KUALA LUMPUR: Malaysia’s water sector still requires alternative funding schemes involving the private sector to reduce the federal government’s financial burden despite the ongoing review of water tariffs in selected states.
CIMB Securities Sdn Bhd said the move is crucial to support the country’s water demand, which is growing at an average rate of two per cent to six per cent per annum.
It said there is also the urgent need to upgrade and rehabilitate aged water assets, including 98 out of the existing 350 water treatment plants (WTP) operating above their capacities and another 120 WTPs that are bogged down by operational issues.
“Thus, the latest revision in water tariffs provides more room for the water operators to upgrade water infrastructure, accelerate the replacement of ageing pipes, and reduce non-revenue water (NRW),” CIMB said.
The research house also said that the latest water tariff adjustments mark another important step towards enhancing the quality of water services under Malaysia’s Water Sector Transformation Plan 2040 (AIR 2040).
“Simultaneously, the tariff adjustments also helped negate a sharp rise in electricity costs and other water-related operating expenses for water treatment plant operators,” it said in a research note.
It noted that the federal government has already provided a total of RM17.7 billion in funding assistance as part of the water industry restructuring between the 10 states and Putrajaya.
The federal-backed Pengurusan Aset Air Bhd (PAAB), a Minister of Finance Inc’s wholly owned company, remains the main funding conduit for Malaysia’s water infrastructure projects, it said.
However, CIMB stressed that PAAB has only replaced eight per cent of the 35,061 kilometres (km) of pipes under its ownership at a cost of RM2.1 billion since the initiative started in 2010.
Furthermore, PAAB only controls about 26 per cent of water pipelines in the country, totalling 138,587 km, and 31 per cent of water infrastructure across Malaysia (excluding East Malaysia).
“To map out a holistic NRW programme, PAAB needs significant investments to meet the target of reducing the average NRW level in Peninsular Malaysia and Labuan to 28 per cent by 2030 (2023: 37.1 per cent),” it added.
For exposure to water-related plays, CIMB Securities reiterated its view that licensed water operators under Suruhanjaya Perkhidmatan Air Negara would be the immediate beneficiaries of the water tariff revisions.
“Apart from Ranhill Utilities Bhd, PBA Holdings Bhd — which owns Perbadanan Bekalan Air Pulau Pinang — is the only other licensed water operator in the country that is listed on Bursa Malaysia.
“Pending further updates on the private sector’s role in Malaysia’s water sector transformation, we maintain Gamuda as our preferred play for water-related infrastructure construction,” it added.
CIMB Securities said Gamuda is in a strong position to secure construction work worth RM4 billion from the Ulu Padas and Northern Perak water supply schemes — works for the latter scheme will be carried out on a privatisation basis (minimum period: 40 years).
For bulk water transfer, Engtex Group is one of only two domestic producers of large-diameter mild steel concrete-lined pipes, while for flood mitigation, Gamuda, IJM Corp and MRCB are strong in environmental-related projects. – Bernama