No to Solid Waste Privatisation by Tricia Yeoh

In the August edition of the Penang Economic Monthly, here is the latest installation of my “States of Reform” column. I make an argument against solid waste privatisation, and elaborate upon why certain states like Selangor, Penang, and yes even Perak, is rejecting this proposal by the Federal Government.

No to Solid Waste Privatisation

On a Malaysian online directory listing, Alam Flora Sdn. Bhd’s description of itself reads “We’ve been entrusted by the Government to manage the privatisation of the national solid waste management system for Selangor, Wilayah Persekutuan and Pahang.” This must be an outdated website, as the Housing and Local Government Minister Datuk Chor Chee Heung’s recent written Parliamentary reply stated that the federal government’s plan to privatise solid waste management would not include the states of Penang, Selangor and Perak.

In this column last year, I had written about the federal government’s plans to privatise solid waste management, based on the Solid Waste and Public Cleansing Management Act 2007 (“The Act”). At the time, negotiations were ongoing between the federal government, state governments and private concession companies, namely Alam Flora (to take over solid waste management in the central zone of Peninsular Malaysia), E-Idaman (northern zone) and Southern Waste Management (southern zone). Several months later, it is now confirmed that the legislation will take effect on 1st September 2011.


Prior to the passing of the Act, numerous problems with solid waste management had been in existence, namely the issues of waste generation (Malaysia produces 25,000 tonnes of waste daily and this number is increasing steadily), waste collection (inconsistent and inefficient collection), and waste disposal (not enough waste being recycled and landfills no longer have space). Passed in 2007, the Act states that the federal government shall “have executive authority with respect to all matters relating to the management of solid waste and public cleansing throughout Peninsular Malaysia and the Federal Territories of Putrajaya and Labuan”, with the intention of centralising solid waste management activities at the federal government, effectively removing this responsibility from local authorities.

What does the Act actually allow for? First, it gives significant control of solid waste management to the Director-General of Solid Waste and Public Cleansing Management. It also states that no person is allowed to undertake, manage or operate any services related to solid waste management unless he is granted a licence under the Act. The implementation of the Act will involve the setting up of two bodies, one to regulate and another responsible for operations, namely the Department of National Solid Waste Management as the regulatory body and the Solid Waste and Public Cleansing Corporation in charge of operations. Privatisation will include collecting household and similar waste; cleaning the streets, drains, beaches; and clearing the trash piles.

Under the definition of the Act, “solid waste management facilities” means any land, fixed or mobile plant and systems incorporating structures, equipment used or intended to be used for the handling, storage, separation, transport, transfer, processing, recycling, treatment and disposal of controlled solid waste and includes transfer stations, disposal sites, sanitary landfill, incinerators and other thermal treatment plants, recycling plants and composting plants.

Pakatan States in Disagreement

The Minister stated that the decision not to include several states into the new arrangement was not political in nature. He is right in this regard, since it is these state governments themselves that are not willing to join the scheme.

Both the Penang and Selangor state governments have clarified their positions clearly. Penang Chief Minister Lim Guan Eng gave three reasons for rejecting the privatisation plans, where first, the state government would not be able to ensure the highest level of service by contractors and would be held responsible for complaints. Second, the selection of contractors are done through limited (and not open) tender, and there is no guarantee of the best price, quality and management. Finally, he said that this erodes the existing powers of the state.

In Selangor, the local government committee chairman and executive councillor Ronnie Liu said the state government would prefer to administer solid waste management services through local authorities, where privatisation would encumber the system with further bureaucracy and deprive ratepayers of efficient service.

It is interesting to note that the Perak state government is also not on board the federal government privatisation scheme, although discussions are still taking place.

What is the real deal?

Prior to the Act’s implementation, local councils administer solid waste management by contracting out these services to private concession companies. Some local councils take on the responsibilities on their own, like the Hulu Selangor local authority in Selangor. However, in the past, local council management has not been a financially viable solution, where almost 40 percent of local council revenues are used for solid waste management.

The federal government defends the move to privatise solid waste with several points. First, it says that people would now experience better solid waste disposal and cleaning of public areas without having to pay extra as the federal government would bear the additional cost for the increase in quality. Second, that companies will be given key performance indicators (KPIs) and must perform based on these.

These are fundamentally flawed arguments, if one looks closer at the real deal.

How things will actually work is as follows. The two new bodies (the Department of Solid Waste Mangement and the Solid Waste and Public Cleansing Corporation) will likely have offices at the city, town and district levels. This will involve the employment of hundreds of staff at these offices to conduct both regulatory and operational work. The estimated salaries of these hundreds of employees across the country should be calculated as part of the costs involved, and ought to be publicly disclosed.

Secondly, although people would not be paying, this is true only for the first five to seven years. The Minister himself has said that “after the KPI is fulfilled and people feel satisfied with the services, we will start charging”. This means that starting from 2016, residents will have to pay a “solid waste management” bill directly to concession companies, in the way we pay for water supply services to Syabas currently. It is misleading to say that the federal government will cover all costs, as this is only for a temporary period. To date, no fee schedule has been made available.

Third, even if funds were coming from the federal government, these are effectively tax-payers’ money, which renders it necessary to ensure every Ringgit is being used most efficiently and for the right purposes. Under the Act, a Solid Waste and Public Cleansing Management Fund will be established, sums of which will be contributed by the state government and local authority, as well as moneys from the federal government. According to newspaper reports, the companies will be receiving RM500m and RM600m a year from the federal government, what is essentially an interest-free grant on top of what they would receive as assessment fees from households.

Privatisation is not the way to go

On principle, this entire privatisation scheme is something Malaysians should be wary of. The quality of service provided to households would not necessarily change, since the concession companies being contracted are actually the same as at present. The only differences are that there will now be a regulatory body and an operations body that will keep track of their adherence to KPIs, and a large sum of money given to them annually.

This goes down the exact same track as that of water privatisation. The federal government has not learnt from its past mistakes. These concession companies will have no incentive to perform as they are given long-term concessions, generous grants from the federal government, and with little competition. What guarantee is there that the three companies will perform any better than at current levels, despite given stringent KPIs?

Secondly, as I have argued previously, the move to centralise policy matters at the federal government goes against the nature of Federalism that Malaysia is supposed to practice. State and local governments are given certain jurisdictions precisely because they are better placed to manage and oversee conditions at the residential areas. By taking these away, not much else is left, and worse – local councils, councillors, and state representatives would not be able to respond to people’s grievances on solid waste.

Finally, some real issues will have to be dealt with, including negotiating for taking over solid waste management assets belonging to local councils, and the eventual fee schedule paid to concessionaires by households. The decision by both Penang and Selangor – and Perak – not to participate in this privatisation is a bold one, but it also remains to be seen how these states then manage the problem of solid waste management on their own, with hopefully innovative solutions.

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