Water Privatisation, Not ’Piratization’: How It Can work

by Koon Yew Yin

The prolonged conflict involving the Selangor state government, the Federal Government and the privatized company, Syabas, over the management and pricing of water resources may give the impression to Malaysians that there is no way in which any privatized concern and commodity can ever work to the advantage of consumers. This is a wrong impression.

Privatization can work and the screwing up of public interest or ”piratization” can be avoided. Perhaps the most outstanding example of successful privatization in the water sector comes from Penang. How this best practice in privatization was implemented is important for our public and policy makers to learn from.

Penang’s Privatization Experience

On 1 March 1999, Perbadanan Bekalan Air Pulau Pinang or PBAPP, was incorporated to replace the Penang Water Authority. As a holistic and integrated water supply operator, PBAPP’s scope of activities covers the extraction of raw water, treatment of raw water, distribution and supply of treated water, and billing for water supply services. An all encompassing scope of responsibility was one of the three key elements for the successful privatisation and public listing of PBAPP.

This sensible approach ensures that the company manages and controls all key activities related to the water supply and not merely selected processes in the water supply chain. The sorry history of what took place in the case of Selangor in which four separate companies were given concessions to treat and distribute water shows that privatisation of specific components in a utility service will invariably lead to misunderstanding and disputes, and massive leakages.

PBAPP’s corporatisation provided a stepping stone towards public listing. A new company, PBA Holdings Bhd, or PBAHB, was set up on 25 May 2000 to serve as PBAPP’s holding company. PBAHB was listed on the Main Board of the Kuala Lumpur Stock Exchange on 18 April 2002, with PBAPP as its 100% owned subsidiary. In the initial public offering, PBAHB had an authorized share capital of 1,000,000,001 ordinary shares of RM0.50 each and one special share that may be held only by the State Secretary, Penang (SSI).

The “special share” held only by SSI ensures that major decisions affecting the operations of PBAHB, PBAPP and all other subsidiaries remain consistent with state policies and the public interest.

To meet the public spread and the Penang State Government ‘s requirement on the share holding structure, PBAHB offered 51 million shares at the price of RM 1.30 per share to the Malaysian public on 18 April, 2002. Beneficiaries of the IPO included eligible employees and retirees of the PBA group of companies, thus giving the workers and management a stake.

In 2002, immediately after the IPO, SSI held 55% of the total share holdings for PBAHB and one special share. The PDC held 10% holdings. The remaining 35% were taken up by institutional investors, the Malaysian public and PBAPP’s employees. The PBA Group’s shareholding spread has remained generally constant until now.

We can see that public share holding represents the second key element for successful privatisation as it compels an organisation to be results- driven and performance – oriented. A listed company also provides a platform for public stakeholder accountability. Customer satisfaction becomes a key factor in corporate performance for a company that operates and serves in the public eye.

State government control represents the third crucial element as it safeguards public interest. Water supply is an essential service and this mechanism ensures that the consuming public and businesses in the state are provided with a continuous good supply of water and reasonable tariffs.

Penang’s Track Record

In April 2010 the National Geographic magazine published a comparison of domestic water tariffs charged in cities worldwide. According to the study, Penang’s domestic water tariffs were amongst the lowest in the world. In fact Penang’s domestic tariffs for consumption of the first 40,000 litres of water per month have not been changed since 1993 during a period in which Penang’s GDP increased by more than 600% in the period 1990-2010.

In other Asian cities- Jakarta, Singapore, Manila, Tokyo, Kuala Lumpur, Hong Kong , Beijing, Macau, Seoul, Vientiane and Bangkok – trade consumers pay between RM 1.24 and RM 4.33 for the first 500,000 litres per month. In Penang, trade consumers paid only RM1.19 in 2010

Finally it is important to note that besides having the most consumer-friendly water tariffs in Malaysia, the tap water quality in Penang complies with the National Water Quality Standards. The states NRW or water loss percentage is also the lowest in Malaysia. This shows that we can have quality and efficiency in privatization so long as it is implemented rigorously and with the public interest and welfare in mind.

Comparing Penang and Selangor

How and why Selangor state under its former Mentri Besar. Khit Toyo, took a different road from that of Penang is a story that needs to be uncovered. But the disastrous outcome is clear.

In comparison to the safeguarding of state, consumer and worker interest in Penang, the mismanaged privatization in Selangor has benefitted a smaller group. According to news reports, the CEO of Syabas, Tan Sri Rozali Ismail was paid RM5.1 million a year or RM425,000 a month or RM16,346 a day. In contrast, the General Manager of PBA is paid a pittance and the Chief Minister of Penang as Chairman of PBA received $8,400 in 2011, according to PBA’s annual report.

Syabas is also alleged to have imported RM 375 million worth of pipes from an Indonesian company owned by Tan Sri Rozali Ismail instead of sourcing locally in June 2005. Incidentally, Tan Sri Rozali was at one time the treasurer of Selangor UMNO. Other reports indicate that more than 72% of contracts, worth RM600 million, was awarded through direct negotiation, not open tender process. Between 2005 – 2007, RM325 million could not be accounted for between Syabas public accounts and the records of contracts. RM51.2 million, or 120% more than the RM 23.2 million approved by Jabatan Kawalsetia Air Selangor (JKAS), was spent on Syabas office renovation.

The total debt of the companies given long-term concessions as at December 2008 amounted to RM6.4 billion and necessitated a bail out by the Federal Government. This shows the fatal flaw of the Government’s privatisation programme when it is outsourced to politically connected business interests and rentier groups unlike what was implemented in Penang. It has also given privatisation in Malaysia a bad name even though selective privatisation in other countries when carried out judiciously and in complete transparency can yield public gains in efficiency and cost savings.

  1. #1 by sheriff singh on Monday, 15 October 2012 - 7:04 pm

    ‘…..in the case of Selangor in which four separate companies were given concessions to treat and distribute water shows that privatisation of specific components in a utility service will invariably lead to misunderstanding and disputes, and massive leakages…’

    Typical BN way of doing things, divide and rule, and to make money, lots of money, through ‘leakages’ and the like.

    ‘…Syabas is also alleged to have imported RM 375 million worth of pipes from an Indonesian company owned by Tan Sri Rozali Ismail instead of sourcing locally in June 2005…’

    No conflict here. He was not at the meeting that made the decision as in Taib’s case, so MACC cannot find fault due to ‘archaic laws’.

    ‘….Tan Sri Rozali Ismail was paid RM5.1 million a year or RM425,000 a month or RM16,346 a day. ….’

    Let us not forget his team is paid a total of RM 18 million. They are ‘gems’ and gems don’t come cheap. They are all laughing all the way to their banks while the people suffer and the companies all have huge, huge debts.

    Langat 2 will be built by hook or by crook if BN rules and have their way. That is the BN way. PR better be ready for a big fight.

  2. #2 by ENDANGERED HORNBILL on Monday, 15 October 2012 - 7:04 pm

    Now that Penang has set some records that put Selangor under Khir Toyo to shame, maybe Malaysia Boleh under BN can try to break a record of its own.

    I would suggest instead of sending najib as a taxi astronaut on some Soyuz, let’s send Najib our PM as the first man to skydive from Mount Everest. Fearless Najib can then show the world he is a world-beater, something to match the likes of Fearless Felix Baumgartner, eh?

  3. #3 by ENDANGERED HORNBILL on Monday, 15 October 2012 - 7:05 pm

    One small step for najib, one big step for Malaysia.

  4. #4 by yhsiew on Monday, 15 October 2012 - 9:13 pm

    ///….the mismanaged privatization in Selangor has benefitted a smaller group.///

    That is down-to-earth “piratization”!

  5. #5 by monsterball on Tuesday, 16 October 2012 - 6:44 am

    I like what Selangor CM…Khalid said that water is free from God and no one must make money supplying water.
    In Selangor…residents enjoy very cheap water rates…and in Penang…there are so dirt and filth left by Koh Tsu Khoon for LGE to clean off….poor fella.

  6. #6 by Bigjoe on Tuesday, 16 October 2012 - 9:12 am

    This whole water issue in Selangor is perfect example of why UMNO/BN must go..They could have solved the problem from the start by just accepting that PR simply had the better solution and not made it an issue from the start. Voters would have moved on.

    Instead they purposely made it an issue, not only did PR exposed the lies, their solution clearly superior AND highlighted their superior skills, qualification and abilities to the extent of making an unnatural hero of Khalid Ibrahim.

    That is the main problem with UMNO/BN – even though they have made contribution to this nation, their justification for their obscene reward is simply THEY MAKE UP THE PROBLEMS..Whether its the ‘Malay right’, Soro’s fund, Christian state, corruption, abuse of power etc, – the problems are MADE UP BY UMNO/BN…And the truth is their success is also NOT ENTIRELY THEIR EITHER..

    Almost everything that that UMNO/BN campaign on is EXTREME HYPERBOLE – from the fears to the glories and success they trumpet.

    The idea that one can make live in a bubble and make everyone live in it for long is simply just HALLUCINATION..

  7. #7 by Cinapek on Tuesday, 16 October 2012 - 10:53 am

    Any business decision made for the right reasons has a good chance of success. On the other hand, a business decision made for the vested interest of cronies or has the stink of corruption will be doomed to failure.

    Penang succeeded because it made its decision based on the former business philosophy. No need to comment on Selangor and the other states which has also “privatized” their water supply. The whole world knows the real reasons for such “piratizations”.

    Having said all these, hitherto Selangor MB Khalid has been strenously arguing that Selangor has sufficient treated water supply and does not need Langat 2 as recommended by the Federal Govt. Yet now he says that a Canadian company can provide a membrane technology that can provide the additional treated water that Langat 2 can. By saying this, he is indirectly agreeing with the Federal Govt’s assertions all along that Selangor do indeed need addtional treated water. Which is which? If you have enough treated water, you do not need the Canadian company, Langat 2 or any other facilities to treat additional water. Period.

    I am not well versed in water treatment and supplies. But there is a successful listed company in Singapore called Hyflux that is installing treatment plants all over the world. Its CEO, incidentally, is a rags to riches lady who was originally from Teluk Intan.

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