Water Issues in Southeast Asia: Present Trends and Future Directions

7. Privatization Issues in Water Supply in Malaysia

136 7 Privatization issues in Water suPPly in Malaysia Syed Danial Syed Ariffin introDuCtion One of the growing trends in the global water industry is the transfer of the production, distribution, and management of water services from public entities into private hands — a process commonly known as “privatization”. The privatization of water encompasses a wide variety of possible water management arrangements. Privatization could be partial, leading to socalled public/private partnerships, or to the total elimination of government responsibility for water supply systems except for its regulatory role. This chapter presents, in part, case study undertaken by Puncak Niaga in mid-2005. As a measure of importance of privatization, the Second World Water Forum in March 2000 gave special emphasis to the need to mobilize new financial resources to solve water problems and called for greater involvement by the private sector.1 The “Framework for Action” released at the forum called for US$105 billion per Privatization Issues in Water Supply in Malaysia 137 year in new investment to meet drinking water, sanitation, waste treatment, and agricultural water needs up to year 2025. The framework also called for 95 per cent of this new investment to come from private sources. In Malaysia, the National Water Resources Study Report produced in year 2000, which covers the planning needs up to year 2050, have recommended sixty-two water projects costing US$13.66 billion. The projects include the construction of fortyseven dams, large treatment plants and the transfer of water from one state to another.2 The need for new development programme and investments coupled with the need to improve current condition of assets and service definitely requires substantial capital expenditures (CAPEX),3 which has become a fundamental problem in all privatization endeavours. In some cases, the rate of return in investment is not even adequate to even cover the operating cost, resulting in the accumulation of huge debts. Such enormous tasks covering the aspect of developing, financing, managing and operating the water supply services have made it inevitable for private water operators to be more involved in the industry. New and innovative financing tools available to the private operators have also made it possible for them to undertake the transfer of responsibility for developing, managing and operating water supply services. The financial capabilities coupled with technological expertise have equipped private operators to tackle the enormous challenges in the water supply and services sector. Overall, the participation of private operators in the water supply and services sector has significantly reduced the burden on the government to provide the necessary funding required to develop and improve this sector. In fact, the water sector is now a muchcoveted area of participation by the private operators, mainly due to the sector being recession-proof and not affected or controlled by the fluctuations of the market. 138 Water Issues in Southeast Asia Privatization PoliCy in Malaysia Historical Development The Government first announced privatization as a national policy in 1983. This represented a new approach in national development policy and complemented other national policies such as the Malaysia Incorporated Policy, which was developed to underscore the increased role of the private sector in the development of the Malaysian economy. This approach was to facilitate economic growth of the nation, relieve the financial and administrative burden of the government, reduce the government’s presence in the economy, decrease public spending and to allow market forces to govern economic activities and increase efficiency and productivity in line with National Development Policy. In respect of the ownership of wealth, privatization policy forms an integral part of the government’s strategy in realizing active participation by bumiputra in the corporate sector to correct the imbalances in socio-economic structure. The privatized entity should allocate 30 per cent of its equity to bumiputra. Foreign participation in a privatized entity is limited to a maximum of 25 per cent of its share capital. In order to ensure that privatization effort is channelled to the appropriate priority areas and to maximize the impact of the policy implementation in terms of achievement of the policy objectives, the government published the Malaysian Privatization Master Plan (PMP) in 1991 followed by the Guidelines on Privatization. The PMP explained the implementation of the policy as well as the progress achieved, and addressed the future direction of the programme. The Guidelines on Privatization detailed, among others, the objectives of the policy, the methods applicable, and the implementation...