|Separation of responsibilities: towards better efficiency
The legislative process was only the tip of the iceberg. Given that the current business model adopted by most State water operators does not promote sustainability of the water services industry, the Federal Government had to reinvent the wheel. A new model was developed, targeting to resolve the financial woes of the water services industry, promote financial sustainability in the State water operators, and alleviate the Federal Government/taxpayers’ financial burden. In the long run, the Federal Government wants the state operators to achieve full cost recovery and attain financial independence. These efforts will ultimately lead to improvement in the quality of water supply and the efficiency of the industry’s services.
Under the new model, there will be a separation of responsibilities between water asset owners and operators. State water operators will no longer be responsible for developing water infrastructure and its funding so that they can concentrate solely on providing water services to consumer and improving their operational efficiency. The responsibilities of developing water infrastructure and sourcing for its funding will be transferred to Pengurusan Aset Air Berhad (PAAB).
How it works
Under this arrangement, PAAB will first take over the existing water assets in the States to transform the state water operators into asset-light entities. PAAB, on the other hand, will become water assets owners after buying the water infrastructure from the states. In exchange for the assets, PAAB will assume the States’ outstanding Federal water supply loans of an equivalent sum. (However, for some states where the value of the water assets is more than the outstanding loan amount, the surplus value will be taken into consideration and the settlement terms will be negotiated.)
By transferring the loans to PAAB, the State Governments will be immediately relieved of the heavy burden of settling the Federal water supply loans. The Federal Government, on the other hand, will own the States’ water infrastructures via PAAB, enabling it to have better control over the water industry.
After the transfer of assets, the State Governments will continue to be responsible for providing water supply services in the states. However, instead of owning the water assets, the State water operators (Service License) will lease these assets back from PAAB (Facilities Licensee) for operation and maintenance. With the lease income, PAAB will repay the Federal Government loan (which it will take over from States) over time.
Apart from the improvement in efficiency operation wise, the nation will also benefit from the better efficiency in funding. In the past, funding for water assets development were either in the form of Federal Government loans and allocations or private debts (e.g. bonds, commercial loans) for the private concessionaires. These two modes were not very effective because the Federal Government loans were often insufficient, while the latter were usually obtained at an expensive rate.
To overcome these shortcomings, PAAB was established to source for funding for water infrastructure development. As a Government-owned company, PAAB is eligible for more favourable financing rates as compared to the concessionaires that raise funds as a private company and unlike in the past, funds will be raised to meet the demand for the water infrastructure development. The financial benefits arising from this structure will be shared with the consumers through lower tariff rates.
Under the WSIA licensing framework, operators of water assets are required to apply to SPAN for a Service License. To qualify for this license, operators will have to meet the Key Performance Indicators and strict requirements set by SPAN, failing which their licenses will be revoked. The careful monitoring by SPAN will ensure that operators continue to perform to the required standards to provide quality service and water supply to the consumers.