Malaysia: A Test Case for Water Reform

ON 5 November 2010, the opposition alliance party of Malaysia, Pakatan Rakyat, organised a protest rally over the long-standing issue of water privatisation in the state of Selangor. This event underscores the growing resentment against private sector management of water in Selangor (and elsewhere in Malaysia) where it is seen as benefiting cronies of the ruling federal Barisan Nasional party. The protest also highlights the need to de-politicise water resources in order to sustainably manage it.

Selangor, while under the Barisan Nasional party, gave concessions (ranging up to 30 years) to private companies like the Syarikat Bekalan Air Selangor Sdn Bhd (SYABAS) to supply water to Selangor and the Federal Territories of Kuala Lumpur and Putrajaya under the Concession Agreement of 15 December 2004. The agreement also granted private companies the right to hike water tariffs by 37 per cent in 2009, 25 per cent in 2012, and 20 per cent in 2015.

In the 2008 election campaign, Pakatan Rakyat promised households in Selangor 20 cubic metres of free water each month. Upon winning majority votes, Pakatan Rakyat immediately sought to nullify the Concession Agreement and demanded the takeover of water resource  management in Selangor from private operators and the Federal Government headed by the Barisan Nasional party. Also, in carrying out its election promises, the Pakatan Rakyat administration spent RM13 million each month on water subsidies in Selangor .

An estimated 93 per cent of the Malaysian population has access to water, much of which is subsidised. This is in line with Malaysia’s overall policy of subsidy on items ranging from fuel to food to water. In 2009, subsidy accounts for 15.3 per cent of the Federal Government’s spending budget. This makes Malaysia one of the most subsidised countries in the world and indeed one of the countries with the lowest water rates. Penang, for example, has the cheapest rate in the country at 31 sen (13 Singapore cents) per cubic metre. Singapore’s tariffs in comparison are seven times higher. Household water usage in Penang amounted to 286 litres a day, much more than the United Nation’s 165-litre benchmark. Singapore’s daily domestic usage on the other hand is 158 litres.

Subsidy however has exacted a huge toll on the Federal Government’s budget with deficit hitting a 20-year high of seven per cent of GDP in 2009. At the same time, it also led to poor water conservation owing to its cheap price. It is therefore no wonder that the Federal Government sought to increase the price of water both as a way to reduce water subsidy and also to improve water conservation. Water pricing, if implemented properly, can be an effective water conservation tool as it can reduce water use per unit of output. However, like the elimination of any subsidy, it can be politically complicated.

In Malaysia’s case, it appears that water pricing is driven less by scientific assessment but by politics. The first step to sustainably manage water resources is therefore to delink water from politics.