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MALAYSIA: Water Falls Under WTO Regime?

Anil Netto

PENANG, May 4 2006 (IPS) - Malaysian activists have expressed concern that two bills before parliament could pave the way for giant transnational corporations to corner significant stakes in the country’s domestic water sector.

The second reading in parliament of the two bills – the Water Services Industry bill and the National Water Services Commission (or SPAN, its Malay acronym) bill – is scheduled for Monday.

The bills would transfer control of water from the various states to a federal-level regulatory authority. The government says this would ensure that all Malaysians have access to affordable and clean, treated water.

Civil society activists, however, fear that, unless the bills clearly stipulate that water will remain under state control, the sector could be increasingly vulnerable to foreign takeovers.

Multinational water giants are now said to shying away from developing countries after incurring heavy losses and facing formidable obstacles, including civil society protests over soaring tariffs.

But they remain interested in specific regions where they see a strong potential for assured profits. Unlike places such as Jakarta and Manila, Malaysia could prove to be a safe magnet for these multinational firms as state-owned water authorities here have been chalking up sizeable profits despite the constraints they face.

Economist Charles Santiago, coordinator of the Coalition Against Water Privatisation (CAWP), pointed out that the European Commission(EC) had already requested Malaysia to open up it water sector under the General Agreement on Trade in Services (GATS).

Malaysia is the European Union’s second largest trading partner in South-East Asia. GATS, which came into effect in 1995, falls under the umbrella of the World Trade Organisation (WTO) and covers a range of services such as health care, education and water. It aims to phase out all ”barriers” to international competition in a country’s services sector and to promote effective ”market access”.

The EC’s request to Malaysia was contained in a confidential document titled ‘GATS 2000 Request from the EC and its Member States to Malaysia” in early 2002.

It was subsequently leaked and published on a couple of websites, including GATSwatch, a joint project of the Corporate Europe Observatory and Transnational Institute, both based in Amsterdam. The document carries a note at the top: ”Member States are requested to ensure that this text is not made publicly available and is treated as a restricted document.”

In the document, water falls in the category ”Water for human use and waste water” under the innocuous heading ”Environmental services”, one of twelve Malaysian sectors the EC wants liberalised. The EC asked Malaysia to ”take commitments under MA (market access) and NT (national treatment)” with respect to water.

The principle of ”market access” exerts pressure on developing countries to provide guaranteed and irreversible access to their domestic sector. Critics say such access wipes out many government policy options and reduces the scope for democratic authority over these services. ”National treatment”, one of the basic tenets of ‘free trade’, bars governments from favouring their domestic sectors over foreign firms.

The EC also said the requirement for foreign firms to seek approvals for significant investments is a restriction that it wants removed. Such approvals are a key national regulatory tool to ensure that foreign investments serve Malaysian interests.

Thierry Rommel, head of the EC delegation in Malaysia, could not be immediately reached for comment. IPS spoke to three officers at the delegation’s office, but none appeared familiar with the contents of the request. One of them, however, said the EC had not been involved in the Malaysian water sector over the last two years.

Campaigners warn that if the Malaysian authorities confine the award of licences to local water firms only, this could also be construed as violating GATS, no matter what parliament here or SPAN might say. ”Foreign companies will argue that the (water) bills are trade restrictive and thus violate GATS rules,” said opposition Leader Lim Kit Siang in his blog. ”They will argue that the powers given to the minister are far reaching, including non-transparent decision-making, and that the bill is a trade barrier.”

Santiago is alarmed that few parliamentarians had even heard of GATS until now. ”MPs are quite clueless about what GATS is,” he lamented to IPS.

Minister for energy, water and communications Lim Keng Yaik sought to dispel fears of a takeover by foreign firms. ”The government is firm that Malaysia will not liberalise the water industry as it is considered a basic utility and should not be opened for international market forces to determine,” he said.

Under the bills, a new national water assets management company (Wamco) would be set up to buy up all existing water infrastructure. Owned by the finance ministry, Wamco would then raise low-interest funds to finance the acquisition and the building of infrastructure, which will then be leased to state-owned or private operators.

The states of Johor and Selangor as well as Kuala Lumpur have already privatised their water management. Several other states had also indicated that they too would be proceeding with water privatisation.

But water minister Lim said that all these other states would have to ”corporatise” their water authorities and that SPAN would serve as the central regulatory body. ”There will be no more privatisation as the water operators will be given licences to operate,” he said, adding that the government would honour concessions already signed by Johor and Selangor states.

The minister also stressed that consumer interests would be represented through a proposed ‘Water Forum’. There would be no more automatic water tariff hikes for private concessionaires and any proposal to increase tariffs would be scrutinised by SPAN, which would consider the views expressed by the forum with cabinet having final say.

All the same, private firms will be eyeing the budget of 16 billion ringgit (4 billion US dollars) that the government intends to spend on upgrading the country’s water infrastructure over the next five years.

Santiago, for one, is not letting down his guard. He says the new water bills are ”pro-industry” and the minister, Lim, would become ‘super-powerful’ while SPAN would not be independent but merely advisory.

”Lim can say anything he wants but it will have no significance to WTO discussions where trade-offs between countries are the norm,” he warned. ”The only way the country can ensure that water doesn’t falls under our GATS commitment would be to ensure that water is provided as a government service.”