to buy back all water concessions in the state. after lengthy discussions about the price and after intervention by the federal government, three of four concessions in the state of selangor (syabas as well as pnsb, both owned by puncak niaga holdings, and the smaller state-owned abass) were bought back in september 2014 for a price of reportedly €1.9 billion. services will now be provided by syarikat air selangor, the new state company to treat and distribute most of selangor’s water, while assets will be owned by the water asset management company (wamco). sanitation. since investments in sewerage did not keep pace with investments in water supply, the responsibility for sewerage in much of peninsular malaysia was transferred from local governments to indah water konsortium (iwk) in 1994. iwk was a private company owned by prime utilities (70%) and idris hydraulic (30%). the contract was awarded by the federal government without competitive bidding. it covered the indah region (kuala lumpur, penang, labuan and langkawi). in 2000 the concession was cancelled and the federal government took over the ownership of the company. sector reform since independence investment in water supply had been a responsibility of the 13 states of malaysia, with no significant role for the federal government. although malaysia is de iure a federal state, de facto most states depend on fiscal transfers from the federal government. therefore, the country is often considered a de facto unitary state (see federalism in malaysia). the federal government thus always played a role in the water sector, although water services were legally an exclusive responsibility of the states. faced with an rm8 billions (us$2.2 billions) debt by utilities, poor efficiency and poor cost recovery due to low tariffs, in 2003 the federal government decided to embark on a sector reform. the objective was to make the sector more efficient, to create a sustainable funding mechanism and to improve the customer orientation of service provision. also, the role of the federal government was strengthened vis a vis the state governments through the reform. a key step of the reform was a constitutional amendment approved in january 2005. through it water services became a shared responsibility between the states and the federal government. two key laws that enshrined the reform were passed in 2006. the national water services commission, the national regulatory agency for the sector, began its work in january 2008 when the new laws became effective. the reform only applies to peninsular malaysia. the government has also declared that no more water services concessions will be awarded. existing concessionaires that choose to remain with their concession agreements are allowed to operate until the end of their concessions. state water companies now require an operating license and are gradually being corporatised. stakeholders policy and regulation the legal framework for the water and sanitation sector differs between peninsular malaysia (with its 11 federal states and two federal territories) on the one hand and eastern malaysia (with the federal states sabah and sarawak and one federal territory) on the other hand. while a water reform was enacted for peninsular malaysia in 2006, the previous legal and institutional framework was maintained in eastern malaysia. two main laws passed in 2006 form the legal framework of the water and sanitation sector in peninsular malaysia. the water services industry act (wsia) established a national water asset management company (wamco), called paab in malaysian, and a water forum to give voice to hitherto under-represented stakeholders such as consumers. the national water services commission act established a national water services commission known under its malay acronym as span. the acts separated the functions of policy making (government), regulation (span), asset ownership (paab) and service provision (state water companies) from each other. the laws were enacted after extensive public consultations over two years. as part of the reform process, for the first time in malaysian history a draft bill had been made available for public discussion before it was presented to parliament. span now issues licenses for water operators, mainly state water companies. these licenses can theoretically be revoked if key performance indicators are not met or other standards are not respected. the standards are set and monitored by span. in eastern malaysia water supply remains a responsibility of state governments and sanitation a responsibility of local governments. within the executive branch of the federal government, the ministry of energy, green technology and water is in charge of setting water supply and sanitation policies. it is assisted by two technical agencies under its supervision: the water supply department (jba) and the sewerage services department (jpp). the latter was established through the sewerage services act of 1994 as a regulatory agency for the private sanitation company iwk. when iwk was taken over by the government in 2000, the sewerage services department became responsible for the development of infrastructure while iwk remained in charge of operation and maintenance as a publicly owned company. the regulatory functions of jpp ceased in 2007. a water forum, established by law, is tasked with protecting consumers’ interests. service provision service provision is clearly separated between water supply on the one hand and sanitation on the other hand. since the 2006 reforms all water supply assets in peninsular malaysia are owned by the water asset management company (wamco), called pengurusan aset air berhad (paab) in malaysian. they are then leased back to public operators (mostly state water companies) as well as private operators. all operators have to be licensed by the regulatory agency span and have to achieve certain performance indicators specified in the licenses. sanitation (sewerage and wastewater treatment) is organised differently. the largest wastewater operator is indah water konsortium malaysia (iwk) that handles sewerage and wastewater treatment all over peninsular malaysia, except for the state of kelantan and the capital of johor state. assets, however, are owned by the 151 local authorities of malaysia. where iwk does not operate the sanitation infrastructure, local authorities provide this service directly. kota kinabalu, the capital of sabah state, is one of many cities in malaysia that receives its drinking water through infrastructure plant that was financed and is being operated by private companies. private operators. some private operators hold concessions for water treatment plants. they are usually not directly in touch with customers, but they sell treated water in bulk to water distribution companies. the world bank’s private participation in infrastructure database showed 14 private water contracts in malaysia as of 2010, out of which 8 were operational and 6 were “distressed” and had a request for contract termination. the 8 operational projects are the following: the johor bahru water treatment plant, a 20-year bot for the capital of johor state signed in 1992 with a us$284m investment commitment the kota kinabalu water supply project, a 20-year bot from a water treatment plant in sabah state signed in 1993 with a us$141m investment commitment the sandakan and tawau water supply project, a 20-year bot in sabah state signed in 1993 with a us$86m investment commitment the southern water corporation johor concession covering the districts muar, batu pahat, segamat and kluang in johor state, a bot for a water treatment plant signed in 1994 with a us$423m investment commitment the langkawi water project covering the group of islands of the same name in pengan state under a 25-year management contract signed in 1996 the johor water supply, a 30-year bot for the semangar water treatment plant signed in 2000 with a us$3.4bn investment commitment the kuala jelai phase i and phase ii water treatment plants in negeri sembilan, a management contract signed in 2003 perbadanan bekalan air pulau pinang sdn bhd (pbapp), a private company supplying the entire state of penang on a permanent basis with water. some of these contracts were awarded after competitive bidding, such as the johor bahru water treatment plant, while others were awarded after direct negotiations, such as the semangar water treatment plant. in penang state water is supplied by perbadanan bekalan air pulau pinang sdn bhd (pbapp), a 100% subsidiary of pba holdings bhd, a company traded on the stock exchange. it has been described by a malaysian ngo as a success story of water privatisation. financial aspects financing. prior to the 2006 reform the federal government provided loans to state governments for the development of water infrastructure. state governments provided their own funding as well. malaysia has a vibrant oil and gas industry. the national oil company petronas provided 44% of federal government revenue in 2008, as well as a substantial share of revenues of some states. these revenues have allowed the country to keep water tariffs low through subsidies, while providing almost universal access to water supply and sanitation. private concessions are funded predominantly by debt raised at market rates. the cost is passed on to taxpayers that have to shoulder the debt, or to consumers that have to face higher water tariffs. through the 2006 reform the responsibility to finance and develop new water infrastructure in peninsular malaysia has been transferred to the asset management company paab. paab is financed through an initial equity contribution from the federal government and lease payments that it is due to receive from state water companies. paab is in the process of taking over both assets and debt from the state water companies. it is expected to contract debt at commercial rates in the capital market, obtaining favourable rates thanks to guarantees by the federal government. water infrastructure development in sabah and sarawak continues to be financed directly by the federal and state governments. the federal government allocated rm4 billion (us$1.1bn) for water supply projects under the 8th malaysia plan (2001-2005). this is almost double the allocation under the 7th malaysia plan. the 8th malaysia plan also recommends water demand management as a tool to ‘stretch’ existing supplies and delay the development of large capital-intensive projects. tariffs and cost recovery. in the long run, the federal government wants the state operators to achieve full cost recovery and attain financial independence. however, this target is still far from being achieved. in 2009 the average domestic water tariff in malaysia was ringgit (myr) 0.65/m3 (us$0.18/m3). there are 14 different regional water tariffs in malaysia, each corresponding roughly to one state. the lowest domestic tariff is in penang (myr0.31/m3), while the highest is in johor (myr0.98/m3). the average industrial water tariff in 2009 was myr1.32/m3 (us$0.37/m3). domestic water tariffs are thus only a fraction of domestic water tariffs in neighbouring singapore (us$1.62/m3) or in jakarta, indonesia (us$0.77/m3). nevertheless, according to the international benchmarking network for water supply and sanitation utilities, malaysian utilities managed to recover, on average, 115% of their operating costs in 2007. but it has to be kept in mind that operating costs are kept low through various subsidies. the full costs of service provision - operating costs plus capital costs - are not covered through revenues. despite these low tariffs, some states have further reduced water tariffs. following an election promise, beginning in 2008 selangor state is subsidising its consumers with rm132 million/year (about us$40m) as a result of giving “free water” (first 20 m3) to about 1.5 million households. the president of water watch penang, prof. dr. chan ngai weng has called for the removal of water subsidies to encourage water conservation. in 2009, the penang state government subsidised domestic consumers with rm43 million (about us$12m). the penang state government is reluctant to review its low water tariffs, despite the fact that market survey studies conducted by the state water utility and the ngo water watch penang indicate that the majority of water consumers are willing to pay for a "reasonable" tariff increase as long as the service is maintained at a high standard. although water supply in penang state is privatised, tariffs are the lowest in malaysia due to the subsidies. residential water bills are in the order of rm 2.5 per month. even with the lowest tariffs in the nation, the non-revenue water (nrw) in penang was the lowest in the nation at 18.4% in 2010.