Kelantan Water Supply

cancelled

In October 1995, Kelantan Water Sdn Bhd (KWSB) was granted a 25-year concession to operate the water supply for state of Kelantan in Malaysia. The concession was awarded without competitive bidding. In 1995 approximately 600,000 people lived in the water supply concession area and the total population of the State of Kelantan was 1.2 million. Kelantan Water Sdn Bhd (KWSB) was the project company owned 30% by the state-owned Yayasan Kelantan Darul Naim (YAKIN) and 70% by Thames Water International of the UK. The contract required KWSB to invest US$10 million over 5 years. During Phase 1, KWSB was to improve 33 potable water treatment plants and rehabilitation/upgrade of 2,500 kilometers of main piping. In Phase 2, the focus of the concession was to expand water supply to all urban population and replace the ground water source with water from the Kelantan River. Under the terms of the concession, KWSB also had responsibilities for water production, distribution, operations, maintenance, billing, and collection. Soon after the contract was signed, disputes began between the concessionaire and the State Government, mostly over tariff levels. The responsibility for setting the water tariff rested with the Government. Collected user fees were deposited into an escrow account from which KWSB was to first pay operating costs, secondly debt financing, thirdly return on investment, and finally repayment of older state debt. Tariff levels were raised initially to cost recovery levels, but were quickly rolled back under pressure from public opposition. By late 1997, KWSB reportedly had made some initial investments required by the agreement and water production had increased 15%. However, the Asian Financial Crisis, which began in 1997, caused the Malaysian economy to contract by 7% in 1998 and the Ringgit to be devalued by approximately 50%. Raising tariffs became even more difficult for the Government. By 1999 KWSB was over US$25 million in debt. Thames continued to claim that the Government was not willing to raise tariffs to levels necessary to insure profitability. The Kelantan Government, on the other hand, claimed that KWSB’s extensive debt burden made it “unable to implement any pipe infrastructure works, bringing housing and commercial projects in the State to a standstill.” There were also reports of a overall deterioration in the quality of service, disruptions in water flow, customers facing low supply pressure, and unhygienic water supply. In April 1999 Thames Water concluded that the concession agreement was not financially viable in the long term and sold its 70% stake in the company back to the state government for US$15 million in cash. The Kelantan water supply management and services were taken over by the state-owned Air Kelantan Sdn Bhd in April 1999. None None