This article first appeared in The Edge Malaysia Weekly on August 8, 2022 - August 14, 2022

THE recent increase in water tariffs for non-domestic users this year will only partially defray burgeoning operational costs and capital expenditures (capex), says Pengurusan Air Selangor Sdn Bhd (Air Selangor), which insists a further tariff review is essential to its long-term sustainability.

The sole water operator for Selangor, Kuala Lumpur and Putrajaya says it is crucial for water tariffs to be periodically reviewed by Suruhanjaya Perkhidmatan Air Negara (SPAN) and set at a level that can sustain its operations over the long term.

“As a water operator, Air Selangor needs stable and consistent capex investments to develop new water treatment plants to meet increasing demand, lay new pipes and replace old and ageing pipes.

“Air Selangor’s financial sustainability remains highly dependent on water tariffs. The current tariffs are insufficient for us to achieve full cost recovery and thus unsustainable over the long term,” its chief executive Suhaimi Kamaralzaman says in a response to questions from The Edge.

In late July, the Selangor government announced that water tariff for non-domestic users, houses of worship and ships will increase by an average of 20 sen per cu m starting August.

For commercial and industrial users, the tariff was raised to RM2.62 per cu m from RM2.07 for usage of between zero and 35 cu m per month. Usage of over 35 cu m per month is charged RM2.86 per cu m, from RM2.28 previously.

For houses of worship, the rate has been increased to 58 sen per cu m from 46 sen. The water tariff for ships saw the highest increase, from RM4.23 per cu m to RM7 after the new water tariff standardisation.

These tariff hikes would yield an additional RM100 million in revenue for Air Selangor this year. Even though the tariff hikes started in August and there are only five months to go before the end of the year, the move still has an impact on Air Selangor, as on average, it will add an extra RM20 million to revenue every month.

Assuming no further tariff hikes this year and next, Air Selangor’s revenue in 2023 could increase by RM240 million.

Shouldn’t this be enough to cover the costs of operations at Air Selangor, at least?

In 2021, Air Selangor collected RM2.18 billion from its customers. Assuming the same amount is collected this year plus the additional RM100 million from higher water tariffs, Air Selangor could register close to RM2.3 billion in revenue this year.

Next year, that could climb to some RM2.42 billion — or about the same amount that it spent on operating expenditure (opex) in 2021.

Note that non-domestic users, which make up only around 13% of the water operator’s customers, contribute more than half its operator’s revenue.

However, Suhaimi maintains that revenue of over RM2 billion in 2020 and 2021 remain insufficient as Air Selangor recorded more than RM1 billion in losses in each of the last two years because the revenue could only partially cover its large opex.

For capex, Air Selangor would need to draw down from its RM10 billion sukuk programme, as well as grants from both the federal and Selangor governments. In 2021, the water operator spent RM1.23 billion in capex, mainly for the Rasau Water Supply Scheme (Stage 1).

Suhaimi explains that Air Selangor has been facing increasing cost pressures arising from, among others, rising raw material prices such as steel and cement, which impacts the company’s project costs, as well as the increase in electricity and chemical costs and rising interest rates.

Its RM2.43 billion opex is made up of, among others, costs related to manpower, repair and maintenance, electricity, chemicals, cost for the purchase of water, and finance and leasing.

Apart from developing new infrastructure to support the distribution area’s increasing water demand, Air Selangor is also obliged to reduce non-revenue water (NRW) loss — a source of contention for water users in the distribution area.

Notwithstanding the large amounts that have been ploughed into water infrastructure in the distribution area, NRW loss is still relatively high. Since 2016, Air Selangor has spent close to RM900 million to replace old pipes as part of its efforts to reduce NRW.

Despite the efforts and amounts spent, Air Selangor’s NRW of 27.93% in 2021 is still stubbornly elevated, especially when the company is asking the public to pay more for water. Although NRW has been declining — from 31.69% in 2018 — it is still a contentious issue for the people of Selangor.

This is because the current Pakatan Harapan government, which has been ruling the state in one form or another since 2008, has pledged to maintain water tariffs at a low level based on the concept that water belongs to the people.

However, without additional revenue, or injections by both the federal and state governments into Air Selangor, it will be hard for it to replace ageing pipes that are prone to leakage and bursting.

Considering that Air Selangor’s pipe network extends more than 30,000km, there is a lot of pipes that need to be cared for.

Suhaimi says Air Selangor has submitted its tariff proposal based on the guidelines and mechanisms set by SPAN.

“To ensure that our consumers have access to a continuous supply of clean and safe water, the water tariff needs to be set at a level that can sustain our operations over the long term,” Suhaimi reiterates.

On the flip side, while there is a cost to maintain such an important and overarching infrastructure, the onus is on Air Selangor to ensure that NRW is reduced substantially and quickly.

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