We refer to the letter by Eric See To entitled Water tariff should, and must, be increased .

We thank Eric for his valuable input into this very important debate on water management, privatisation, transparency and good governance in Malaysia. To be fair to Eric, he was not privy of the full memorandum that we had sent to the prime minister and, therefore, was not aware of how our claims were backed as the press did not carry the full statement. Eric must be commended for taking an interest into this precious resource that God has provided freely and in abundance.

Eric raises three critical issues.

1) First, he suggests that water tariff should be increased in order to promote prudent use of water.

There is a water shortage projected to occur in 2007 and 2008 in Selangor. However, the reason for this shortage is far more complex than the fact the Malaysians on a per capita basis use more that the average recommended by the United Nations. Some important factors are that our water sources are being polluted and catchment areas are being reassigned for development purpose. The under-investment in the maintenance of the water infrastructure is also another reason for water shortages.

We share Eric's concern about the need for prudent water consumption in the country. Studies have shown that urban Malaysians use about 500 LPD and on average Malaysians use 300 LPD, far more than recommended by the 200 LPD of the United Nations. However, privatisation Malaysian-style with tariff hikes guaranteed may not be the best way to resolve water management issues.

The CAWP supports a progressive tariff hike which is differentiated according to quantity and type of usage, and also type of residential areas with a favourable stance for marginal communities (immigrants, squatter areas, poor or working class neighbourhood).

Furthermore, the tariff hike must be justified with evidence provided to the public for scrutiny. This is to ensure that the consumers are paying the optimal price. This, I am sure you will agree, is not happening. As a citizen, I am sure you do not want your hard-earned income going to support corruption and cronyism.

The stop work order was issued on Aug 1, 2005 and not, as wrongly stated, in July, 2005. We understand from one of the charges in the court case is that Syabas did not pay Premier Ayer for the work done. While Eric's point is true that there are many ways of reducing non-revenue water (NRW), what is critical is the independent audit on the actual NRW done since January 2005. It should not include the NRW work done by Puas. Also, NRW work done by Syabas worth RM250 million came from the federal government. Syabas should be transparent and come out with its NRW audit statement. Maybe Eric, as a responsible shareholder, could write a note to Syabas.

Furthermore, why are there two sets of figures floated vis--vis NRW in a seven month period? In May 2005, the Ratings Agency of Malaysia indicated that NRW was reduced from 44% to 38%. On Nov 23, 2005 the executive chairman of Syabas indicated that NRW had been reduced from 42.78% to 38.34%. RAM would not have floated the numbers without information coming out of Syabas, otherwise it credibility among the investing public will be lost.

With regards to the NRW figures, Eric noted that he does not trust the state to manage water but at the same time he trusts the government audit process. There seem to be a contradiction. In fact, our investigations revealed that it was not an audit but a verification exercise conducted by the Selangor division of the National Audit Department. The division noted that there are many other agencies involved in this verification process. It is noted that the details of audit (not verification) exercise are in the Concession Agreement which is not available to the public.

2) Second, the private sector is efficient in managing water compared to government controlled water utility.

Eric is wrong to say that Jabatan Bekalan Air Selangor (JBAS) has been a loss-making state entity. Our sources state that revenues have always exceeded the operating costs for JBAS. As all revenues from JBAS go into the state consolidated fund, the claim is that the Selangor government had not reinvested sufficiently into JBAS, using the excess revenues in other sectors.

Eric's view that the RM1.14 billion Puas owed to Puncak Niaga was due to inefficiency is also wrong. If Eric understands the water industry, he will know that treatment of water is the most profitable part of the process, while distribution is the most problematic due to NRW and bill collection problems. Which state government would privatise the most profitable business part (Selangor privatised the treatment of water to Puncak Niaga, Splash and Kumpulan Abbas) and saddle itself with the loss-making aspect (corporatised as Puas). Please note that JBAS never had problems when it managed the whole process as it was able to cross-subsidise water treatment with distribution and further provide revenue to the state. We can adduce that the architect of the unbundling of JBAS wanted to ensure that Puas failed.

We encourage Eric as a shareholder of a water utility to be informed and undertake some research on his company. Why was Jabatan Bekalan Air Selangor, a profitable state water utility unbundled? Who benefitted from this unbundling? Why was the treatment part of the system (and the profitable component) given to the private sector (Puncak Niaga being one of them) and distribution, for the most part loss bearing, corporatised (Puas), was kept within the state structure?

Answers to this question will shed some light why the state ended with huge debt and losses.

On another note, the most efficient water utility in the country and a world-renowned water company is for a long time is a state-owned water utility company Perbadanan Bekalan Air Pulau Pinang. The state governments should reform their water utility companies to follow the Penang model where there is a separation between the bureaucrat managing the utility and the politician.

Now that Syabas has been operation for a year, Eric may be able to request Syabas to demonstrate how it has become more efficient as compared to JBAS.

3) Third, CAWP should purchase shares in Puncak Niaga to benefit from the 'sweetheart deal'.

This, of course, is entirely out of the question. CAWP promotes transparency and good governance both in the government and the private sector. When we are satisfied that Puncak Niaga has met these requirements, we would reconsider.

It would be wonderful, in the interest of all Malaysians, if Eric demands that Syabas make public its Concession Agreement.

As for the executive chairman's RM1 million salary, we are of the opinion that this not proper. Consumers agree to a tariff hike, to ensure the sustainability and viability of our water management system. But we will not pay to make one man (or a few people) very rich. We are also of the opinion that there are far more competent people currently in the public sector that can remedy the situation if politicians do not interfere (as in the case of Penang). Furthermore, would it not be far more effective if the millions were divided over more people in the state water utility firm by increasing their wages or providing them incentives to work harder?

We advise Eric as a conscientious citizen of the country and a minority shareholder to ask Puncak Niaga which owns 70 percent of Syabas and to confirm or deny the following:

1. That Syabas contravened the Concession Agreement by buying pipes from Indonesia.

Please invite other minority shareholders to join you in asking these questions to Syabas.

Answers to these questions will be a great Chinese New Year gift to all of us and we look forward hearing from you soon. We will be happy to send you the complete memo to the prime minister if you could kindly send us your email address to [email protected]

The writer represents the Coalition Against Water Privatisation (CAWP).