KUALA LUMPUR (July 4): Further reviews of water tariffs are needed for the country's largest water operator, Pengurusan Air Selangor Sdn Bhd (Air Selangor), to achieve financial sustainability towards a resilient water supply, according to acting chief executive officer Abas Abdullah.

Abas stressed that further delays in tariff adjustment will make it challenging for Air Selangor to achieve full cost recovery and hamper the company’s ability to continue upgrading its ageing water infrastructure, which will ultimately impact its service levels in the long run. 

“As the government is considering reviewing the water tariff, we expect [the good news] soon, the sooner the better,” he said at a press conference following the launch of Air Selangor's 2022 sustainability report on Tuesday (July 4).

According to him, Air Selangor is currently operating within a tariff environment that does not recover both of the company’s capital expenditure (capex) and operating expenditure (opex). 

This is because Air Selangor spent RM2.58 billion on capex and RM2.56 billion on opex, higher than its revenue of RM2.45 billion in 2022. This means there is no equilibrium between revenue and expenditure. 

In the last operation period between 2019 and 2022, Selangor managed to secure an increase in tariffs for non-domestic users in August last year. Non-domestic users are currently charged RM2.62 per cubic metre of water for the first 35 cubic metre of usage, versus RM2.07 previously. However, the tariff for domestic users stays at 57 sen per cubic metre. 

“We expect to see a gradual increase for water tariff for both non-domestic and domestic users as per the Water Services Industry Act 2006 (WSIA). We will wait until the end of this year to see how the government implements the increase in water tariffs,” Abas said.

On top of that, he said, a sustainable business model is extremely crucial to enable Air Selangor to develop the necessary water infrastructure to meet growing water demand, to ensure timely upgrades of ageing assets as well as operational efficiency and ultimately provide the best exercise to over 9.1 million of its consumers residing in Selangor, Kuala Lumpur and Putrajaya. 

“We have submitted our business model, explained how much investments or funding that we want, how it is going to incur our opex and capex, and proposed our tariff. So then our regulator will review, deliberate and ensure that we meet the set of rules and key performance indicators (KPIs). It is like, if you need this kind of investment, then you have to improve your service, I think the rule is fair,” Abas explained. 

It is understood that the business model was presented to the National Water Services Commission (SPAN), which regulates water supply and sewerage services in Peninsular Malaysia and the federal territories of Kuala Lumpur, Putrajaya and Labuan. The business model will then need approval from the Ministry of Natural Resources, Environment and Climate Change. 

In July and September last year, the company completed its third and fourth issuances under its existing RM10 billion sukuk murabahah programme which was launched in 2021. 

Both issuances pertain to the amount of RM900 million and RM400 million each to finance eligible projects, that all complied with Air Selangor’s sustainable strategies, as well as to fund, among others, Air Selangor’s capital expenditure and working capital requirements.

Air Selangor aims to further reduce non-revenue water (NRW) rate by 0.26% to 27.5% in 2023, compared with 27.76% in 2022, according to Abas.

Although the NRW rate has decreased over the years, the company missed the 2022 NRW target of 27% set by SPAN as the economy slowly recovered from the Covid-19 pandemic, coupled with supply chain disruptions.

NRW is the water that is produced and treated, but lost along the way to consumers’ premises due to various factors such pipe bursts or leaks, water meters not working properly, and water theft or illegal connections of water pipes. NRW rate decreased from 31.7% in 2018 to 29.7% in 2019, 28.6% in 2020, and 27.93% in 2021. 

According to Air Selangor’s sustainability report, the company said it will continue to work towards its NRW reduction target through the implementation and strategic execution of NRW reduction programmes, an NRW assessment study as well as the initiation of its smart meter pilot project, which involves the installation of 2,393 smart meters that have demonstrated significant promise in acoustic leak detection.

Last December, Air Selangor was awarded a total of RM113 million worth of pipe replacement contracts. The physical works are scheduled to start in 2023. 

“We are currently in the process of obtaining work permit approvals from various authorities as well as carrying out engagement activities with elected representatives, residents’ associations and community leaders. The construction works are targeted to be completed in September 2024,” according to the report.