753)
Sabah 295,276,628 255,841,591 (39,435,037)
1
Sarawak 36,649,898 25,353,683 (11,296,215)
2
Selangor 1,510,933,082 1,417,593,674 (93,339,408)
Sibu 23,959,462 23,949,492 (9,970)
Terengganu 81,780,961 80,791,373 (989,588)
TOTAL 3,415,836,374 3,574,960,824 159,124,450

Notes:
1
Excluding LAKU, Kuching & Sibu
2
Including Kuala Lumpur & Putrajaya
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 ISSUES & CHALLENGES
Water Supply Operating Expenditure and Revenue in Malaysia (1983 – 2005)
Expenditure Revenue (RM Surplus/Deficit Expenditure (RM Million) Revenue (RM Million)
Year
(RM Million) Million) +/- (RM Million)
1983 186 204 18 3500
1984 207 297 90
1985 256 361 105
1986 282 401 119 3000
1987 300 444 144
1988 392 509 117
2500

Expenditure &
Revenue (RM)
1989 485 575 90
1990 577 640 63
1991 687 730 43 2000
1992 825 860 35
1993 942 981 39
1994 976 1,076 100 1500
1995 1,020 1,103 83
1996 1,100 1,200 100
1000
1997 1,188 1,315 127
1998 1,608 1,375 -233
1999 1,937 1,608 -329 500
2000 1,787 1,896 109
2001 2,765 2,227 -538
2002 2,688 2,447 -241 0
1983

1985

1987

1989

1991

1995

1997

1999

2001

2003

2005
1993
2003 3,028 2,617 -411
2004 3,502 3,056 -446
Year
2005 3,416 3,575 159

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 ISSUES & CHALLENGES
Financial Performance Indicators (FI)
Financial
Operating Ratio (Total O&M Cost / Total Revenue)
Water Supply Entities
%
2004 2005
Kedah 0.74 0.79
Sarawak 1.41 1.45
Perlis 0.93 1.45
Pahang 1.29 1.44
N. Sembilan 0.93 0.70
Sabah 0.90 1.15
Labuan 1.63 1.63
Perak 0.80 0.80
Melaka 0.95 0.98
Kuching 0.85 0.81
Sibu 1.02 1.00
Pulau Pinang 0.70 0.75
Terengganu 0.62 1.01
Selangor 1.70 1.07
Johor 0.79 0.76
Kelantan 0.74 0.74
LAKU 0.84 0.84
National Average 1.15 0.96

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 ISSUES & CHALLENGES
Mismatch Cash Flows – CAPEX versus Revenue

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 FINANCING OPTIONS

CURRENT FINANCIAL CLIMATE

Water Industry Currently characterized by: -

 Inadequate investments by financial institutions

 Poor/Inadequate Financial Management
 Inadequate Performance-enhancing Incentives
 Inefficient Allocation of Limited Financial
Resources

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 FINANCING OPTIONS
ENHANCING FINANCIAL DEVELOPMENT
 Setting the stage for financial innovation
 stretching existing tenures, encouraging alternative financing structures.

 WAMCO Act as a “financial bridge” for CAPEX to water operators.

 Balance Sheet Restructuring

 asset light operators with clean balance sheets.

 Credit-enhancing measures
 transparency, best accounting practices, Government support.

 Pricing Strategies
 Joint billing, new pricing structures and others

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 FINANCING OPTIONS

PROMOTING FINANCIAL PRUDENCE

 Mandatory corporatization – enhancing

corporate governance, accountability.

 Financial regulation – performance-based tariff

reviews, regulated return on investments.

 Accountability – permits, licensing regime,

business plans.

 Monitoring – compliance and registration of

agreements with SPAN, submission of financial
statistics.

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 FINANCING OPTIONS
 Sources of Financing

 Government Aid through Grant, Free Interest loan

and/or soft loan.

 Local and Overseas Commercial Bank.

 Development Banks such as ADB, IDB and WDB.

 Partnership schemes through PPP & PFI.

 Striking balance

Low/Free Interest Long Repayment Period

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 CONCLUSION

 Reformation on Water Industry in Malaysia is at

initial stage of implementation.

 Restructuring models adjusted to accommodate

existing structure towards a win-win situation.

 Future plan CAPEX is in place for implementation.

 Financing option, being explored for most viable to

suit affordability on long term repayment period.

 The regulated water industry will ensure effective,

efficient, economically
Malaysia’s Water Services
Strategy towards Vision 2020.
Pengurusan Aset Air
viable solution for
Industry for Long Term
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 MALAYSIA’S WATER INDUSTRY
Start

ULTIMATE GOAL
Evaporation Water
Catchments Area
Ultimate goal is to ensure: -

 that all water recycle

Treated
processes are implemented Effluent Dam
systematically and in efficient discharge
into river
manner.
Wate
 Customer satisfaction on r
services. Sludge Cycle
Treatment
Water
 Affordability of tariff structure. Sewerage Treatmen
Treatment t Plant
Plant
 Clean and healthy
environment.
Water Supply Service
Reticulation & Reservoir
Sewer Network

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