Puncak Niaga is the leading provider of integrated water, wastewater and environmental solutions in Malaysia. The company was founded in 1997 and that year became the first of its kind to be fully listed on the Malaysian stock exchange, the Main Board of Bursa Malaysia Securities Berhad. At the end of December 2010 its market capitalisation stood at RM945m ($319.2m).
The company has been operating for 15 years, but business is about to go into overdrive. In the next 12-18 months, Malaysia is expected to see a growth in industry as well as an increase in population from 28 to 29 million – these combined forces have led the company to adopt a strategy focused on innovation.
“Malaysia needs a vibrant water industry that is anchored on technological development and R&D activities to help grow the local industry cluster and create a competitive edge for Malaysian-based companies in the global market,” says Tan Sri Rozali Ismail, founder and Executive Chairman of Puncak Niaga. “To meet these challenges we will need innovations in water resource management, development and governance, as well as financing models to encourage investments. Innovation is a much broader notion than R&D and is therefore influenced by a wide range of factors. Innovation can only happen if we have a good foundation for research.”
For Puncak Niaga, continuous investment in R&D is the foundation of this innovation, with specific focus on improving the quality of urban infrastructure and resource management. Sustainability, cost effectiveness, broad-spectrum water treatment, public health protection and meeting the water needs for urban growth are particular areas of focus.
To drive this forward, Tan Sri Rozali strongly believes in the need for co-operation between the public and private sectors, as well as academia. This “innovative partnership approach,” as he calls it, is in line with initiatives put in place by the Malaysian Prime Minister under the Economic Transformation Programme (ETP). Additionally, the pursuance of a private sector-led economy has led to greater consultation with consumers and the growth of public-private partnerships in the water industry.
Transforming a nation
While the ETP has an influence on the economy as a whole, the 2006 Water Services Industry Act governs the restructuring of that specific sector. Despite making good progress and achieving several milestones, the industry still faces a range of challenges, particularly in supplying water to rural areas. “Malaysia is still battling with issues of escalating costs in meeting [these needs],” explains Tan Sri Rozali. “To manage increasing costs to meet social obligations with equally stubborn tariff rate increases can pose serious business issues for water operators and the government alike.”
The restructuring of the water services industry, however, is only one part of a government-led reform of the whole Malaysian socioeconomic structure. Two strategies have been put in place to achieve this – the Government Transformation Programme (GTP) and the aforementioned ETP. The GTP includes six National Key Results Areas dedicated to effecting social change: enhancing the quality of education, upgrading public transportation, reducing corruption, reducing crime, upgrading rural infrastructure and uplifting low income households. The ETP aims to effect economic change through its 12 National Key Economic Areas. This programme is projected to raise Malaysia’s per capita GNI from $6,700 in 2009 to over $15,000 in 2020, closer to the level of other high-income nations.
Of the 12 key economic areas – which range from education, to tourism, to agriculture – the one that will have the biggest impact on the water industry and Puncak Niaga is ‘Greater KL/KV.’ This key area, which is broken down further into 10 Entry Point Projects, deals with the development of the Greater Kuala Lumpur/Klang Valley region. Greater KL is already the largest contributor to Malaysia’s GNI, but this programme aims to increase that contribution to more than seven times that of the next urban centre, Johor Bahru. Additionally, this area of the ETP will contribute 2.5 times more to GNI than the next largest area: oil, gas and energy.
Robust water and wastewater services for public and environmental health are key to bringing about this growth. Two of the Entry Point Projects deal with this area specifically: “Developing an efficient solid waste management ecosystem,” and “Sewerage – Non River.” To deal with this, Tan Sri Rozali says, “We can expect sector specific reform to enhance stocks of renewable resources, reducing environmental risk and rebuilding our capacity to generate future prosperity.”
Innovating partnerships
Forming the foundations of this drive forward in the water sector are public-private partnerships. The efficacy of private sector participation in the delivery of public service has already been proven in the energy, transport and health sectors. Public-private partnerships have – when implemented correctly – reduced costs, increased investment and let the state reallocate savings to other areas, such as infrastructure.
“Both the public and private sectors have a unique and yet symbolic role [to play in] the betterment of the water sector,” explains Tan Sri Rozali. “Water runs across state boundaries and regions: we need a proactive private sector and government agencies to tactically manage regional issues and to innovate towards more productivity-led services.” To achieve this, he says, government and companies must both be redesigned for growth, with new business strategies and greater organisational relevance.
One of the major areas Tan Sri Rozali picks out that could best benefit from public-private partnership schemes is research and development. For him, universities are the roots of the R&D tree, providing new product ideas or new methods of overcoming existing technical issues. As universities receive grants and funding from the government for research, public sector funding and private sector innovation are brought together at this stage.
“At Puncak Niaga, we are constrained by limited returns on R&D,” he says. “The most pragmatic approach is for both the public and the private sector to work together to gear up strategic R&D in the water industry. This can be both for developmental purposes as well as increasing the capacity of the water players for outward investment, leaving them market ready for strategic alliances.”
Of course, privatisation of utilities is not a new concept. The privatisation of the Malaysian water industry – which Puncak Niaga was involved with – took place in the 1990s. Since then it has had great success replacing the existing dilapidated water system with a new, modern one – particularly in Selangor, Putrajaya and Kuala Lumpur. “There are important challenges facing the water sector in both developed and developing countries,” says Tan Sri Rozali. “The maintenance of existing infrastructure and expanding the existing network needs financial autonomy plus sustainable and equitable tariffs, along with efficient revenue collection. But I believe that privatisation is one of the more effective ways to secure effective and efficient service for the people.
“With a private sector-led economy, the private sector will play a major role in the water sector,” he says. “Of course privatisation also reduces the burden of government subsidies.” He admits that the Malaysian privatisation model is not perfect and still has challenges to overcome. However he believes that once the ongoing restructuring exercise has been completed and the gradual tariff rate implemented, these obstacles will be greatly reduced.
Striking a balance between public interest and private interest is also crucial. “A private sector like ours needs to maintain the bottom line and the government also needs to maintain the distribution of wealth in an equitable manner,” says Tan Sri Rozali. “But I am quite confident that with the current pragmatic government and forward looking administration, we will overcome these challenges soon enough.”
Expansion and diversification
As far as the future is concerned, the world is Puncak Niaga’s oyster. Trade liberalisation permitting the free flow of goods, services and people in Malaysia brings numerous opportunities for the company. Its future plans can be split into three areas – expansion within Malaysia, international expansion and diversification.
“We want to build a successful brand of trust, based on good service and reputation. We are after all in the business of treatment of a very vital natural resource,” says Tan Sri Rozali. “Additionally, while Malaysia, with a population of 28 million, is big, we need to look beyond our shores for business. So we are now exporting our core expertise to China and India, and exploring opportunities in Bangladesh, Kazakhstan, Laos, Cambodia, Mongolia, and other Asian Countries.”
In terms of diversification, the company has set its sites on the oil and gas sector. “Upstream oil and gas production contributes RM 87bn to the economy, while downstream activities contribute RM 24bn. Separately, the energy sector contributes an additional RM 16bn to this sector. We view this as a huge opportunity to diversify into the oil and gas sector.”
This is an exciting time for Puncak Niaga, with a plethora of opportunities arising across many areas. With its knowledge, experience and enthusiasm for innovation and collaboration, there is little doubt that these ambitions will soon be bearing fruit.
For further information www.puncakniaga.com.my
