Tariff revisions for water services revival

Izan emphasises the critical need for water tariff revisions.Izan emphasises the critical need for water tariff revisions.

Suruhanjaya Perkhidmatan Air Negara (SPAN), or National Water Services Commission, as the regulator for the 12 states water operators in Peninsular Malaysia and Labuan, is currently looking into a proposed water tariff revision, which it says has been long overdue.

Under the proposal, any tariff revision shall be linked to the water operator’s performance particularly on enhancement of the water operators services to the public and increase transparency in its operations.

“Once the tariff revision is implemented, the water operators need to ensure improvements in water services,” says SPAN licensing and tariff division senior director Izan Aziati Samsuri.

“With proposed tariff increase, the water operators are required to disclose to the public on the expected additional income and provide detailed plans to SPAN on how the income would be utilised to improve services for the benefit of consumers.”

She highlights that since the purpose of the water tariff revision is aimed at improving the water services quality which will benefit the consumers, there is a need to emphasise the importance of public awareness regarding the plans associated with the tariff increase.

“Water operators need to address water issues in the respective states. They need to outline how they are going to spend on improving their services and addressing the issues. This will be showcased as water operators pledge, which will be made public,” she stresses.

For instance, in Kelantan, they face high turbidity issues, and in Kedah, there are water pressure problems or even in the recent incident of water disruptions in Penang due to delay in replacement of aging infrastructure. Addressing these issues requires investment, such as the construction of new water treatment plants, upgrading of existing water infrastructures or replacement of equipment.

She says that SPAN as the regulator would conduct audits to ensure these water operators fulfil their pledges, emphasising that operators must focus on service improvement and allocate additional income from the water tariff towards continuous development of new infrastructure.

SPAN resource and catchment planning unit director Lee Chin Shyan says that with tariff revision, operators need to make their business plan activities public, subject to their communication plan, whether they want technological reviews for water treatment improvement, pollution control, and ensuring continuous water supply by replacing aging assets.

Lee emphasises the importance of efficiency, stating that aging assets, such as old pumps, hinder operational efficiency by consuming excessive energy, leading to increased costs in the energy sector.Lee emphasises the importance of efficiency, stating that aging assets, such as old pumps, hinder operational efficiency by consuming excessive energy, leading to increased costs in the energy sector.

Lee emphasises the importance of efficiency, stating that aging assets, such as old pumps, hinder operational efficiency by consuming excessive energy, leading to increased costs in the energy sector.

Lee highlights the need to replace old pipes, especially asbestos cement pipes, to prevent leakages and ensure that investments in new water treatment plants serve their intended purpose rather than allowing treated water to go to waste.

Poor water pipeline conditions have been observed in Cherul, Terengganu.Poor water pipeline conditions have been observed in Cherul, Terengganu.

Izan elaborates, “Currently, our water assets, particularly the pipelines, are in poor condition, with some dating back to the British colonial era. We have about 39,000 km of asbestos cement pipes (AC), with some that urgently need replacement.

The deteriorated condition of structures and facilities at Bukit Bunga water treatment plant in Terengganu, which has been operating for 19 years, is a cause for concern.The deteriorated condition of structures and facilities at Bukit Bunga water treatment plant in Terengganu, which has been operating for 19 years, is a cause for concern.

“If tariff implementation is delayed, water operators will struggle to replace these pipes, leading to potential water disruptions due to burst pipes, compounded by 90 out of 340 water treatment plants operating beyond their design capacity, and some water operators lacking the necessary 15% reserve margin set by SPAN as a key performance indicator.”

Lee says that the proposed tariff revision is minimal compared to other utility bills.

Izan adds, “Hardcore poor people registered with eKasih will continue to receive rebates for their water consumption,” highlighting the ongoing support provided by water operators.

The need for tariff revisions

Izan emphasises the critical need for water tariff revisions.

She highlights that the low tariff rates in Malaysia, compared to other Asean countries, result in unsustainable revenue generation for water operators.

“Effective Aug 1, 2022, we have implemented the tariff review for the non-domestic category, however, the implementation for the domestic category has been deferred.

“As such, the income generated by operators is still insufficient to cover the costs borne by water operators. These costs increase every year and it puts pressure on water operators to ensure the continuity of water services.”

This insufficient income adversely affects the quality and level of service provided to consumers.

“We need to increase the tariff for the domestic category to address infrastructure challenges, improve service quality, and ensure a continuous water supply and sustainable water industry.

“In general, the revised tariff will enable water operators to fulfil their obligations more efficiently. For instance, carrying out periodic repair and maintenance works, put in place proactive infrastructure investment, and so on. These efforts will subsequently enable operators to improve their service quality and fulfil the expectations of the consumers.”

She explains that 85% of the consumers are domestic.

“According to SPAN records, 47% of domestic users at the 20 cubic metre consumption level will experience an increase of only RM3.32 in their monthly bill. This constitutes a 22-cent increase per cubic metre on average.

“The proposed tariff revision can be considered reasonable, considering the many advantages contributed by the exercise and the low income group particularly the hardcore poor will continue to be supported via rebates in their water bills.”

Tariff Setting Mechanism (TSM)

SPAN has developed a transparent, fair and systematic mechanism, known as Tariff Setting Mechanism (TSM) to be used in water tariff settings for Peninsular Malaysia and Labuan.

The TSM aims to achieve financial sustainability for water operators by covering operating expenses, capital expenditures, and regulated profit.

Based on TSM, the tariff will be reviewed on a periodic basis which is every 3-year to enable operators to catch up with costs incurred in their service provision.

Izan emphasises that the TSM provides a transparent mechanism with a standardised tariff structure for all water operators. This structure allows flexibility in tariff rates based on the different requirements of each operator.

“With this TSM, the operator should be able to recover the Opex and Capex, including environmental costs. We just implement partial TSM instead of full TSM to avoid a substantial increase that would impact consumers,” she explains.

Before TSM, tariff revision cycles varied across states. Melaka had the latest revision in 2016, while Penang, Negeri Sembilan, Labuan, and Johor had revisions in 2015. Pahang's last revision was in 1983," she points out.

Balancing operational costs and promoting sustainability

Izan explains how the current water revision process aims to support water operators recover their Opex, Capex and promotes sustainability of the water industry.

On costs, she explains that water operators currently spend approximately 26% on electricity, followed by staff expenses, maintenance and chemicals.

Izan explains that the TSM, while aiming for cost recovery, considers the affordability issue of consumers.

She emphasises the importance of consumers enjoying the delivery of quality water services while operators generate sufficient income to cover their expenses and invest in continuous infrastructure development.

Public involvement and stakeholder support

Izan highlights SPAN's engagement with various stakeholders, including non-governmental organisations (NGOs), village heads, and parliamentarians, to garner support and understanding for proposed tariff revisions.

“We also use various types of communication to ensure the public is aware that treating water is not cheap. The treatment process is complicated, especially when dealing with issues related to the quality of water sources.”

Lee emphasises that they also use social media as a tool to raise awareness about the importance of tariff revisions for the improvement of water services and to enhance public understanding of the water industry.

“We are also planning for water operators to open their water treatment plants to educate the public, allowing them to learn about the technology and justify their costs," states Lee.

Regarding tariff revisions, Izan says the public understands its needs and expects better services.

She added, “We need to continuously educate consumers on the importance of water conservation, as the average domestic water consumption in Peninsular Malaysia and the Federal Territory of Labuan in 2022 was 237 litres per capita per day. It was high compared to other countries.”

To know more about SPAN and its initiatives, visit https://www.span.gov.my/

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