Private and Confidential © 2013 Indah Water Konsortium Sdn Bhd

CHARGES FOR SEWERAGE SERVICES

WATER MALAYSIA 2013 CONFERENCE

Datuk Ir. Abdul Kadir Mohd Din

23 April 2013

Table of Contents Content

1. Sewerage Management Practices – Comparison

2. Principles of Tariff Setting

3. Volumetric-based Tariff

4. Challenges

5. Recommendations

1 23-25 April 2013 Water Malaysia 2013 Conference

Sewerage Management Practices – Comparison

2

Sewerage management structure

SOUTH KOREA

○ ■ ◊ ▲

JAPAN

○ ● ■ ◊ ▲

HONG KONG

○ ■ ◊ ▲

SINGAPORE

○ ● ■ ◊ ▲ NETHERLANDS

○ ● ■ ◊ ▲

Basic of Sewerage Tariff of Various Countries

○ Block System/Volumetric ● Basic/Min Charge ◙ Fix Rate

Management Practice of Sewerage Services Worldwide

■ Integrated □ Separate

Funding of Sewerage Services Worldwide

◊ Government ♦ Private ♦◊ Government/Private

Services Provider of Sewerage Services Worldwide

▲ Government ▼Private ▲▼Government/Private

Source: KPMG - World Bank; IWK; GWI,2010; *OECD,2009; GWI,2008

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Sanitation coverage statistic

Urban and rural proportions of people with access to sanitation in East Asian countries

Malaysia with its sewerage development plan and commitment to safeguarding health, water resources and

environment has managed to achieve a comparatively high coverage of sanitation both in urban and rural areas.

However, the cost recovery operating expenses are only partly reflected in the tariff. No cost recovery element is

available in the tariff.

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Sewerage practices summary

Country Volumetric Basic/Min

Charge

Property

Based

Fixed

Rate

Environmental

Tax Billing

Integration with

Water Management

Average

Water and

Wastewater

Bill ($/m3)

U.S. (Nashville) Integrate Integrate $2.71

Canada N/A Integrate $2.75

Belgium Separate Separate $3.27*

Japan Integrate Integrate $2.19

Australia (64%) Integrate Integrate $4.18

Singapore Integrate Integrate $3.40

Germany Integrate/Separate Integrate/Separate $4.26

France Separate Separate $3.92

U.K. Integrate/Separate Integrate/Separate $3.76

New Zealand

(Auckland) Integrate Integrate $1.69*

South Korea Integrate Separate $0.69

Czech Republic Integrate Integrate $2.75

Hungary Integrate Integrate $2.93*

Chile Integrate Integrate $1.20

Poland Integrate Integrate $2.21

Brazil N/A Integrate $1.90

Malaysia Separate Separate $0.20

South Africa N/A Integrate $1.00

Indonesia N/A Separate $0.80

Philippines (Manila) Integrate/Separate Integrate/Separate $0.70

* Tariff Structure and Average Water and Wastewater. Bills refer to the Domestic category only.

(Source: KPMG - World Bank; IWK; GWI,2010; *OECD,2009; GWI,2008)

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Domestic tariff comparison

Country Basis Annual Average Annual Average

(RM)

Japan Water Usage Yen 30,774 1,107

South Korea Water Usage USD 50 152

Hong Kong Water Usage HK 260 101

Netherlands Water Usage USD 297 900

Singapore Sanitary Appliances Fee +

Water Born Fee

SD144 346

Malaysia Flat Rate RM96

96

Low tariff levels - Malaysians are paying amongst the lowest domestic sewerage

charges in the world – between RM24 and RM96 per year - with approximately 27% of

Domestic customers paying only RM24 per year.

Sources: Pricing water resources and water and sanitation services :www.oecd-ilibrary.org, Regulation of water and wastewater services : An

International Comparison

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Comparison with water charges

1. The water “lifeline” is set at 20 cubic meter per domestic household per month.

2. The sewerage tariff is fixed at RM8.00 per month regardless of usage of water.

Domestic “lifeline” tariff @ 20 m3

Sewerage tariff @ RM8/month

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Principles of Tariff Setting

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1) Reflect the true cost of providing the service and eliminate the need for

subsidy and/or cross-subsidy as much as possible.

2) Tariff should commensurate with level and quality of service.

3) Attain economic sustainability for the service provider with agreed level

of profitability.

4) Pave the way for readiness towards integration of water and sewerage

services in line with the goals of WSIA.

Tariff should aim to achieve…

In

Malaysia

In the case of sewerage service in Malaysia, there were no tariff

increase since 1997 to adjust for inflation, increased business

dimension, electricity tariff hike, etc. This pose a major challenge

as the adjustment required is expected to be too high.

9

473793

3,936

2,944

4,4093,737

150

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

RM

Mil

lio

n

Government

Financial SupportRevenue Opex

IWK

2011

All State Water

Services Entities2009

Combination of All State Water

Services Entities and IWK

*

Why Integration?

At least 167% increase in

revenue is need to offset the

GFS in order to cover

Opex.

Revenue from the water services

industry is 8.3 times higher than

of sewerage industry. In addition,

the former’s Opex is lower than

the revenue.

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Sewerage services in Malaysia is seen as a social service primarily focusing

on the provision of sewerage services. The new tariff structure should digress

from this and continue with the aim to achieve economic sustainability by

being a cost recovery entity and viable over a period of time. Tariff should

reflect true cost of service commensurate with the operating risk level.

Practical Principles of Tariff Setting

Cost

Recovery

Equitable

Resource

Conservation

The new tariff must take into consideration to balance the increasing operating

cost, which the current tariff rate is very low to sustain the operations as to

ensure public health is maintained. Cross subsidy from Commercial maybe be

applied to Domestic to keep Domestic rate lower.

A volumetric charge reflects “pay-per-use” principle. Inclining Block Tariff

should be used to discourage “excessive” or “wasteful” uses of water.

1

2

3

Rebate for

Domestic Low

Cost

In keeping with the “pay-per-use” principle, Domestic charges should be

harmonized across all customers including low cost who presently pay lower.

However, the Government can implement a rebate mechanism to assist the

low cost customers for a period of time if so desired.

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Volumetric-based Tariff

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Key Stakeholders Current Tariff Structure

(Without Tariff Increase) Volumetric Tariff

• Unsustainable Sewerage

Service

• Sustainable sewerage services

with positive impact on the

environment

Government • Huge amount of compensation • Zero subsidy

• Heavy water users enjoy low

sewerage bill (1% of average

poor household’s income)

• Heavy water users complain

of higher sewerage bill

• Polluters Pay Principle

• Light water users enjoy low

sewerage bill (1% of average

poor household’s income)

• Inequitable tariff structure

• Light water users enjoys lower

sewerage bill

Impact to Key Stakeholders – Only heavy water users will lose out if volumetric tariff is implemented

Volumetric tariff comparison

Sewerage

Service

Providers

Rakyat

13

Concept of Green tariff

Water

Consumption

(m3)

Water Rates

(RM/m3) Water Bill

(RM)

Tariff Rebalancing at 70%

water and 30% sewerage (example)

Water Charge

Sewerage Charge

Water Bill

(RM)

30%

70%

Sewerage Bill

(RM)

Total Bill = Water Bill (RM) Sewerage Bill (RM)

A volumetric tariff rebalancing structure that includes both water and sewerage charges in

a single tariff

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Challenges

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1) Huge resistance from customers who will be charged more

than current – some customers will be paying much higher.

2) Customers would complain that sewerage charges are higher

than water charges in their state.

3) Commercial customers may complain on Domestic cross-

subsidy.

4) Claims by customers that not all volume of water return to

sewer.

5) To reach commercial agreement between water companies

and sewerage companies for volumetric billing.

Challenges to implement volumetric tariff

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Recommendations

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1. Integration of Water and Sewerage Services: Achieving Holistic Water Services

• Sewerage services to be integrated with water services to enable a holistic

management of water cycle, where a phased integration could be taken in

accordance to the readiness of State water operators.

• Integration should be based on principle of ‘no-loss’ for water operators.

2. Full Cost Recovery: Achieving Financial Sustainability

• Green Tariff should be implemented upon full integration between sewerage services

and water services.

4. Ensuring the Affordability of Water and Sewerage Services

• A tariff rebate programme could be established to cater for the affected households

that are unable to afford basic water and sewerage services.

Three Key Recommendations

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Milestones:

• 1 January 2014:

- Implementation of volumetric

sewerage tariff structure

- First round of increase in

sewerage tariffs

Milestones:

• 1 January 2017 : Second

round of increase in sewerage

tariffs

Milestones:

• 31 December 2019:

- Full integration with state water

operators

- Full implementation of green

tariff

Preparatory Phase - Laying

the Foundation

• Engage key stakeholders in

relation to the proposal of a

review on existing sewerage

tariff structure.

Phase 1 – Volumetric

Sewerage Tariff Structure with

Tariff Increase

• Engage key stakeholders.

• Implement volumetric tariff

structure.

• Employ tariff rebalancing.

• Impose increase in sewerage

tariffs.

• Allow the possibility for

integration for states that are

ready to do so.

Phase 2 – Sewerage Tariff

Increase

• Engage key stakeholders.

• Review sewerage tariff rates

under the volumetric model.

• Impose increase in sewerage

tariffs.

• Allow the possibility for

integration for states that are

ready to do so.

Phase 3 –Implementation of

Green Tariff Structure

• Engage key stakeholders.

• Setting the mandatory

requirement for the integration

of water and sewerage services.

• Implement green tariff structure

and single billing system.

• Collect and review feedback on

the green tariff structure.

Q3 – Q4 2013 2013 - 2016 2016 - 2019 2019 onwards

Tim

elin

e

The Way Forward

ROADMAP

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Supporting Documents

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Sample of Singapore Combined Utility Bill

1) SUMMARY

2) DUE DATE/GIRO PAYMENT

3) METER READING

4) CONSUMPTION UNITS

5) TARIFF RATES

6) SANITARY APPLIANCE FEE AND WATERBORNE FEE

The Sanitary Appliance Fee (SAF) and the Waterborne Fee

(WBF) are levied to offset the cost of treating used water and

for operating and maintaining the used water network. The

Sanitary Appliance Fee is a fixed component based on the

number of sanitary fittings in each premise whereas the

Waterborne Fee is charged based on the volume of water

supplied, regardless of location and end use of the water. Both

charges are imposed as a tax contribution to Singapore's

national used water system.

7) REFUSE REMOVAL

8) WATER CONSERVATION TAX

A water conservation tax is charged for the use of water. It is

levied by the Government to reinforce the importance of

conserving water.

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Sample of Manila Water/Sewerage Bill

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Sample of Shanghai Water/Sewerage Bill

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For further information, kindly contact:

Datuk Ir. Abdul Kadir Mohd Din

Chief Executive Officer

akadirmd@iwk.com.my

+603-2780 1567

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