Dorai Narayana, Independent Consultant, Malaysia

Integrity in Sanitation Access and Service Delivery: A Case Study of Malaysia’s Sanitation Sector

briefpolicy

Key Points • Weaknessesinthe

governance,management,andcoordinationofresourceallocationisamajorcauseoftheslowprogressinensuringglobalaccesstosanitation.

• Policy,legislation,andorganizationalmandatesthatfacilitateclearroledefinition,responsibility,andaccountabilityandtheefficient,effective,andethicaluseoffinancialresourcesaregoodingredientsforintegrityinanysector.

• Malaysia’sapproachesinthisregardhavebeenlargelysuccessfulandareamodelforadaptationelsewhere.

• Othernecessaryingredientsarestrongpolicy,strategy,planningapproaches,systems,andchecksandbalances,makingupagoodgovernanceframework.

• Financialpoliciesandprocurementprotocolspromoteaccountability,transparency,andvalueformoney.

• Theregulatoryframeworkcoverseconomic,technical,consumer,andsocialaspectsandprotectscustomerinterestswhilealsoensuringthesustainabilityofthesector.

No. 2020-8 (December)

© 2020 Asian Development Bank InstituteISSN 2411-6734

This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.

AcknowledgmentsThis policy brief was prepared as part of ADBI’s city-wide inclusive sanitation (CWIS) initiatives and will be used as a reference material in upcoming ADBI learning programs. The author would like to thank KE Seetha Ram, Senior Consulting Specialist for Capacity Building and Training Projects, Asian Development Bank Institute (ADBI); Ma. Laarni Revilla, Research Associate, ADBI; Ahmad Rozian Othman, Deputy Director General, Sewerage Services Department; Ahmad Faizal Abdul Rahman, Chief Executive Officer, National Water Services Commission; Idayu Binti Shah Haibi, Internal Audit and Integrity Division, National Water Services Commission; Narendran Maniam, Chief Executive Officer, Indah Water Konsortium (IWK); Md Haniffa Abd Hamid, Chief Operating Officer, IWK; Devatara Munusamy, Senior Manager, IWK; Suzinor Kamaralzaman, Head of Integrity and Governance Unit, IWK; S. Piarapakaran, President, Association of Water and Energy Research Malaysia; Leow Peen Fong; Punita Naidu; Vrishali Subramaniam; and Chengyan Zhang for their advice and assistance.

Introduction

Despitethecontinuedeffortsofinternationalbodies,aidagencies,andgovernments,ahugeportionof theglobalpopulation still lacks safelymanaged sanitation.Thisleadstodisease,death,andlong-termhealthissuesinthecommunityandimpactshuman well-being and social and economic development. One major issue isequitable coverage,withpoorer segmentsof societyoftenbeing left out.Womenandgirlsaredisproportionatelyaffectedandsufferfromdignityissues,anxiety,therisk of sexual assault, and lost educational opportunities. National aspirations forquality of life for the people cannot succeedwithout addressing sanitation issuesadequately.

AWorldHealthOrganizationstudycalculatedthat,forevery$1.00investedinwaterandsanitation,thereisareturnof$4.30inlowerhealthcosts,greaterproductivity,andfewerprematuredeaths.Whiletheseriousnessoftheissueisindisputable,itisworthquestioningwhythesituationiscontinuingwithoutsignificantimprovement,despitetheeffortsofsomanyagenciesatalllevels.Lackofresourcesisoftenblamedforlargenumbersofpeoplenothavingaccesstobasiclevelsofwaterandsanitation;however, even in places with significant investment, the outcomes do not meetexpectations. Slow and variable progress toward this goal is also seen to be theresult ofweakgovernance,management, and coordinationof resource allocation,leadingtoefficiencylossesandintegrityrisks.Majorstumblingblockscouldincludethesuboptimalallocationofresourcesandmisalignmentofachievedresults.Strongfinancialmanagementframeworksinthepublicsectorhelptoimproveperformance,stewardship, and accountability. Policy, legislation, and organisational mandates,

ADBI Policy Brief No. 2020-8 (December) 2

which facilitate clear role definition, responsibility, andaccountabilityandtheefficient,effective,andethicaluseoffinancialresources,aregoodingredientsforintegrityinanysector.

The issue of integrity here is viewed holistically, as anindicator of themisalignment of line of sight, relatingin this case to sanitation access and service delivery.This policy brief is concerned with integrity risks ingovernance and servicedelivery systems andpracticesin the sanitation sub-sector at the country level, andpotential stakeholder actions to mitigate risks andstrengthenintegrity.

Malaysia stands out in Southeast Asia as havingmadesignificant improvements in sanitation and seweragemanagementintherecentpast.Ithasmadespectacularimprovements in sanitation,particularly since theearly2000s. A holistic approach was adopted to managecentralized,community,andon-sitesanitationsystems,with a strong regulatory framework and private sectorinvolvement. The combination of factors responsiblefor Malaysia’s success has become a model for othercountries, and integrity aspects feature strongly inthis. This policy brief is intended to share evidence,knowledge, experiences, ideas, policy options, andgoodpractices from theperspectiveof integrity in thesanitation sector, which has contributed to Malaysia’ssuccess,withaviewforadaptationelsewhere.

Integrity Frameworks

Integrity as Used in This Policy Brief

Inthispolicybrief,theissueofintegrityisviewedasanindicator of themisalignmentof lineof sight. Integrityis not just ethics andpoliticalwill, but also can ensureeffectiveresourceallocationandsectoralmanagement.Whatarethepolicy,strategy,andplanningapproachesrequiredtoachievetheintendedoutcomes?Weaknessesin procurement, lack of capacity, managementshortcomings,and finallycorruptiondilute the impactsof interventions and sometimes even exacerbate theproblem.Theysiphonfundsoutofthesystemanddirectservice delivery inequitably, delivering sub-standardor dysfunctional services and employing incompetentpeople to manage water and sanitation services. Notonly does this prevent resources from being targetedtopertinentneedsandas required, it also impacts thecredibilityoftheinstitutionsconcerned,makingitevenhardertogetadditionalresources.

Thispolicybrieflooksatkeyintegrityrisksingovernanceand service delivery systems and practices in thesanitation sub-sector at the country level, as well aspotential stakeholder actions to mitigate risks andstrengthen integrity. It considers to what extent thesector’s rules, institutions, and processes for decision-makingontheallocationandmanagementofresourcesare transparent, accountable, participatory, followed,andprovidedwithsafeguardstopreventcorruption.

TheWaterIntegrityNetworkdefineswaterintegrityasameansofensuringthatresourcesandservicesgowherethey are intended (andmost needed) so that water isfairlyandsustainablymanaged.

Context

Malaysia is a highly urbanized country in SoutheastAsia.In2018,thecountryhadagrossdomesticproductof $358,579 million, and gross domestic product percapitaof$11,072.Thecountryisrichinnaturalresourcessuchasoil,naturalgas,andotherminerals;andalsohasa large manufacturing sector and substantial tourismindustry.

Since the 1970s, Malaysia has made tremendouseconomicprogressandinvestedinqualityinfrastructure.Sanitation and sewerage management, although stillperceived tobe laggingbehindother sectors, has alsoseen dramatic improvements. Almost 100% of thepopulation has access to toilets and safe sanitation;nearly 70% now has access to sewerage services thatdrain into off-site treatment facilities; 20% use septictanks built to standard design; and the remainder usemodified septic tanks, pour-flush, orpit latrines.About10%–20%ofon-sitefacilitiesareregularlyemptiedwhilethe rest are emptied on request. All emptied sludge istreatedbeforedisposal.

Universal access to water supply and sanitationat affordable costs is a substantial achievement forMalaysia. The Government ofMalaysia has also shownacommitmenttomakethesectormoreefficient,createa sustainable funding mechanism, and improve thecustomerorientationofserviceprovidersthroughsectorreforms.

The Malaysian governance system for water andsewerage (including sanitation) is under the policydirectionoftheMinistryofEnvironmentandWaterandisregulatedbyanationalregulator,theNationalWater

Integrity in Sanitation Access and Service Delivery: A Case Study of Malaysia’s Sanitation Sector2 3

Services Commission. TheWater Services Industry Actintegrates policy, regulation, and service provision forwaterandsewerage.Theactalsoenvisagesseparationof policy (under the ministry), regulation (under theNational Water Services Commission), asset provisionand ownership (under facility licensees), and serviceprovision (under service licensees). Other privateentities in the industry are accredited and regulatedthroughpermits.Thesedemonstrateagoodseparationofrolesandcheckandbalancesystems,contributingtointegrity.

The regulator is an economic regulator, and is taskedwithprotectingcustomers’ interestswhileensuring theoperator’sviability.Thisisdonethroughabusinessplanprocess to ascertain business viability and appropriatetariffs. The ministry and regulator have developedcatchment plans, capital works evaluation criteria andtools, and value engineering systems to ensure thatcapital expenditure (CAPEX) for sewerage projects isguided by national policy and catchment plans, andfunds are generally allocated to projects with thehighestcost–benefitratio.Valueengineeringscrutinizesthe scoping of projects to make the most from theinvestments.

Attheoperatorlevel,themainnationalsewerageutility,Indah Water Konsortium (IWK) manages a substantialportfolioofsewagetreatmentplants(almost7,000)andsewer pipelines (almost 20,000 kilometers) serving apopulationofmorethan26million.IWKhasimplementedmany standard operatingprocedures, innovations, andbest practices. It also empties septic tanks and hasintroduced technical innovations to monitor tankermovements and eliminate abuse by workers on theground.

The Malaysian water sector (including the sewerage andsanitation sector) has undergone a vast transformationsincethe1990s,andpolicythrustshaveeffectedimpressiveimprovements, resulting in effective governance,regulation, performance, infrastructure, service delivery,andaccountability.To thepeople thishasmeantamuch-improved quality of life. In global terms, the vision isthat of equitable and sustained access to water and aclean environment, which is no longer threatened by

mismanagement, corruption, greed, dishonesty, andwilfulmalpractice.This case study is intended to drawlessonsfromtheMalaysianexperienceinthisregard,tobeadaptedandadoptedelsewhere.

Malaysia’s General Philosophy on IntegrityMalaysia’s government and its agencies have declareda strong commitment to integrity. The governmenthas long been intent on infusing integrity values inits agencies. Initially, enforcement was done throughlegislation,namely,theAnti-CorruptionAct,withtheAnti-Corruption Agency being the institutionalmechanism.Subsequently,morepreventivemechanismshavebeenputintouse,andthe2004establishmentoftheIntegrityInstitute,whichhasanagendatomakeMalaysiaanationknownfor its integrity,hasincreasedtheefficiencyandtransparency of government management based onprinciplesofgovernance, integrity,andanti-corruption.A special Cabinet Committee on Anti-Corruption hasalsobeenestablished.

TheNationalAnti-CorruptionPlan isakeygovernmentdocument outlining comprehensive and integratedaction in the fight against corruption. The plan coversgovernance, integrity,andanti-corruption issueswithinanintegratedframework,withavisiontocreateanationfree from corruption. It has identified 115 initiativesunder six strategies to curb corruptionamongpoliticalactors, corporate entities, law enforcement agencies,and stakeholders. The stakeholders are expected todeveloptheirownplansinaddressingissuesofintegrity,governance,andanti-corruptionintheirorganizations.

The initiatives include corruption risk management, amanagement process that helps prevent corruptionbyworking to identify structuralweaknesses thatmayfacilitatecorruptioninanorganisation,providingarisk-basedframeworkforallstafftoparticipateinidentifyingrisk factorsand treatments,andembeddingcorruptionprevention within a well-established governanceframework. Malaysian anti-corruption legislationalso incorporates a provision for corporate liability,whereby organizations would be made answerable

“The government has long been intent on infusing integrity values in its agencies.”

ADBI Policy Brief No. 2020-8 (December) 4

and accountable for actions committed by their topmanagement,employees,andassociatedpersons.

Malaysian Development Planning ProcessEconomicplanninginMalaysiaisstructuredalongseverallevelsorhierarchies.Developmentalthrustsinlinewithan overall industry framework are used to guide theplanning,forexample,expandingnetworkandtreatmentplant capacity through infrastructure investment andincreasing theefficiencyandproductivityofwaterandsewerageservices(Table1).

For each of the processes, wide consultation is heldamonggovernmentagenciesaswellasnongovernmentorganisations,professionalandbusinessentities,andotherstakeholders; and views taken into consideration. Inter-agencyplanninggroupsareformedforthisconsultativeprocess.Toolssuchastheprojectprioritisationcriteriaandcreativity indexes are used to assess the socioeconomicimpactofalldevelopmentprogramsandprojects,forthepurposeofdeterminingpriority.

Sanitation and Sewerage Planning

The Sewerage Services Department, the technicaldepartment in theMinistry of Environment andWater,is tasked with planning the provision of suitable andsufficientseweragefacilitiestoensurecontinuouspublichealth protection and preserve national resources.Sanitation and sewerage planning is generally guidedby national sewerage development plans. Projects areprioritized based on the ministry’s strategic planningand criteria set by the Sewerage Services Departmentbasedonpreviousengagementandfeedback.

Table 1: Development Planning Tiers

Long-termplanning Encompass10–30-yeartimeframesandsetoutlong-termplanningphilosophiesandstrategies,suchas: (i)Vision2020 (1991–2020); (ii)OutlinePerspectivePlans (OPP1–OPP3), 10-yearplans;(iii)  National Transformation Policy (2010–2020); (iv) Shared Prosperity Vision 2030; (v) theNationalPhysicalPlan;andstatestructureplans.

Medium-termplanning Malaysiaadoptsthe5-yeardevelopmentplanasaguidetoitsmedium-termeconomicplanning.Adevelopmentplan isprimarilyadocumenttohelpmobilizeavailableeconomic resources toachievespecificsocioeconomicgoalswithinthistimeframe.Theseplansbuildonthelong-termplans,andstrategizemedium-termplansfor5-yeardurations,includingresourceallocation.

Short-termplanning Annualbudgetsofthegovernment,ministries,andagencies.

Source: Sewerage Services Department, Malaysia.

To address gaps and shortcomings in variousprogrammes, a National Sewerage Policy in line withthe National Water Resources Policy is proposed. TheNational Sewerage Policy will be the main referencefor developing projects and programs that promotethe coordinated development and managementof sewerage and related resources to maximize theresultanteconomicandsocialwelfareequitablywithoutcompromisingsustainability.

Project Implementation and ProcurementTheMinistryofFinancehaspoliciesandguidelinesinplaceto govern  all government financial management andprocurement.This covers procurement by governmentagenciesandtheprivatesector,inhandlinggovernmentfunded projects. Governing legislation and guidelinesincludethe FinancialProcedureAct1957, which providesfor the control and management of public finances;and theTreasuryInstructions andCirculars,whichdetailfinancialandaccountingprocedures.

Governmentprocurementwasdesignedtoensurevalueformoneywhenacquiring works,supplies,andservices.Itconsidersnotonlypricefactors,butalsowholelifecost,quality,quantity,timeliness,maintenance,andwarranty.Government procurement is based on the followingpolicies,principles,objectives,andprocedures:(i)publicaccountability,(ii)transparency,(iii)valueformoney,(iv)openandfaircompetition,and(v)fairdealing.

The Sewerage Services Department is the projectimplementation arm for government-funded sewerageprojects. All project implementation by the SewerageServices Department is subjected to governmentprocurementframeworks,andprocurementissubjectto

Integrity in Sanitation Access and Service Delivery: A Case Study of Malaysia’s Sanitation Sector4 5

tenderprocesseswithpre-registeredcontractors.Tenderspecifications,tenderevaluation,andawardsarecarriedoutsystematicallythroughtechnicalcommittees,tendercommittees,andprocurementboardsofministriesanddepartments.

Value Management and EngineeringThe government has mandated the implementationof value management in public programmes valuedat RM50million and above, and set threemajor valuemanagementinterventionstobeimplementedinpublicprojects:valueassessment,valueengineering,andvaluereview.Valueassessmentissetatthestrategicplanningstagesofproject implementation to focusprimarilyonthedecisiontoinvest,toestablishrequirementssuchasinvestmentscope,andtoprioritizeprojectsstrategically.Itclarifies the lineofsightbetweenhigh-levelstrategicgoalsandintendedprojectoutcomes.Valueengineeringis usually set to review the needs statement at thedraft stage. This statement sets out the key outcomesintendedfromagivenproject,aswellas itsconstraintsand framework. Value review is set at the use stageof project implementation to assess the realization ofthe investment’s intended outcomes during operationover the project’s life span. Together, these variousaspects of value management promote integrity byaligningoutcomestoobjectives,andmaximisingreturnoninvestment.

Stakeholder Consultation

Consultative processes are involved in each step ofproject implementation. During the planning stage,for example, a needs statement workshop would beinitiated to get feedback from various stakeholdersincluding local authorities, state governments, plantoperators, and other government agencies. Projectscoping is formulated during this stage, taking intoconsideration other technical aspects and informationsuch as the state physical plan, structure plan, andplanningregulations.

Regulatory Aspects

Since 2008, the National Water Services Commission(Suruhanjaya Perkhidmatan Air Negara [SPAN]) is theregulator of water services, including water supply aswellassanitationandsewerage.

Theareasofregulationarebroadlyasfollows:

(i) Economic,including(a) a licensing regime with a viable business

model,performancemeasuredbasedonkeyperformanceindicatorsandbenchmarking;and

(b) aregulatedtariffbasedonregulatorywateraccountingtoachievefullcostrecovery.

(ii) Technical,including(a) theselectionofappropriateinfrastructure,(b) quality of infrastructure (design and

construction),and(c) performanceofproductsandsystems.

(iii) Consumer,including(a) consumer standards (quality of services,

rates,anddeposits);(b) theresolutionofconsumercomplaintsand

disputes;and(c) theprovisionofinformationtransparency.

(iv) Social,including(a) aseweragecapitalcontributionfund,(b) awaterindustryfund,(c) awaterforum,(d) environmentalaspects,and(e) publicconsultationandparticipation.

Broadly, as an economic regulator, SPAN is expectedto protect customer interests, while also ensuring thesustainability of the operators (Figure 1). SPAN adoptsa business plan approach for licensees to ensure thatoptimum infrastructure is delivered equitably andaffordably.Thebusinessplandetailstheoperators’planfor the expansion, management, maintenance, repairs,upgrading, improvement, and refurbishment of the

“These various aspects of value management promote integrity by aligning outcomes to objectives, and maximising return on investment.”

ADBI Policy Brief No. 2020-8 (December) 6

public water supply or sewerage system, as well asthe capital and operational expenses to be incurredin undertaking the activities and programs during thebusiness plan period. Operators are also required topropose tariffs for the coming years in line with theplanned activities, programs, and expenditures in thebusinessplan,withtheaimofeventuallyachieving fullcost recovery. SPAN also evaluates the business planfor appropriateness and affordability, as well as theoperator’sfinancialsustainability;andthefinalapprovedplanwillbethebasis fortheoperatorstocarryouttheprogramssetouttherein.

The federalgovernmentanddeveloperscurrently fundCAPEX for sewerage systems. CAPEX developmentmust be done in accordance with the SewerageCatchment Plan, and SPANmonitors planning, design,and construction with the assistance of the certifyingagencies. SPAN has issued comprehensive guidelinesfor the planning, design, and construction of waterand sewerage infrastructure, including a minimumrequirement for certifying agencies, operators, anddeveloperstoprotectpublicsafetyandinterest.

CAPEX = capital expenditure, govt = government.

Source: Author.

Completed sewerage infrastructure is subsequentlyhanded over to licenced sewerage operators foroperation and maintenance. However, private systemswill be operated and maintained by the owner, whomustobtainaclasslicencefromSPAN.All licenseeswillbemonitoredregularlytoensuretheirservicedelivery.

Sewerage services are provided on a monopoly basisand, as part of its function, SPAN has implementeduniformwaterindustryregulatoryaccountingreportingon all operators to enable effective evaluation of theoperators’ financial performance, as well as efficientmonitoringoftheiroperationalandservicedelivery.Thisistoensurethatanyfinancialrequirementsproposedbytheoperatorsaresetatanefficientratetodelivereffectiveservicestoconsumers.Thisregulatorycontrolringfencesthe accounting to confine expenses to those relatedto the regulated business. Water industry regulatoryaccounting, a key tool in tariff setting, promotestransparency of operational and financial accountinginformationandhelpstoestablishkeybenchmarkcosts,which can then be applied to compute future tariffpricing.

Figure 1: Overall Sanitation Governance

Integrity in Sanitation Access and Service Delivery: A Case Study of Malaysia’s Sanitation Sector6 7

The Water Services Industry Act provides for a waterforum as a consultative mechanism intended torepresent the interests of consumers, give feedback,and make recommendations to the commission onany matters concerning the interests of consumers ofwater supply and sewerage services. In addition, SPANprovides for various other consultative processes forpolicyorproceduralchanges,tariffs,charges,andothermatters, including public consultation. SPAN has alsoestablishedanappeals tribunal toprotect the interestsof thepublic and industry players, andprovide checksandbalancestoensurethecommission’sintegrity.

As an overarching mechanism towards integrity,SPAN has established the “Integrity Framework forWater Operator and Certifying Agency”, outliningvarious control measures to ensure effective checksand balances. Operators and suppliers in the watersupply and sewerage services industry are requiredto allocate 1% of their annual operational budget tocarry out integrity programmes, including audit, riskassessment,monitoring, training, andcommunications.TheframeworkwascreatedinlinewiththeNationalAnti-CorruptionPlan,whichoutlined fivebasicprinciples towhichwaterindustryplayersmustadhereinareassuchastopmanagementcommitment,riskanalyses,controlmeasure implementation, monitoring, evaluation,and systematic enforcement, as well as training andcommunications. The integrity framework has beenincorporated into the licence conditions, requiringlicenseestocomply.

Service Providers and Operators

The public sewerage system in most urban parts ofMalaysia is operated under a concession by IWK, apreviously private company now owned by thegovernment. IWK operates and maintains publicsewerage systems, provides desludging services, andcharges tariffs tocustomers. Italsooutsourcessomeofits rolestoprivateoperators.Thecompany is regulatedbySPAN(theeconomic,technical,andservicesregulator)andtheDepartmentofEnvironment(theenvironmentalregulator).

The Water Services Industry Act (2006) proposes thatwater services be provided by a service licenseewhileassets are provided and owned by a facility licensee.Althoughthisarrangementisyettobefullyimplemented,IWK functions primarily as a service licensee, whilesewerageassetsaredefactogovernment-owned.

Integrity Initiatives

As part of its integrity initiatives, IWK has introduceda code of conduct that defines its expectations forconductingbusiness.Thisservestoinculcateahighlevelofpersonalintegrityandprofessionalisminitsemployeesandpromotespublictrustandconfidenceinitsbusinessas a responsible corporate entity.The codeof conductcontains measures to address corruption, bribery, andgiftgiving.Thecorporateintegritypledgewasadoptedinlinewiththecompany’svisionofpromotingaculturefree from corruption.Within IWK, an integrity unit hasbeen established to instill a culture of integrity at alllevelsoftheorganisation.

Customer Relations

IWK’s customer charter outlines the company’scommitment to provide sewerage services and ensurethestandardofcustomerservicethateachcustomercanexpect. IWK has implemented a customer complaintsmanagementsystemtorecordandmonitorallcustomercomplaints to resolution. Levels of service are set forvarious types of issues, and active engagement isconducted throughsocialmedia,education,awarenessprogrammes,andothermeans.

Procurement

IWKbelievesincompetingfairlytoensurethatallpartiesbenefitfromfair,free,andopenmarkets.AlthoughIWKitself isamonopoly, thecompanypracticespolicies foropen competition in procurement, and this increasescompetitiveness. Transparency, speed, and fairnessin procurement is further enhanced through systemssuchase-procurementande-auctions. IWK’scorporaterisk management and compliance policy helps create,protect, andmaximize value for its stakeholders,whileinternalauditprocessesserveasawatchdogtoidentifylapses in processes and mitigative and preventivemechanisms.

Operation and Maintenance

Operational initiatives by IWK to improve integrity,transparencyandefficiencyincludethefollowing:

(i) A vehicle management system that tracksthe location, movement, and routing of

ADBI Policy Brief No. 2020-8 (December) 8

operational and maintenance vehicles. Thishashelpedcurbemployeeabuseof vehiclesfor unauthorized septic tank emptying andillegaldumpingofsludge.

(ii) Key aspects of IWK’s business are certifiedby the International Organization forStandardization. Almost all operational andmaintenance processes are governed bydocumentedstandardoperatingprocedures.

(iii) Since 2010, IWK has implemented assetmanagementprocessestobetterunderstandassets, their performance, maintenance, andreplacementpoliciesandasset-relatedrisks.

Certifying Agency

Sanitation and sewerage infrastructure developmentin Malaysia is largely driven by the private sector.Policy requiresprivatedevelopers toprovide sewerageinfrastructure for their own developments. This ismonitored and regulated by the regulator, which haspublishedverydetailedguidelinesforthispurpose.TheWater Services IndustryAct 2006 requires all sewerageworks tobeapprovedby the regulator (SPAN). For thispurpose,SPANhasappointedIWKasacertifyingagencyfor sewerage works approvals (planning, design, andconstructionofseweragesystems).

Theroleofcertifyingagenciesincludes(i)reviewingandapprovingplanningapplications for sewerage facilities,(ii) reviewing and approving design applications forsewerage facilities, and (iii) inspecting and approvingworks. IWK’s certifying agency has planned andimplemented the following measures to improvetransparency, efficiency, and service quality whileaddressingintegrityrisks:

(i) automation and online submission andapprovalstoreducehumaninteraction;

(ii) online monitoring of process steps, with adashboardforthesubmittingpersontoview;

(iii) simplifiedproceduresforlow-risksubmissions(smallprojects);

(iv) an appeals committee to consider appealsandapplicationsfornoncompliances;

(v) a set level of service for all classes ofsubmissions,monitoredonline;and

(vi) acompetencymatrixforalllevelsofpersonnelto guide recruitment, advancement, andtrainingneedsassessment.

The certifying agency conducts also annual customersatisfaction surveys to gauge customer needs andexpectation.

Gaps

As outlined above, Malaysia has largely succeeded inputtinginplacepolicy,strategy,andplanningapproachesthatarealignedtoproducetheintendedoutcomes.Strongprovisions in institutions, and processes for decision-makingontheallocationandmanagementofresourcesaretransparent,accountable,participatory,andfollowed;andcontainsafeguardstopreventcorruption.ThishasledtoMalaysiamakingsignificantimprovementsinsanitationand seweragemanagement,bringingamuch-improvedqualityoflifetoitspeople.

Yet,lingeringissueshaveresultedinsomeoftheintendedoutcomesnotbeingfullyachievedbecauseoflapsesinapproach,strategy,planning,implementationregulation,orenforcement.These issuesareoutlinedbelow,alongwithadiscussionofwherethemisalignmentmayhaveoccurred,andhowitcouldbecorrected.

(i) The overall governance framework put inplace a de-facto policy for sanitation andsewerage; however, a specific seweragepolicy is still absent. The government hasindicated that such a policy, in linewith theNational Water Resources Policy, is beingproposed.Similarly,nationalcatchmentplans

“Malaysia has largely succeeded in putting in place policy, strategy, and planning approaches that are aligned to produce the intended outcomes.”

Integrity in Sanitation Access and Service Delivery: A Case Study of Malaysia’s Sanitation Sector8 9

andseweragedevelopmentplansarenotyetavailable,butarereportedlyunderway.Thesedocumentswillgoalongwaytowardmakingthesectormorerobust.

(ii) Although the concession agreement hasset targets for the concessionaire to reduceunsatisfactory or inadequate sanitationsystems, such as pour-flush latrines,operationalisation of these has not yetbeen facilitated. As a result, many premises(estimated at more than 1million) continueto rely on such systems. Waste from thesesystems is very likely leaking or overflowinginto groundwater or surface drains, causingpollution.

Theprincipleofallocatingaccountabilityandrisk to the entitybest able tomanage it hasbeenneglectedhere.Aprivateentitycannotaddress these obligations on its own due tolegalreasonsandcommunityresistance.Thiswould bemore effectively addressed by thegovernment through regulatory initiatives,coupled with incentives and financialassistanceprogrammes,onaprioritizedbasis.

(iii) While the CAPEX consisting of sewagetreatment facilities and trunk and collectorsewer networks has been implementedin various parts of the country throughgovernment efforts, last mile connectivity,namely the connection of properties to thesewers, remains an issue because there arestill a large number of septic tanks in areaswheresewernetworksareavailable.Thishasinawaydefeatedthepurposeofthesewerageprojects, inthat, inspiteofthe investments,partsof theserviceareacontinuetorelyonless satisfactory on-site systems, possiblycausingpollutiontogroundwaterorsurfacedrains due to seepage or overflows. Thiscould indicate project scoping shortfalls.Alternatively, a regulatory initiative couldbeapplied,withsuitablefinancialassistanceand/or incentives to encourage householdstoconnect.

(iv) Developer-built infrastructureconstitutesthebulkoftheCAPEXinvestmentinsanitationandsewerage. In viewof the lackofoversightofthecostandoverallsuitabilityandqualityofsuchinfrastructure,amorerobustmechanism

of asset provision would be more equitableandtransparent.

(v) Malaysian regulations require grey water (orsullage), which is wastewater from kitchens,bathrooms,andlaundries,tobechanneledtosewerage systems or septic tanks.While thisis largely enforced for new developments, asignificant number of older buildings (andsome newer ones) do not do this, and thesullage continues to flow into the surfacedrains. Grey water is a significant pollutantof surfacewater. In this instance,weak inter-agency coordination has been shown to betheunderlyingcause.

(vi) The concession agreement required IWKto desludge all septic tanks on a scheduledbasis(onceevery2years)toensureoptimumperformanceof theseptic tanksandpreventpotentialoverflowofaccumulatedsludgeintothesurroundinggroundorsurfacedrains.Therequirementforscheduledde-sludgingisalsoprovided for in the Water Services IndustryAct,butthishasnotbeeneffectivelyenforced.As a result, a significant number of septictanks are not regularly desludged, and areprobably not performing as intended, withsludge from these installations overflowingintodrains.

IWK acted on this obligation as theconcessionaire,butitwasnotverysuccessfulbecauseofpoorcommunityacceptance.Theprincipleofallocatingaccountabilityandrisktotheentitybestabletomanageithasagainbeenneglectedhere.Aprivateentitycannotaddresstheseobligationsonitsownbecauseof legal reasons and community resistance.This requires regulatory intervention, andcannotbe left totheoperator.Thetariffmayalso be applied in more innovative ways toincentivizehouseholdstoaccessthisservice.Acoordinated awareness and communicationsprogramwouldhelp,andthishasbeendonetosomeextent.

(vii) IWK is authorized under the concessionagreement to collect revenues fromcustomers who are connected to seweragesystems operated by the company via tariffbilling. Firstly, the tariff isgrossly inadequateandhasnotbeenrevisedtoreflectrealcosts

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for the last 25 years. Secondly, the companyfaces challenges in collecting revenue fromits customers, and large defaults in billpayments cannot be recouped because apractical enforcementmechanism is lacking.Althoughthe lawhasprovided for thewatersupplytobecutintheeventofseweragebilldefault, in practice this has been difficult tooperationalize. This causes a huge revenuegap, and the company is forced to rely onannual government subsidies to remainoperational.Onesolution is to link seweragebilling to water billing, a practice knownas “joint billing” that requires collaborationwith water supply entities. Provisions inthe law already allow the water supply tobe disconnected in the event of default inseweragebillpayment.

Themethodofbillingandcollectionappearsinherently weak, with little recourse for theoperators to recover unpaid bills short oflegalaction.Stronginitiativesbytheregulatorcan facilitate collaboration between waterandsewerageoperatorstoresolvethis issue,especiallysincetheregulatorhas jurisdictionoverbothsectors.

(viii) When sewerage privatisation commenced in1994, neither IWK nor the government hadprepared the community for the changesthat would come about. As a result, therewas poor understanding of IWK’s role, verylowacceptanceof thescheduleddesludgingservice offered, and low willingness topay the bills. Subsequently IWK and thegovernment have embarked on massiveand widespread information disseminationand communication programmes to raisepublic awareness. Advertisements, mediablitzes, campaigns, exhibitions, site visits,open days, and many other events havehad tremendous impact. Acceptance andappreciationofIWK’sservicesandpaymentofbillshasimprovedvastly,butlingeringissuesremain. The awareness and communicationsprogrammesmayneedtobeintensified,withgreater involvementby thegovernmentandregulator.

(ix) Besidesthelargenumberofpublicseweragefacilities that IWK is tasked with operating

and maintaining, there are thousands ofprivate sewage treatment facilities. Underthe Water Services Industry Act, these aresubjecttothesameregulatoryframeworkaspublicfacilities(includingeffluentcomplianceregulationsformulatedbytheDepartmentofEnvironment).However,inpractice,theprivatetreatmentfacilitiesarelesswellmanagedandnot subject to the same level of regulatoryoversight.Thisoftenresultsinenvironmentalpollution due to malfunctioning orunderperforming private treatment facilities.There are sufficient enabling provisions inthe law, which needs to bemore effectivelyoperationalized by the regulators (includingthe Department of Environment, whichregulateseffluentdischarge).

(x) Environmental quality standards prescribeeffluentstandardsthatdependonthepointofdischargeoftheeffluent,withmorestringentstandardsfordischargeupstreamofdrinkingwater intakes.However, as the standards arebasedonpollutantconcentration,theydonotfullyallowfortheimpactofthedischargeonthereceivingwaters.Asaresult,resourcesfortreatment, operation, and maintenance aredistributedacrossfacilities,withoutfullregardforprioritization.

Inthisregard,thevariousentitiesarealreadydiscussingmoving toward amore equitableregulatory standard that would take intoconsideration discharge loads, the beneficialuseofreceivingwaterbodies,andassimilativecapacity. This should be viewed holisticallyonacommunitybenefitbasis toensure thatresources are more equitably allocated forbestoutcomes.

(xi) One shortcoming of the 1994 federalizationofseweragewasthatseweragemanagementwas brought under the federal government,while water resources and water supplyremained under state jurisdiction. Thisdisrupted water cycle-based management,and reuse initiatives for water resources arenotably weak. Moreover, state governmentsandlocalauthoritieswereleftoutofseweragemanagement matters, which is generallycontrary to the concept of decentralizedmanagement.

Integrity in Sanitation Access and Service Delivery: A Case Study of Malaysia’s Sanitation Sector10 11

(xii) Thefederalizationofseweragebroughtaboutgreatimprovementstothesector,butleftoutsome states and areas because the law wasnot operationalized uniformly. These areasare noticeably backward in sanitation andsewerage infrastructureandmanagementascomparedtofederalizedareas.

Lateramendmentsofthe lawin2008placedexecutive (and regulatory) power of watertreatment and supply under the federalgovernment, with a view to integrate waterservices, possibly on a state-based model.However, the common regulator of waterandsewerageserviceshasstillnotsucceededsignificantlyinintegratingthewatersector.Asa result, thewater cycle approach could notbeadopted,andbillingandcollection issuesforseweragepersist.

(xiii) Considering the predominantly “publicgoods” nature of sewerage, privatizationof these services would require stronggovernment support and regulation. Theinitial concession agreement to privatizesewerage services has shortcomings,including some related to setting targets,CAPEX,tariffandcostrecovery,andapparentinherent inefficiencies due to the sector’smonopolistic nature. The provisions of theconcession agreement under which IWKoperates may be inconsistent with currentlegislation (e.g., CAPEX responsibility,operational areas, targets, and tariffs).These all reflect shortcomings in theprocess of governance reform, and mayneed to be corrected through a reviewand restructuring of the sector. In view ofthe monopolistic nature of the seweragecompany, benchmarking to determine truecost is necessary. Institutional aspects thatmay need to be addressed include the roledefinitionsofvariousentities,aswellastheirindependence. The regulator is currentlyanswerable to the minister, which detractsfromindependentregulation.

(xiv) In spite of the various systems, safeguards,checks, and balances, issues pertainingto appropriate planning, technology,and implementation, as well as persistentincidences of lapses of integrity are stillbelievedtoexist.However,withthecontinuedefforts of the institutions concerned itis expected that these will be graduallyovercome. Strong preventive initiatives, forexample through the integrity units of theoperator and regulator, as well as oversightmechanisms and of course the vigilance ofthe  Anti-Corruption Commission will helpwiththis.

Conclusion

Malaysia stands out as a success story in ensuringthat the majority of its people enjoy safely managedsanitation. Strong points of its philosophy of integrityare seenatevery levelofgovernment, aswell asgoodgovernance,management,andcoordinationofresourceallocation.

Aspirations and Philosophy

Sincetheinitialstagesofsanitationdevelopmentinthecountry, the overarching driver of these initiatives hasbeen an aspiration at the highest levels for a healthyand happy nation, and the philosophy of integrity hasalignedactionstothisdesiredaspiration.Thevisionwasthatofanationwherepeoplecouldenjoyacleanandhealthy livingspace,and livehappilyand inprosperity.The government as a whole has an overall focus onintegrity,withsupportframeworksalignedtothis.

Policies and Strategies

Various policies and strategies aligned to this visionhave converged in contributing to the desiredoutcomes.Relevantpoliciesincludethoserelatedtotheenvironmentandwaterresources.

“The overarching driver of these initiatives has been an aspiration at the highest levels for a healthy and happy nation.”

ADBI Policy Brief No. 2020-8 (December) 12

Governance Structure and Institutional Frameworks The required institutions, including governmentministries, agencies, regulatory bodies, and privateentities, supported by private sector participants andall empowered and regulated by adequate legislation,rules, and regulations aswell as operating procedures,madetheprovisionofhardware,procedures,andservicedelivery smooth and efficient. Governance structureforpolicydirectionand regulation isprovided throughtheministryandnational regulator.Therearesufficientand appropriate legislative provisions, regulations,and guidelines to empower the relevant entities. Clearrole definition ensures institutional clarity, and thereis a clear lineof sight,withcheckandbalance systemscontributingtowardsintegrity.Stakeholderengagementhas been institutionalized at all levels, ensuringinformationdissemination,consultation,andownership.In addition, integrity units are mandated in relevantentities to undertake measures to create awarenessamong employees, and monitoring mechanisms toincreaseintegrityamongemployees.

Management-Level Policies

Fromtheperspectiveofresources,financialmanagementand procurement procedures are robust, with clearrole definition, and responsibility and accountability

ensure efficient, effective, and equitable investment.Management systems also encompass service delivery.Investmentplanningisdrivenbycatchmentplanswhilecapitalinvestmentisguidedbycriteria-basedevaluationof projects. Value management and engineeringsystemsensure thatprojectsalignwithobjectives, andthat projects are scoped to make the most from theinvestments.Governmentprocurementiswellregulatedthrough controls and procedures. There are guidelinesfor contractor and vendor management, bidding,evaluation,contractmanagement,andclearstipulationofapprovalauthoritywithvariouschecksandbalances.

Regulatory Policy and Arrangements

The water sector is closely regulated by an integratednational regulator, which has jurisdiction over watersupply, sewerage, and sanitation. The regulator coverseconomic, technical, consumer, and social aspects inthe regulation; and uses a business plan approach,withkey features including the ringfencingofoperatorfinances and regulatory accounting in ascertainingbusiness viability and setting appropriate tariffs. Otherindustryplayersareregulatedthroughpermits,licenses,andproduct registration. In addition, the regulatorhasassignedthecertifyingagencyroletolicencedoperators,to control developer-built infrastructure guided bydesign guidelines. To ensure control of the certifyingagencies, service levels are set and monitored, and

Figure 2: Ingredients for Integrity

Source: Author.

Integrity in Sanitation Access and Service Delivery: A Case Study of Malaysia’s Sanitation Sector12 13

periodicauditscarriedout.Anappealsprocessisalsoinplacetodealwithexceptionalsituations.

Operational Aspects

It is envisaged that operations on the ground willbe carried out through licenced operators, who areregulated for efficiencies and service levels. Operatorshavevarious internal controls includingbenchmarking,asset management, and risk management systems.Technicalinnovationsbytheoperatorenhanceintegrityandservicedelivery.

Ingredients for Integrity

What then are the ingredients for integrity in thesanitationsector?DrawingfromtheexampleofMalaysia,theseareshowninFigure2.

This isnot tosay therearenoshortcomings.However,the systems in place can address these with a morecoordinatedapproachandtweakingoftheapproaches.The experiences, ideas, policy options, and goodpractices from the perspective of integrity in thesanitation sector that has contributed to Malaysia’ssuccess can be a model for adoption with suitableadaptation to local conditions by other countriesstrugglingwiththeissue.

ADBI Policy Brief No. 2020-8 (December) 14

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CorporateIntegritySystemMalaysia.https://cism.sprm.gov.my/en/inisiatif/polisi(accessed14August2020).GovernmentofMalaysia,MinistryofEnvironmentandWater,SewerageServicesDepartment.http://www.jpp.gov.

my/ms-my/Pages/default.aspx(accessed14August2020).IndahWaterKonsortium,Malaysia.https://www.iwk.com.my(accessed14August2020).Indah Water Konsortium. Indah Water Sustainability Reports. https://www.iwk.com.my/corporate-profile/

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NationalWaterServicesCommission,Malaysia(SuruhanjayaPerkhidmatanAirNasional,Malaysia,SPAN).https://www.span.gov.my/(accessed14August2020).

Malaysian Anti-Corruption Commission, https://www.sprm.gov.my/index.php/arkib-kenyataan-media/142-knowledge/783-ministry-of-finance-knowledge(accessed9November2020).

OrganisationforEconomicCo-operationandDevelopment.OECDIntegrityFrameworks.https://www.oecd.org/(accessed14August2020).

Prime Minister’s Office of Malaysia. 2019. National Anti-Corruption Plan. https://www.pmo.gov.my/2019/07/national-anti-corruption-plan/(accessed14August2020).

VictoriaStateGovernment,VictorianPublicSectorCommission.Victoria(Australia)IntegritySystem.https://vpsc.vic.gov.au/html-resources/integrity-strategy-update-2017/objectives-and-outcomes/ (accessed 14 August2020).

WaterIntegrityNetwork.https://www.waterintegritynetwork.net/about/(accessed14August2020).WorldHealthOrganization.WaterSanitationHygiene:Economics.https://www.who.int/water_sanitation_health/

monitoring/economics/en/(accessed14August2020).

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