Malaysian water sector reform Policy and performance Ching Thoo Kim Malaysian water sector reform Policy and performance Ching Thoo Kim Thesis committee Promotor Prof. dr. ir. A.P.J. Mol Professor of Environmental Policy, Wageningen University Co-promotor Dr. B.J.M. van Vliet Assistant professor, Environmental Policy Group, Wageningen University Other members Prof. dr. ir. H.H.M. Rijnaarts Wageningen University Prof. dr. ir. C.J.A.M. Termeer Wageningen University Prof. dr. ir. P. van der Zaag UNESCO-IHE Institute for Water Education, Delft Dr. ir. Hasnul Mohamad Salleh Ministry of Energy, Green Technology and Water, Putrajaya, Malaysia This research was conducted under the auspices of the Graduate School for Socio-Economic and Natural Sciences of the Environment (SENSE) Malaysian water sector reform Policy and performance Ching Thoo Kim Thesis submitted in fulfillment of the requirements for the degree of doctor at Wageningen University by the authority of the Rector Magnificus Prof. dr. M.J. Kropff, in the presence of the Thesis Committee appointed by the Academic Board to be defended in public on Wednesday 19th December 2012 at 1.30 p.m. in the Aula. Kim, Ching Thoo Malaysian water sector reform - Policy and performance PhD thesis, Wageningen University, Wageningen, NL (2012) With references, with summaries in Dutch and English ISBN: 978-94-6173-456-3 ISBN: 978-90-8686-219-1 Malaysian water sector reform 7 Preface ‘There is no life without water. We do not inherit water from our grandfathers, but instead borrow it from our grandchildren. There is no alternative to water’. We often hear water managers and policy makers chanting these mantras. Yet millions of people on this planet are still without adequate access to clean and drinkable water. Technological solutions and economic instruments have so far been unable to provide a solution to tackling water problems. On the contrary, solving water issues always involves (difficult) political considerations as well as (rigid) institutional reforms that need to balance the socio-political (including environmental) interests of the state, the economic interests of market actors and the interests of consumers, civil society and non- governmental organizations. This research focuses on the reform of the Malaysian water sector. It seeks to explain the policy perspectives that underlay the reform process and to examine the extent in which the outputs of the reform have contributed in attaining the reform’s objectives. It also analyses the impacts of the reform in improving the operational efficiency and environmental performance of water utilities. This thesis is the result of four and half years of research work resulting from my involvement (since 2004) in the reform of the Malaysian water sector. My passion for water grew even stronger when, in 2008, I decided to translate it into a pursuit of academic excellent by enrolling into a PhD programme at Wageningen University. This endeavour would not have been possible without financial supports from my employee – the Government of Malaysia – for which I am truly indebted. I thank Prof. Wim van Vierssen, the Director of KIWA Water Research (now KWR Watercycle Research Institute) for connecting me to the university (and the Environmental Policy Group – ENP). He shows great interest in my research ideas during our meeting in Singapore in 2007. I humbly apologize for not being able to consider him as one of my supervisors. At ENP, I had the privilege to work under the supervision of Prof. Arthur Mol. I greatly benefitted from his critical and analytical approaches that contributing greatly to the successful completion of this thesis. My day to day supervisor was Dr. Bas van Vliet who has been excellent in providing clear directions and feedback throughout the entire period of this study. We share a common understanding and knowledge of the water sector which helped to facilitate smooth and effective communications. I would like to record my deepest appreciation to both of them for the valuable contributions they made to this study. I enjoyed engaging in delightful deliberations with the rest of the ENP staff which often, directly or indirectly, contributed to this study. Back home in Malaysia, I am grateful to my local supervisor, Prof. Chan Ngai Weng of the Universiti Sains Malaysia for his thoughts that sharpened and fine-tuned the early version of my proposal. I thank Corry Rothuizen for her administrative assistance and support, both prior to my arrival in the Netherlands and during the course of this study. The international setting of ENP has made my four and a half years stay here an interesting and memorable one. I enjoyed the company of Sammy Letema, Leah Ombis, Laurent Glin, Kanang Kantamaturapoj, Kim Dung, Carolina Maciel, Elizabeth Sargant, Liu Wenling, Radhika Borde, Tung Son Than, Natapol Thongplew, Joeri Naus, Debasish Kundu, Marjanneke Vijge, Javed Ali Haider, Hilde Toonen, Dorien Korbee, Sarah Stattman, Jennifer Lenhart, Alice Miller, Alexey Pristupa, Li Jia, Zheng Chaohui, Feng 8 Malaysian water sector reform Yan, Belay Mengistie, Tran Thi Thu Ha, Jin Shuqin and Somjai Nupueng. I feel honoured to have shared the same working room with Eira Bieleveldat-Carballo Cardenas, Judith Floor and Harry Barnes-Dabban, whom (coincidently or not) happen to come from (four) different continents: North America, Europe, Africa and Asia. A truly global workplace! In Wageningen I also met Phi Jane and Marcel whom I consider to be like my own family away from home. On behalf of my family, I want to express my sincere appreciation to both of them for warmly accepting us and for the delicious (Thai) foods you served us. Wageningen only has a relatively ‘small’ Malaysian community – but we are always ‘big’ when it comes to food. I thank all Warga-Wage for all the great and fantastic ‘makan-makan’ sessions. I cannot go without recording my since appreciation to Shahrul Ismail and family, Maimunah Sany and family, Azlim Khan and family, Razak and family, Naim and family, Norhariani and family, Asyraf and family, Jimmy and family, Izan and family, Nurulhuda Khairudin, Norulhuda Ramli, Freddy Yeo, Noor Liyana, Loo Wee and Rui Jack Chong. A special appreciation is dedicated to ‘Uncle’ Alan Sim and his wife. This study would have not been possible without the cooperation from those who responded to surveys, gave up time for interviews, etc. I am deeply touched by the assistance provided to me: water operators; government officials; consumer associations; and environmental organizations and would like to thank them all. Unfortunately, I am not able to list every name on this page (but they are all in the Appendix). In addition, my special appreciation goes to Ir. Jaseni Maidinsa, General Manager of PBAPP and Dato’ Adzmi Din, Chief Executive Officer of SADA for allowing me to conduct the case studies. I should also like to thank Nick Parrott of TextualHealing.nl for the English editing and helped me produce this thesis. Last but not least, my deepest gratitude goes to my mum, dad and in-laws for their persistent love and support throughout my life. I thank my wife Duangrat for the sacrifices and suffering that she endured in nurturing our children while I was away. I owe my children Adeesakh and Praphaicit a lot. They provided me with the strength and inspiration to complete this study. Wageningen/Putrajaya October 2012 Malaysian water sector reform 9 Table of contents Preface 7 List of abbreviations 13 Chapter 1. Introduction 15 1.1 The historical development of the water supply sector in Malaysia 15 1.2 The problems facing the Malaysian water sector prior to reform 18 1.3 Research objectives and questions 21 1.4 Research methodology 22 1.4.1 Research design 22 1.4.2 Methods of data collection 23 1.4.3 Methods of data analysis 25 1.4.4. Position of the researcher 25 1.5 Organization of the thesis 26 Chapter 2. Analysing water supply sector reform: a theoretical framework 27 2.1 Introduction 27 2.2 Water supply reform: an overview 27 2.2.1 The need for reform 27 2.2.2 Understanding water supply reform 27 2.2.3 Explanation of key concepts 29 2.3 Water supply reform: theoretical perspectives 34 2.3.1 The policy arrangement approach 35 2.3.2 Applying the policy arrangement approach to the water supply sector 37 2.4 Policy evaluation approaches 43 2.4.1 Introduction 43 2.4.2 Policy outcomes 43 2.4.3 The purpose of policy evaluation 44 2.4.4 Ex ante and ex post evaluation 44 2.4.5 The European Environment Agency’s policy evaluation model 45 2.4.6 The American Water Works Association’s QualServe business model 46 2.4.7 The Malaysian Water Association’s model 48 2.5 Conceptual framework and answering research questions 49 2.5.1 Understanding and explaining the policy process of water supply reform 50 2.5.2 Assessing output effectivenessof the water supply reform 50 2.5.3 Measuring operational efficiency and environmental effectiveness 50 10 Malaysian water sector reform Chapter 3. The water supply reform process in Malaysia 53 3.1 Introduction 53 3.2 The events leading up to the reform 53 3.2.1 The decision of the National Water Resources Council 54 3.2.2 After the 2004 general election 54 3.2.3 Commissioning the study 55 3.2.4 Amending the Federal Constitution 55 3.3 The driving forces behind the water sector reform 56 3.3.1 Improving efficiency and effectiveness 56 3.3.2 Bridging funding gaps 60 3.4 Analysis of the outputs of water reform 61 3.4.1 Identifying and defining policy objectives 62 3.4.2 Policy outputs 63 3.5 Assessing the efficacy of the outputs 65 3.5.1 Regulation 66 3.5.2 Water resource management 68 3.5.3 Financing 69 3.5.4 Operational issues 70 3.6 Conclusions 71 Chapter 4.