Malaysia is sourcing alternative water financing for long-term sustainability
Updated: Jan 13, 2021
In a water webinar entitled “Ecoshift for Innovation in Water Management” held virtually on 21 October 2020 in IGEM2020, The Secretary General of the Ministry of Environment and Water of Malaysia, Dato’ Seri Ir Dr Zaini Ujang, shared an overview of the water environment in Malaysia .
Dr Zaini spoke about the dilemma faced by water stakeholders in Malaysia. Namely, that the existing financial mechanisms for the Malaysian water industry are heavily dependent on public investment. He said the public investment, which is the funding from the Government of Malaysia, funds numerous projects such as rural water supply, water sources, agriculture irrigation, flood mitigation, NRW pipe replacement, sewerage and environment. (Figure 1)
Figure 1: Existing Financial Mechanisms for Malaysia's Water Industry (from the webinar presentation by Dato’ Seri Ir Dr Zaini Ujang)
Dr Zaini said the bankability for the water sector, compared to other sectors such as road and building construction, is relatively limited. He expressed that - ideally - the private sector should also participate in the future financial mechanisms for the water sector through offerings of shorter financing tenure.
He said in the 12th Malaysia Plan RM37.2 billion (USD8.95 billion) of water investments are required. “In the 11th Malaysia Plan alone, RM18 billion had been invested.”, he added.
“In sewerage sector, by 2040 from now, we are expecting to invest up to RM64 billion (USD 15.4 billion). That figure indicates that sewerage is more desperate to get new investment because of the ageing infrastructure we have in the country at the moment. In the 11th Malaysia Plan, for example, the sewerage investment was more than RM11 billion (USD 2.65 billion) having included the Great Kuala Lumpur Project that amounted to RM5.7 billion (USD 1.37 billion).”, said Dr Zaini.
He expressed that overall not only government investment is required but there are also needs to source for other funding mechanisms.
According to Dr Zaini, for the coming 10 years in between 2020 and 2030, Malaysia is expecting to invest up to RM16 billion (USD 3.85 billion) in expenditure development of which RM15 billion (USD 3.61 billion) is for the water sector and RM1 billion (USD 240 million) for new projects in the sewerage sector. That number is excluding flood mitigation, water resources, irrigation and coastal protection.
Malaysia is sourcing alternative water financing both locally and internationally
“Therefore, we are looking for alternative financial mechanisms to allow us to outsource funding. At the Ministry, we are re-visiting private financing schemes of various funding agencies locally and internationally for the whole value chain in the water sector including domestic water supply, rural water supply, agriculture irrigation, flood mitigation, sewerage and environment.”, said Dato’ Seri Dr Zaini Ujang, the Secretary General of the Ministry of Environment and Water of Malaysia.
Dr Zaini spoke with an earnest smile: “There are issues needing to be addressed immediately. If you look into the overall process in our water industry, we are now still facing the biggest issue I would say. If people ask us what our most challenging task is in the water industry, I would say ‘Financing, Financing, Financing’.”
According to Dr Zaini, some states in Malaysia are seeing respective water companies struggling to survive. He cited the example of Pahang that recorded a deficit of RM139 million (USD33.37 million) and Selangor registered a deficit of RM1.61 billion (USD390 million) in the financial year of 2018 (Figure 2).
Figure 2: Financial Position and Tariff Rate of States in Malaysia (from the webinar presentation by Dato’ Seri Ir Dr Zaini Ujang)
He continued that the other states are actually not making enough profit for them to invest in new assets or to replace pipes.
“That is alarming and we have to address it very fast.”, said Dr Zaini.
Dr Zaini expressed that current water tariff rates in most states are low and do not reflect the actual cost of providing water supply services to consumers.
“I give you an example that the realized tariff at the moment is RM1.39 per cubic metre and the average OPEX is RM1.84 per cubic metre. If you take OPEX alone, you cannot survive based on the tariff you have collected. What else, if you want to put CAPEX, capital expenditure, then the average overall cost would be RM2.24 per cubic metre, which would mean you lose about RM0.85 for every cubic metre of water you sell.”, said Dr Zaini.
“In addition, because of the poor financial position of many water companies, they are not able to fix non-revenue water because it would be more profitable to allow NRW high than to invest and to fix NRW because of the low water tariff rate.”, he added.
Dr Zaini quoted the “Study of Development of a Roadmap for the Transformation of the National Water Sector 2040” to point out the sectoral issues and challenges faced by the water industry players. He expressed the first challenge is insufficient raw water resources despite Malaysia being a tropical country; indeed, the situation worsens during dry seasons with prolonged drought. On 29 January 2020, Melaka implemented scheduled water supply involving 250,000 user accounts caused by the drought phenomenon.”, he said.
“The problem of lack of raw water will be exacerbated if pollution of existing water resources occurs, with such events often reported in several states in Selangor, Johor, Melaka and Pahang.”, Dr Zaini elaborated. He said in the past water was polluted because of high ammonia leakage from garbage disposal sites, uncontrolled agricultural activities, widespread exploration of agricultural areas and also solvents from workshops.
The Secretary General of the Ministry of Environment and Water of Malaysia also pointed out the sectoral challenge of low reserve margin of water. He said the capacity to treat reserve water is not high enough in order for water to be stored sufficiently in the system.
“For example, if we are able to sustain the water reserve level at 20% for Klang Valley, then we will able to counter in the reservoir system should there be any occurrence of water pollution in the river or during dry spells.”, Dr Zaini elaborated.
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Veronica Hui Mei Liew
Trade Advisor at Royal Danish Embassy in Malaysia