Water Management in Malaysia: Liberalizing Public Utilities (Part 1)

Boy monk at temple pond

Exploring the concept of privatization, and its impact on our water.

Introduction

I love water. It’s just beautiful. It has its own tasteless taste that is unique. It purifies, cleanses and is a valuable source of life. Everyone needs water and we use it on a daily basis. It is the most crucial thing that mankind needs.

In Malaysia (greatest country, not so great government), we are experiencing a seismic shift in terms of water management. There seems to be a high degree of animosity among the Malaysian public with regards to water being managed by private entities.

The campaign to nationalize water is spearheaded by the Selangor State Government (via the Air Untuk Rakyat Campaign) to nationalize SYABAS.

Governments face a choice: either to assume control of the monopoly of water or leave it to the vicissitudes of the invisible hand. This article would like to demonstrate the merits of the privatization of water.

Situasi

The first problem would be how water is managed by private corporations in Malaysia under status quo. Not very good.

The privatization of water in Malaysia didn’t create much competition among the service providers. The concept of competition is to ensure no one would hold a monopoly of resources (which under the government, there is a monopoly).

Shady dealings to supply and treat water were given to politically connected firms. What the Federal Government dubbed “privatization” was merely a transfer of monopoly from the government to a private company (like SYABAS). So the monopoly remains and the element of competition is absent.

What we have is a form of pseudo-privatization or crony capitalism. Evidence of this can be seen in the form of the SYABAS’ Executive Chairman earning about RM500,000 a month. I’m very angered by this.

The second problem would be about scarcity of resources and how scarce water is. Water is a very very very scarce resource. The World Bank estimates that demand for water will exceed supply by 40% by 2030, with up to half of the world’s population would be experiencing some degree of water stress. Water security has therefore become an important component of sustainable development.

So how do we ensure an efficient allocation of resources? Can privatization benefit the public?

First Issue

Having established two premises, let’s argue the case for privatization first. The aim of liberalizing the market is to get rid of monopolies by forcing producers to compete. Competition is good because it would force service providers to be on their toes and work as hard as they can for fear of losing out.

This would lower down tariffs, increase quality and productivity. In order to achieve this, there must be more than one service provider. We should have the choice of which service provider we want to buy from, not being ordered around by politicians who think they know best (they don’t really).

This concept of consumerism thrives in a private sphere, not in a government controlled sphere. So instead of SYABAS, we need to have another one or two service providers.

Accountability thrives in the private sphere. Private corporations are more accountable to the consumers than governments to the rakyat. Why? First, is the profit motive. Simply put, if the private companies provide poor service, the people would choose another service provider.

Secondly, public complaints (or censure by the FREE media) would damage the image of the company. Companies wouldn’t want this (look at how much they spend on PR). So, they would try their best to ensure excellent quality of service. An excellent incentive! You can even sue them in the worst case scenarios.

What if the water is managed by the government? First, there would be a monopoly of resources by the state. The state has absolute control of water. Since the state is elected by the people, they are subject to populist pandering, which is harmful. I would explore this more in the second issue.

It is not the government’s business to do business. One of the reasons why is because the government is inefficient at doing business.

There lacks a proper incentive scheme for public officials. Wages are constant and stagnant and since it is the public sector, funded by taxpayers. Complacency sets in because wages are not dependent on performance. Hence, productivity decreases.

I remember the days when we had lots of rationed (catu) water when the public sector was in control. Brown water was a common predicament.

I agree that the government is accountable directly to the people (ballot box). But this accountability is muddled when most voters aren’t single issue voters. There are many issues put as premium before water management.

Thus, it is very hard to ensure direct accountability in terms of water management as compared to private entities, where it’s very existent is harmed if it provides poor quality service. It can even end up bankrupt.

Assuaging Concerns

Q: But water is a human right so shouldn’t it be controlled by the public?

A: I understand your concern that water is a human right. Private entity or government controlled, these two bodies are just a medium to distribute water to the public. The public are still in firm control of water even if it was managed by private entities. There are measures to prevent abuse ranging from boycotting that service provider to lawsuits, in the most atrocious of cases.

Q: Water is a common resource. It is the property of no one and the property of everyone, at the same time. Why must certain pockets of society make profit out of it?

A: On face value, I would agree that people shouldn’t make profit out of public utilities. But when we analyse the role of water service providers, it’s not just distributing water per se. It’s also treating water making it safe for consumption through sedimentation and desalination techniques. And the costs can be quite expensive.  So pay as you use lah.

Part 2, due to be published tomorrow, will explain why water should be traded at market price and the harms of privatization.

Aerie Rahman is a law student at the Faculty of Law UiTM. As a student he feels the pinch in the rising costs on water, housing, food and petrol. He is interested in restorative justice for juveniles and the concept of Truth & Reconciliation. He would like to pursue an internship at the Ayn Rand Institute in the USA and observe laissez-faire at work. Can you help? He can be contacted at Twitterjaya @aerierahman

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Posted on 16 February 2011. You can follow any responses to this entry through the RSS 2.0.

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8 Responses to Water Management in Malaysia: Liberalizing Public Utilities (Part 1)

  1. Aerie Rahman

    Munirah: thanks. its good to know that people appreciate my work. =)

    Liam: Really? Interesting book. Ill look it up. It is rather scary to see how much power corporations can accumulate, and the fact that they're acting to maximize self-interest (or shareholders') is worrisome.

    True, water isn't as precious as oil or as other minerals, but in a few decades, it might be. Water might be the new gold. With stuff like globalization, governments must evolve to meet the new challenges posed by these non-state actors. I'm particularly worried about political lobbying. Yikes!

  2. Pingback: Water Management in Malaysia: Liberalizing Public Utilities (Part 2) | LoyarBurok

  3. Liam

    Well said and there are indeed various mechanisms the citizenry can use to combat corrupt practices by private companies.

    With regards to the comment about contracts, i recently read a book by Paul Collier entitled "Plundered Planet," about how to reconcile the environmentalist movement with economic development. One aspect of his argument referred to the monumental advantage private companies and MNCs have over poorer countries when it comes to natural resource extraction. Now it is indeed a much more evil situation when talking about oil and minerals, but i think a similar argument can be made when discussing the privatization of water. These companies often have much more accurate information and measuring tools, and can pool together to lower the price offered by the government.

  4. munirah

    excellent excellent excellent!! glad to find this kind of articles on LB..

  5. Aerie Rahman

    Thanks mind-boggling. Well, he did…I mean, he still is earning that much. When I first heard it, I was pissed.

  6. Aerie Rahman

    Hello Liam,

    Thanks for the comment. I agree, this notion of the rakyat having control of water management under private companies, is rather a tricky issue.

    Companies have been notorious in splashing "corporate social responsibility" programs to win the hearts and minds of the people while at the same time dumping waste in a river with impunity (or something of that sort in this case).

    To ensure a delicate balance, I think creating an informed citizenry, aware of the conducts of the company is essential to hold them to account. This can be done via education. I think having watchdogs/impartial pressure groups to sensationalize certain misdeeds by these companies can also be done.

    I also think when governments enter into concession agreements with private companies, they must sign a Code of Conduct contract to ensure minimum safety/service standards. If the company breaches the terms, the contract can be terminated. I think this can be added as a safeguard.

    Thanks for th constructive criticism. I really appreciate it.

  7. mind-boggling

    good written article and i dint expect HIM to earn that MUCH!

    looking forward for pt 2 tomorrow

  8. Interesting article but i have a little contention with your assertion that "the public are still in firm control of water even if it is managed by private entities."

    Indeed there are ways, as you listed, to prevent abuse and prevent impunity. But there are also many implicit and explicit mechanisms private companies use to limit the influence of the rakyat, and circumvent law — corporate financial influence in the government, unbalanced initial contracts with the government that heavily favor the private company etc.

    Not necessarily making a case for either option, i just think its important to not portray an image where it is always simply in the hands of the public to regulate the private industries.

    looking forward to part 2.