This article first appeared in The Edge Malaysia Weekly on April 14, 2025 - April 20, 2025
PENGURUSAN Aset Air Bhd (PAAB) is committed to helping the federal and state governments reduce non-revenue water (NRW) in Peninsular Malaysia and Labuan to an average of 28% by 2030, compared with 37.1% as at 2023.
To achieve an NRW of 28%, however, water tariffs will need to rise, enabling water operators to invest in their NRW programmes. This is because reducing NRW requires significant investment, and most state water operators will seek funding from PAAB.
NRW refers to treated water that is lost before reaching consumers. A higher rate may indicate inefficiencies in the water supply system, including leaks, theft, illegal connections and inaccurate billing.
“The NRW can be solved if we replace all the old pipes, but that costs a lot of money. We can fund it, but the water operators cannot afford it,” says PAAB CEO Zulkiflee Omar in an exclusive interview with The Edge recently.
Since 2010, when PAAB launched its first project in the water industry, it has replaced 2,808km of pipes all over the country, at a cost of RM2.12 billion.
Replacing outdated asbestos-cement (AC) pipes, some more than 50 years old, is a crucial step in reducing NRW.
State water operators have had access to funds raised by PAAB ever since the government restructured the water sector in 2006 with the passing of the Water Services Industry Act (WSIA).
Zulkiflee recalls that after the migration of state water assets to PAAB, many state water operators secured funding to replace critical ageing pipes, leading to a reduction in NRW between 2008 and 2016.
Efforts to reduce NRW must be ongoing, as no state water operator has the capacity to replace all ageing pipes at once because of the high costs involved.
As the capital expenditure (capex) of water operators increases, the tariff charged to consumers must also rise to repay the funding borrowed from PAAB. The 2,808km of water pipes that have been replaced are only about 8% of the entire 35,061km length of pipes owned by PAAB.
Not all water pipes are owned by PAAB, however. The Minister of Finance Inc-owned company controls only 25.6% of the network.
According to the National Water Services Commission’s (SPAN) Water and Sewerage Fact Book 2023, there are 138,587km of water and sewerage pipes in the peninsula and Labuan. As a federal territory, Labuan is under the jurisdiction of the Water Services Industry Act 2006 (WSIA), whereas the Bornean states of Sarawak and Sabah are not.
AC pipes are the most critical to replace, as they are often more than 60 years old and have served the water industry for decades. These pipes are prone to leaks and bursts, which contribute significantly to NRW.
According to the SPAN factbook, there are 39,752km of AC pipes in the peninsula and Labuan, most of which are located in Johor, Kedah, Selangor and Perak.
While replacing old pipes would reduce NRW, it is a costly endeavour. PAAB estimates that replacing all AC pipes in the peninsula and Labuan would cost an average of RM900,000 per kilometre, or roughly RM35.8 billion. Currently, state water operators have earmarked only RM1.87 billion for pipe replacement, and this figure requires funding from PAAB.
“If [the water operators] want to improve their NRW, they have to spend a certain amount of capex. To do that, they have to raise their tariffs, and that is an issue.
“So, what they can do is just replace pipes that are really critical, such as burst pipes, but the rest of the pipe networks that have leaks continue to leak,” says Zulkiflee, highlighting that slowly leaking pipes, rather than burst pipes, are the primary cause of high NRWs.
In early March, Minister of Energy Transition and Water Transformation Datuk Seri Fadillah Yusof confirmed that the federal government was reviewing water tariffs, with potential adjustments in certain states. This announcement comes after an increase in tariffs last year, which saw an average rise of 22 sen per cu m for domestic users in the peninsula and Labuan effective from Feb 1, 2024.
The new water tariffs are expected to raise water revenue collection by RM2.4 million for the Labuan Water Department and RM105 million for Pengurusan Air Selangor Sdn Bhd annually.
In addition to funding from PAAB, the federal government allocated a RM2.525 billion grant under Budget 2025 for NRW reduction programmes, aiming to reduce the measure to 31% by the end of this year.
The grant is allocated to states with high NRW levels, such as Perlis, Pahang, Kelantan and Labuan, as well as Sabah and Sarawak. Meanwhile, states with financially stable water operators, such as Johor, Penang and Selangor, are able to fund their own NRW programmes.
For example, Air Selangor is investing RM400 million in its own NRW reduction programme; and Ranhill SAJ Sdn Bhd, 80%-owned by Ranhill Utilities Bhd (KL:RANHILL), has awarded its sister company, Ranhill Technologies Sdn Bhd, a RM283.89 million NRW reduction programme in Johor.
The average NRW in the peninsula and Labuan declined steadily between 2008 and 2016, reaching a low of 35.2%. It began to rise again, however, as NRW programmes slowed in many states, says Zulkiflee. The indicator rose to a high of 37.2% in 2022, according to PAAB. In 2023, the average NRW in the peninsula and Labuan declined slightly to 37.1%, but is still a long way from the target of 28% by 2030.
States that saw large increases in their NRW levels between 2018 and 2023 included Melaka (from 21.2% to 35.1%), Labuan (31.6% to 37.6%), Negeri Sembilan (31.9% to 38.9%), Terengganu (34.6% to 40.1%), Penang (21.7% to 26.8%) and Kelantan (49.3% to 54.5%).
Meanwhile, Selangor, Kuala Lumpur and Putrajaya (all served by Air Selangor) managed to reduce their NRW levels in the same period, from 31.7% in 2018 to 27.8% in 2023. Pahang’s NRW levels eased to 47.7% in 2023, from 49.1% in 2018.
While Syarikat Air Perlis reduced its NRW level to 61.5% in 2022 from 63.8% in 2018, it rose again to 64.5% in 2023. Perlis continues to have the highest NRW in the peninsula and Labuan during this period.
Pipe replacement is not the only NRW reduction programme undertaken by state water operators, says Zulkiflee.
Water operators that have sophisticated command and control centres can detect leaks as soon as they occur, deploying repair and maintenance teams in time to rectify the problem.
“NRW can be reduced with the help of technology, and not necessarily by replacing all the pipes. While pipe replacement is the best option, not all water operators can afford to do so,” says Zulkiflee, adding that the company also provides short-term loans for other programmes such as water meter replacements.
The federal government has said it is committed to reforming the water sector.
In 2023, then Natural Resources, Environment and Climate Change Minister Nik Nazmi Nik Ahmad said the federal government had provided a total of RM17.68 billion to 10 state governments as part of the water industry restructuring, following agreements signed between the states and Putrajaya.
The biggest funding went to Kedah (RM3.13 billion), followed by Negeri Sembilan (RM2.8 billion), Selangor (RM2.67 billion), Penang (RM1.9 billion), Pahang (RM1.72 billion), Kelantan (RM1.67 billion), Melaka (RM1.3 billion) and Perak (RM1.2 billion).
Meanwhile, Perlis received RM329.9 million and Johor received RM961.8 million.
Huge investments are needed to improve the water services sector, which means consumers will have to pay a reasonable level of tariffs for upgrades and the maintenance of water assets.
The current tariff regime is still lower than the cost of producing 1 cu m of water needed to allow water operators to invest in their water infrastructure and reduce their NRW levels. If NRW levels continue to rise, operators will keep incurring losses, depleting the capital needed to upgrade the system.
As a result, both domestic and non-domestic users will miss out on an optimum level of water services from the respective state operators.
“For a country to develop, two things are very important — electricity and water. Without [a sustainable and reliable supply of] these resources, a country cannot develop,” says Zulkiflee.
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