PETALING JAYA: Capital expenditure (capex) in Malaysia’s water sector is expected to surge over the coming decade, fuelling both infrastructure expansion and emerging technologies in water reclamation and circular economy solutions.
In its latest research report, BIMB Research pointed to a substantial RM25bil 20-year sewerage capex master plan for Indah Water Konsortium (IWK) as a benchmark for the scale of funding needed.
“Its 20-year sewerage capex master plan will require close to RM25bil, of which RM20bil is earmarked for regionalisation and the construction of new centralised treatment facilities,” the brokerage wrote in its report following a recent meeting with IWK’s management.
BIMB Research noted that of all national utilities, IWK stands uniquely positioned to capitalise on evolving tariff structures and regulatory momentum.
In particular, the new dedicated treated water tariff band for data centre (DC) operators of RM5.30 to RM5.38 per cubic m (effective Aug 1, 2025) has bolstered IWK’s competitive appeal in supplying non-potable water to industrial users.
“At this rate, reclaimed water is structurally cheaper than potable water, giving IWK a strong competitive edge as DC operators are required by regulation to prioritise alternative water sources,” it explained.
“However, viability depends critically on distance, as reclaimed water distribution is only economical within a 10-km radius of a treatment plant due to the need to build a dedicated pipes and distribution facility,” it added.
That constraint has immediate strategic implications. Johor’s DC clusters such as Sedenak are distant from major sewerage plants, limiting IWK’s reach there for now.
As a result, state water operator Ranhill SAJ Sdn Bhd will continue supplying potable water to most Johor DCs until reclaimed water infrastructure is scaled closer to the clusters.
Over time, IWK may tilt DC investment zones nearer treatment facilities to enhance economies of scale. IWK turned profitable in 2024 – a first in its history – achieving roughly RM30mil profit after tax on revenues of about RM1.2bil.
This turning point was enabled by tariff adjustments and utilisation of the Sewerage Capital Contribution Fund managed by the national regulator, which collects a 1% levy on property values from developers to finance sewerage infrastructure.
The fund currently holds about RM4bil and is replenished by roughly RM300mil annually. Under the regulated framework, profit margins are capped at around 9%, in line with other utilities.
“Management sounds upbeat that the company can achieve self-sustainability, provided the current framework is implemented without delay or significant adjustments,” BIMB Research said.
But growth will demand patience and heavy funding. Only around 80% of potential clients are now connected; the remaining 20% rely on septic systems.
Johor, in particular, is a priority region, as IWK only assumed control of Johor Baru and Pasir Gudang networks in 2021.
The plan is to consolidate fragmented, developer-built sewage plants into centralised facilities to improve efficiency – a process that must be executed over years.
BIMB Research noted that on the tariff front, domestic sewerage charges are rising in phases – from RM8 in 2022 to RM15 per month by 2026 – yet the underlying cost to serve is estimated at RM18 per household.
“While this tariff adjustment improves cash-flow visibility, IWK still relies heavily on cross-subsidisation from commercial and government accounts,” it noted.
Operating costs are heavy: electricity and staff each cost IWK about RM400mil annually. To temper energy expenses, the company is rolling out rooftop solar under the Solar Energy Self-Consumption scheme at about 600 sewage treatment plants via 20-year power purchase agreements, shaving roughly 10% off its electricity bill.
Beyond core sewerage, IWK is pushing into water reclamation and resource recovery.
