Elsevier

Economic Modelling

Volume 28, Issue 5, September 2011, Pages 2121-2128
Economic Modelling

Privatization, water access and affordability: Evidence from Malaysian household expenditure data

https://doi.org/10.1016/j.econmod.2011.05.003Get rights and content

Abstract

The aim of this paper is to examine empirically the impact of privatization on water access and affordability in Malaysia using household expenditure data. The development of water sector in Malaysia in terms of coverage has been fairly uneven. Some states have privatized their water supply sector while others have not. The overall finding of this study is that the impact of privatization on access and affordability in the Malaysian water supply sector is ambiguous. Privatization does not seem to have improved access to treated water from network in Malaysia. A likely explanation of this is the role played by the government in the sector in terms of tariff regulation and universal service provision. Furthermore, privatization does not seem to have adversely affected affordability in the sector. In addition to political intervention in tariff regulation, this could be due to the government maintaining a significant stake in privatized water companies.

Research highlights

► The study examines empirically the impact of privatization on water access and affordability in Malaysia using household expenditure data. ► The overall finding of this study is that the impact of privatization on access and affordability in the Malaysian water supply sector is ambiguous. ► Privatization does not seem to have improved access to treated water from network in Malaysia. ► Furthermore, privatization does not seem to have adversely affected affordability in the sector. ► These results are likely to be explained by the extensive role of the government in the sector.

Introduction

Infrastructure development has been an important component of Malaysia's economic development strategy since the country's independence in 1957. Significant amount of investments was made in the infrastructure sector to enhance and maintain the country's export competitiveness. These investments have also contributed to the eradication of poverty and the elevation of the quality of life in the country. However, despite the progress made in these areas, infrastructure development across and in the different sectors has been uneven.

In the water sector, the more developed states have achieved almost universal access while others continue to struggle with providing access to treated water supply particularly in the rural areas. The inability to recover revenue from water produced (nonrevenue water) continues to be a serious problem in the sector. Underinvestment in the sector has also resulted in the deterioration of the water distribution systems.

In Malaysia, water is constitutionally a state matter and some states have opted to privatize their water sector. However, there is currently no consensus on whether privatization is the solution to water problems in Malaysia. Implicitly, some states continue to support privatization but others have no plans to privatize their water sector. Many non-governmental organizations (NGOs) continue to vehemently object to privatization of the water sector. Surprising, despite the significant amount of interest generated by the debate on the efficacy of privatization, there have been no empirical studies on the issue.

This paper attempts to shed some light on the impact of privatization in the Malaysian water sector by employing a quantitative-based empirical analysis. Malaysia is useful country case study on the impact of privatization in the water sector. There is a variety of forms of institutions in its water sector — full privatization, partial privatization and state. The country is also a developing economy, with a significant rural area where access to treated water continues to be serious problem. Thus, the Malaysian water sector provides an opportunity for an empirical test of the impact of privatization in a developing economy. Finally, this is the first study of the impact of privatization in the Malaysian water sector using household expenditure data. The main limitation of this study is that the results pertain to only household expenditures on water supply from the network. This implies a possible underestimation of household expenditure on water supply.

The outline of the rest of the paper is as follows. The empirical evidence on privatization in the water sector is briefly reviewed in Section 2. A brief background of the water sector in Malaysia is presented in Section 3. Issues of equity, access, and affordability are examined in Section 4 using household expenditure data. The last Section concludes.

Section snippets

Privatization and the water supply sector

The process of privatization in the water sector in developing countries is generally considered to have lagged behind other infrastructure sector until the 1990s. The subsequent decade witnessed significant increases in privatization in the sector (Kirkpatrick et al., 2006). However, by 2004, private sector interest in the water sector especially in developing countries had diminished partly due to a number of failures and disputes (UNDP, 2006). This was also reflected in the empirical

The water supply sector in Malaysia

Malaysia's location within the equatorial zone ensures that the country has a fairly abundant amount of water resources. However, water resources are not equally distributed across the different states in the country. Several inter-state water transfer projects and agreements between the different states have been implemented to deal with the unequal distribution of water resources. Universal access has almost been achieved in most urban and rural areas in the various states in Malaysia.

Data

At the time the study was carried out only two sets of household expenditure data were available which covered the period in which privatization have occurred in the water supply sector. These are the 1993/1994 Household Expenditure Survey (HES94) and the 1998/1999 Household Expenditure Survey (HES99). Both datasets were obtained from the Department of Statistics, Malaysia. The HES94 dataset contains 14,631 observations while the HES99 contains 9198 observations. Unfortunately, both surveys do

Conclusions

The development of water supply sector is crucial in order to improve and maintain Malaysia's economic competitiveness as well as to eradicate poverty and improve the quality of life of its citizens. Thus far, the achievements in this sector are fairly mixed. Water coverage is uneven across the different states. The more developed states have almost achieved universal water coverage while less developed states continue to improve water access particularly in the rural areas. A key policy issue

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