Malaysian water sector reform : policy and performance

One of the measures that can help developing countries in meeting Target 10 of the Millennium  Development Goals – halving the number of people without access to water and adequate sanitation  by 2015 – is through a water sector reform. In this research the Malaysian water sector reform is  assessed by answering the following questions:  • How can we understand and explain the policy process of the reform?  • To what extent have the outputs of the reform contributed to the realization of the reform’s  objectives? and  • To what extent has the water sector reform improved the operational efficiency and  environmental effectiveness of water utilities?  This research was approached from two theoretical perspectives: the policy arrangement approach  and the policy evaluation approach. The policy arrangement approach provides the analytical  tools to ascertain answers to the first question. This is done by thoroughly investigating the main  discourses underpinning the water sector reform, the resources-power nexus, the actors and  the rules applied and created in the reform process. The policy evaluation approach answers the  remaining two questions from two aspects. First, by assessing the output efficacy of four institutional  outputs against the reform objectives. Second, by assessing seven quantitative indicators related  to the performance of water utilities on operational efficiency and environmental effectiveness.  Chapter 1 takes us through the historical development of the Malaysian water supply sector  from as early as the 19th century. The first water supply development has taken place in the  Federated Malay States and the Strait Settlement under the British administration. Over the years,  continuous investments have put Malaysia amongst countries with high access to drinking water  in the world. As the country developed and economic development accelerated, public funding  proved no longer able to satisfy budgets needed for water infrastructure development. Turning  to private sector assistance has neither solved this problem, nor relieved state governments from  financial burdens. Political and socio-economic reasons prohibit water from being priced at its  actual costs. Low tariffs (and subsidised tariffs) do not only hamper water conservation, but also  deprive water utilities from generating extra revenues to sustain operation and to expand services  to new areas.  Chapter 2 consists of two parts. The first part presents a general overview of water supply  reform processes and explains the key concepts – equilibrium levels, efficiency, effectiveness,  equity, competition and unbundling – which are highly relevant to the analysis of water supply  reform in Malaysia and beyond. The second part discusses two theoretical frameworks used in  this research: (1) the policy arrangement approach for understanding and analysing the reform  process; and (2) the policy evaluation approach for measuring the outcomes of the reform on  seven indicators: four for operational efficiency – non-revenue water, collection efficiency, unit  production cost and customer complaints – and three for environmental efficiency – sludge  management, water quality and information disclosure. The last section of this chapter formulates  a theoretical framework for this research and explains how this framework helps to answer the  research questions.  Also Chapter 3 is divided into two parts. The first part reflects on the leading events of and  driving forces behind the reform process. This includes re-visiting the policy decision of the  National Water Resources Council made in 2003, the formation of the Ministry of Energy, Water  and Communications right after the 2004 general elections, the commissioning of a major study  and the amendment to the Federal Constitution. The reform accelerated the desire to address the  presence of high non-revenue water, low water tariffs, weak regulation and the unviable financial  mechanism for coping with the issue of under-investment and over-dependency on public funding  in the water sector. The second part analyses the outcomes of the reform from four perspectives:  regulation, water resource management, financial and operational issues. The analysis produced  mixed results. Considerable positive achievements are clearly visible with regard to the role of  the central regulator on regulation oversight, the financial mechanism of the PAAB and the  corporatisation of state water departments. But the state water resources regulator has not shown  promising results in safeguarding water resources.  In Chapter 4, the water supply sector reform is analysed using the policy arrangement approach.  The analysis shows a shift in water management towards the public control both at the federal and  state government levels. This can be seen from the dominating corporatisation discourse, showing  a growing tendency towards centralisation of water management. The shared-responsibility  approach gives the federal government powers on water regulation and financing matters while  reinforcing the dominant role of state governments on water provisioning and water resources.  The dominant role of state actors in water is aided by their possession of vast resources – legal,  water rights, financial – thus undermining the presence of market actors (private water utilities)  in the sector. By the same token, several unprecedented rules emerged from the reform. The  most noticeable one is the participation of the Prime Minister and his Deputy during the reform  process. Others include the declassification of the public documents, drafts of WSIA and SPANA,  from the official secret law to solicit public feedback, and the public hearings process involving  members from the opposition parties as well as civil society.  Chapter 5 presents the assessment of four operational efficiency indicators: non-revenue  water, collection efficiency, unit production costs and customer complaints. The assessment was  furthered investigated in two cases studies – PBAPP and SADA. It became evident that private  water utilities are superior in managing water losses and collection efficiency compared to their  counterparts in the public sector, while there is no clear distinction with regard to their capability  in managing costs and customer complaints. This research re-affirms the contribution of nonreform  factors to the performance of water utilities before and after the reform, and between  private and public water utilities. The findings from the two cases studies confirm the general  findings of this research. This chapter also highlights the importance of performance indicators  (as a regulation tool) in the water sector in which successful reform depends considerably on the  presence of reliable information.  Chapter 6 analyses the performance of water utilities on three environmental effectiveness  indicators: sludge management, water quality and information disclosure. Similar to Chapter 5,  private water utilities demonstrate a higher compliance level to sludge management under the  Environmental Quality Act 1974 and information disclosure requirements than their counterparts  in the public sector. Both private and public utilities have a good compliance level in relation to  the National Guideline for Drinking Water Quality Standard 2001 for water quality. Findings   from the two case studies confirm the presence of a weak relation between the reform and the  performance of water utilities on environmental effectiveness indicators. This chapter highlights the  call from water utilities to the government to establish sludge treatment companies to spearhead  the research and development activities in sludge recycling and to avoid direct discharge of raw  sludge into streams. The majority of water utilities are aware of the mandatory information  requirement under Section 29 WSIA. By the same token, civil society groups such as CAWP  call for a greater information disclosure transparency by making all documents related to the  function of NWSC and water utilities available to the public. Lastly, this chapter proposes for  adoption of environmental indicators in measuring the performance of water utilities as well as  to strengthen the link between information holders/disclosers and information users to facilitate  greater transparency and democratic practices in the water sector.  In conclusion, Chapter 7 answers the research questions as follows: (1) the policy process  of the Malaysian water sector reform represents the current global trend in centralising water  management within the public domain with a clear division of tasks between policy formulation,  regulation oversight and service provision. State actors – the federal government on policy  formulation, regulation and financing; state governments (through state water companies) on  water provisioning and water resources – become dominant players in the water sector; it reduces  the role of private water utilities to only a fraction of activities (i.e. treatment) within the entire  value chain of water; and it strengthens close regulation oversight from the regulator. Lastly, there  is a growing influence of civil society groups on the water sector; (2) the output effectiveness  analysis (of the reform) has produced mixed results. Despite the fact that the central regulator,  water corporations and the financier are proven to be the important institutions that meet the  objectives, the state water resources regulator has not (yet) shown to be a significant institution in  meeting the objective of safeguarding water resources; and (3) due to the timing of this research and  limited data availability, it proved difficult to link the performance of water utilities on operational  efficiency and environmental effectiveness to the reform.  This study further concluded that the relevance of the policy arrangement approach and the  policy evaluation approach frameworks for policy evaluation research are enhanced when they are  used in combination. Moreover, the application of the latter to assess water sector performance in  the data-poor environments experienced in this research presses for more use of expert judgments  to complement incomplete and unreliable quantifiable datasets. It is suggested that further research  be carried out over a longer time interval when required data are available, laws are fully enforced  and the reform institutions are well functioning. Such research should involve a wider selection  of case studies of the entire domain of water utilities using both theoretical frameworks.  The immediate policy recommendations include the call to the government to consider  measures to facilitate greater public participation in the policy making process of the reform, the  consolidation of water management under a single water body and the establishment of a national  and disclosed data bank for the water sector.