The lifeblood of agricultural and industrial development, clean and reliable water resources remain as important today to the development of Malaysia as when Kuala Lumpur was originally founded at the confluence of the Kelang and Gombak Rivers.

Fluvial System

The approximately 150 rivers crisscrossing Peninsular Malaysia and roughly 50 systems flowing through Sabah and Sarawak remain crucial sources of water accounting for 97% of the country’s raw water supplies. Overall coverage of water services for the country continues to improve with 94.7% of the population serviced via 6.83m individual connections as of 2012, according to National Water Services Commission (SPAN) data. This includes a 96.9% rate for urban areas and 90.7% for rural, with service rates ranging from a low 82% in Sabah to 100% in Malacca. The most important of the country’s water catchments is the Kelang River basin that supplies water for a wide array of purposes, including domestic, industrial, agricultural, hydropower, navigation and recreation, for major metropolitan areas like Selangor State, Kuala Lumpur and the Putrajaya Federal Government.

Like the country’s electric power utilities, Malaysia’s water sector is divided into three regions of Sabah, Sarawak and Peninsular Malaysia, each with its own water oversight bodies and utilities. For Peninsular Malaysia, water assets (both new and rehabilitation projects) are owned and developed by Water Asset Management Berhad (PAAB), while the Indah Water Konsortium (IWK) operates the sanitation segment with SPAN acting as regulator within the framework laid out in the Water Services Industry Act of 2006. Policymaking on the national level is the responsibility of the Ministry of Energy, Green Technology and Water, with regulatory duties in Eastern Malaysia carried out by their respective ministries and agencies. After experimenting with private water supply contracts in the 1990s, the government has shifted back towards the public sector leaving all water service providers in state control with distribution operations concessioned out to private contractors.

Quenching Thirst

Malaysia’s strong economic growth and population explosion has not come without consequences, and the growing strain on increasingly limited water resources remains chief among them. National consumption continued to increase in 2012 to 9.53bn litres per day (lpd), up from the 9.16bn lpd consumed in 2011, according to the latest SPAN statistics available. Selangor is by far the largest consumer of water, accounting for 2.89 lpd (30.35%) of total water consumed in Peninsular Malaysia for the 2012. The second-largest water user was the state of Johor with 1.11bn lpd, followed by Perak (809m lpd) and Pulau Pinang (796m lpd).

As a result of rapid growth through land development, urbanisation and industrialisation, serious supply issues are having more of an impact in many river basins of Malaysia, with the attendant problems such as flooding, water pollution, sedimentation, indiscriminate squatter housing and general overuse. When compounded by drought, this growing shortfall can reach critical levels, resulting in water cuts for millions of residents, particularly those living in the Kelang River Basin. Six districts located in the basin (Gombak, Kuala Lumpur, Petaling, Klang and Shah Alam, Kuala Selangor and Hulu Selangor) were hit with water cuts in March 2014 due to an extended dry spell and declining water reserves.

“A major concern is legislative protection of water catchment areas in Malaysia,” Jaseni Maidinsa, CEO of PBA Holdings, told OBG. “With the exception of Penang, water catchment areas elsewhere have not been specifically gazetted and protected, as such. This has placed a huge burden on water supply operators in Malaysia to ensure raw water sufficiency, now and in the future, as well as to educate water consumers to conserve water.”

Build Up

To alleviate shortages, expansion of water treatment capacity is under way, with the number of treatment plants operations nationwide rising from 461 with a combined potential production of 17.42bn lpd in 2011 to 473 plants with a capacity of 17.90bn lpd in 2012. Several expansion plans are slated for the future, including the much-awaited Langat 2 water treatment plant project in Selangor.


Under Malaysia’s federal constitution, each state was originally responsible for its respective water and sanitation needs, which resulted in the 1990s in a patchwork system that included corporatisation of water supply agencies in some states, full privatisation in others, and a dual system of public control and privatisation of water treatment services in others. After a water crisis hit the country in 1998, causing six months of water disruptions for 1.8m residents in Klang Valley, the government launched its National Water Resources Study in 2000, which led to direct federal government intervention and a series of reforms for the water sector. These led to a federal constitutional amendment that consolidated water-related agencies and placed them under federal jurisdiction. Water sources, water catchment areas and river basins remained under the control of state government, but with the aid of water utility company royalties supplemented by federal subsidies. The changes were enacted through the National Water Services Commission Act 2006 and the Water Services Industry Act 2006, the latter of which regulates water supply and sewerage services in Peninsular Malaysia and the federal territory of Labuan. As part of these reforms, development responsibilities and ownership of water assets was transferred from state authorities to Pengurusan Aset Air Berhad (PAAB). These assets are subsequently leased back from PAAB at pre-determined rates to state water operators licensed by SPAN.

Private Schemes

The largest single distributor contracted by PAAB is Syarikat Bekalan Air Selangor (Syabas), which operates a water distribution pipeline serving the area of Selangor, Kuala Lumpur and Putrajaya. A private company in which the state government holds equity together with Puncak Niaga Holdings, Syabas was granted a 30-year water distribution concession in 2004, making it the largest privatised water supply scheme in the country. The often politically charged industry continues to remain in flux, however, with further restructuring of the Selangor state water sector continuing in 2014. This includes a memorandum of understanding signed by the Ministry of Energy, Green Technology and Water and Selangor Chief Minister Tan Sri Abdul Khalid Ibrahim in early 2014 to take over the operations of four Selangor water concessionaires — Syabas, Puncak Niaga, Konsortium Abbas and Syarikat Pengeluar Air Selangor Holdings (Splash) – for a combined price tag of RM9.65bn ($3.01bn). The restructuring was stalled as of March 2014 as only one of the four concessionaires, Splash, accepted the offer due to disagreements in the valuation of the firms, leaving the future of the deal unclear.

Several problems remain, however. These include tariffs set at levels whereby concessionaires are dependent on government subsidies to break even, high levels of water loss and per capita consumption, and lagging infrastructure development for wastewater treatment.

Plugging The Gaps

In addition to ensuring a steady supply of clean water while reducing interstate disparity in tariffs, enforcement and performance of water utilities, another priority of the 2006 reform package was to tackle a key problem plaguing the industry for decades – non-revenue water, or NRW. Caused by technical issues like leaks and faulty metres as well as non-technical problems including theft and arrears in unpaid bills, NRW represents a significant challenge for water distributors that are unable to recoup revenue for a substantial proportion of their production. While the rate of NRW varies significantly from state to state, the Malaysian Water Association (MWA) estimated nationwide NRW levels at 38% as recently as 2005, with some states exceeding 50%.

There have been marginal improvements over the past decade as NRW rates have declined to 36.7% in 2011 and 36.4% in 2012, according to SPAN. Some of the greatest improvements occurred in Negeri Sembilan, which reduced NRW levels from 50.5% to 40.4% between 2008 and 2012, along with Johor reducing its rate from 31.2% to 27.8% over the same time period, while Malacca NRW dropped from 30.1% to 23.8% and Perak from 31.2% to 30.1%. The states with the highest rates of NRW in 2012 were Perlis (66.4%) and Pahang (54.2%), and the states with the least amount of NRW were led by Pulau Pinang (17.6%), Labuan (20.4%). In spite of these improvements, the MWA estimates a further RM1bn ($312.1m) is required for setting up the basic infrastructure under the NRW programme, so that data can be made available to water operators and NRW can be brought closer to levels seen in more developed economies like the 17% rate in South Korea.