Revitalising Affected Sectors

National Economic Recovery Plan
Chapter 7



Rapid economic growth had led to capacity constraints of infrastructure in the early 1990's, which required immediate attention to increase capacity and accessibility. To accelerate infrastructural development, private sector participation complemented public sector efforts. However, infrastructure projects have high capital costs and long gestation periods and are highly susceptible to economic slowdowns. The most immediate impact of the current slowdown is the deferment of projects.

The following measures are recommended:-

  1. Infrastructure projects should be continued to provide a catalyst for sustaining a reasonable rate of economic growth.

  2. As selection criteria for infrastructure projects to be implemented under the current situation, the following factors must be taken into account:

  3. Projects with low import content

  4. Projects which improve the quality of life

  5. The Government will identify the specific projects for implementation.

  6. Corporatised entities and port authorities that have either surplus revenue or investible funds should focus on their core business activities and not indulge in the stock market, as was the case in certain corporatised entities and port authorities.
  • Ports

The volume of traffic handled by ports has declined due to lower imports and only a marginal increase in exports. Overall, the growth rate is expected to drop from 13.4 per cent to 10.2 per cent. This has resulted in a drop in revenue. To compound the matter, shipping lines and other port users have asked for reduced rates as they too have been affected by the crisis. There have been demands for variations in rates for port facilities, particularly for berths, into peak and slack periods.

The lower trade volume has also resulted in underutilisation of facilities and resources, which has greatly increased costs. The lower revenue, higher costs and underutilisation of facilities have forced the deferment of capital expenditure and investments, e.g. expansion of NBCT Phase II including land reclamation, Jetty LNG II in Bintulu Port.

West Port Terminal Operator has problems with obtaining funds for development and high interest rates. Clients are unable to fulfil guaranteed throughput especially fertiliser and grains. There is underutilisation of facilities and an increase in the dwelling time of containers. There is also pressure to reduce rates.

Tanjung Pelepas Port Phase I is estimated to cost RM2.8 billion but has escalated due to the crisis.

The following measures are recommended:

  1. Operational costs should be reviewed and unnecessary expenditures and excesses cut.

  2. Increase efficiency and productivity of port operations.

  3. Initiate more intensive marketing of Malaysian ports to encourage greater use of local ports.

  4. Deferment of extensive expansion plans which are of very high cost. However, projects for upgrading facilities and medium-term capacities should continue to ensure adequate capacity when the economy recovers.

  5. Maintenance of port facilities such as structural repairs of wharves, dredging, refurbishment of equipment should be continued to ensure operational efficiency, minimise cost in terms of repairs and down-time as well as increase safety.

  6. The phasing and implementation of Tanjung Pelepas Port in Johor be reviewed. However, construction of one wharf and bunkering facilities should be expedited.
  • Airports

The volume of traffic handled at Malaysian airports in terms of passengers, cargo and aircraft movements have declined after reaching very healthy growth rates during the past 10 years. The drop in revenue is due to the dismal passenger load factors of all airlines. MAS's average load factor dropped from about 70 per cent to 60 per cent. Airlines have cut back on flights and reduced the size of aircraft servicing routes.

The operational and maintenance costs at KLIA, Sepang will be very much higher than those in Subang, but tariffs are to remain at Subang airport level to make KLIA competitive for the first three years. Currently, certain airports at Ipoh and Kuala Terengganu are already not profitable and are being cross subsidised by the more profitable airports in Subang, Penang, Kuching and Kota Kinabalu. With the move to KLIA and the good road system, more airports will experience greater drop in traffic and revenue. It is estimated that there will be a drop of 2 million passengers a year from airports in Ipoh, Penang, Johor and Kuantan.

The following measures are recommended:

  1. Increase non-aeronautical revenue by promoting retailing at airports. However, commercial activities should not be carried out at the expense of airside operations and safety and passenger comfort i.e. commercial activities should not subjugate airport operations and management.

  2. Optimise efficiency and productivity to control costs including efficient maintenance practices and contract management.

  3. Operate KLIA efficiently and competitively to promote KLIA as a hub airport for the region. This will attract more airlines to use KLIA and thus increase revenue.

  4. Promote KLIA duty-free shopping by offering competitive and high quality duty-free goods.

  5. Provide world class facilities and services for customer satisfaction.

  6. Promote tourism and entertainment in KLIA Sepang eg. car racing.

  7. Other domestic airports should not be neglected especially in terms of passenger facilities. Terminal buildings should be upgraded and maintained at an appropriate standard while air safety requirements should be of top priority even though returns may be slow.

  8. Where possible, provide permanent facilities for large courier companies, and other courier companies should be encouraged to use Malaysian airports.
  • Rail

The rail sector experienced a 20 per cent decrease in freight volume as a result of the current economic slowdown. The recent investment into electrification and double tracking, has resulted in KTMB having a high gearing and large overdrafts. Coupled with operational inefficiencies and high costs, funding has become a major problem. Hence development plans for expansion have to be reviewed.

The following measures are recommended:-

  1. Several major rail projects, which are of very high cost but providing low returns, should be reviewed with the aim of deferment such as the Tilting Train and the Kulai - Johor Bahru electrification projects.

  2. Rail links to ports and airports need to be implemented for long term demand and to promote multimodal transport.

  3. The implementation of the rail links to Tanjung Pelepas Port should be slowed down as demand in early years of operations are not expected to be high, while the cost is tremendous.

  4. Rail links for the IMT-GT should be expedited.
  • Roads

The development allocation for the roads subsector is divided into two parts, namely public roads and privatised roads. Allocation for privatised roads is for land acquisition and support loan. Privatised projects which have not begun are experiencing financing problems. However, since the privatised areas are expected to have high returns, the lack of financing is expected to be only a temporary setback. Once the financial situation stabilises, these projects will be able to be implemented.

The following measures are recommended:-

  1. Allocation provided for certain less priority roads that have been privatised and are now deferred should be used to finance public roads of high priority, including rural roads.

  2. Privatised roads in the Klang Valley that are designed to relieve heavy traffic congestion should be continued.

  3. Rural roads should be given priority to contribute to the expansion of new industrial activities in rural areas and to promote the efficient marketing and distribution of rural produce, especially food items, to urban centres to reduce imports.
  • Water

The supply capacity for the Klang Valley in 1997 and 1998 is at 2553 million litres per day (mld) while demand is expected to increase from 2454 mld. in 1997 to 2658 mld. in 1998. Disruption of water supply is caused by:

  1. Interruption of electricity supply which affects pumping stations and treatment plant operations.

  2. Pollution of source water through careless discharge of effluents.

  3. Burst pipes that are not repaired immediately.

  4. Realignment of pipes.

The shortage of raw water is due to massive and indiscriminate cutting of trees and hills which depletes catchment areas as well as accelerate surface runoffs and flash floods. There is wastage of treated potable water through leakages due to poor maintenance of reservoirs and pipelines, thefts of water, as well as wasteful usage such as washing cars with running water.

Water supply disruptions cause financial losses to industries that depend on water in their work processes as well as hardship and inconvenience to the public.

The following are recommended:

  1. Planned systematic water rationing for short-term solution to present water crisis.

  2. All development projects that involve land clearing be planned on a systematic basis, taking into consideration the environmental impact on a broader basis, not just confined to the area where the development will take place.

  3. Emphasis should be given to the protection of catchment areas and conservation of water sources for long-term sustainability.

  4. More stringent controls on discharge of effluents and pollution.

  5. While new treatment plants may need to be built to cope with urban population growth, measures should also be taken to prevent leakage of water through better maintenance and installing new and better quality pipelines. Punchak Niaga should repair the piping system to reduce leakage and non-revenue water.

  6. To prevent theft of water, particularly by squatters, metered standpipes be provided to these areas and all illegal pipe lines be disconnected.

  7. Consumers should be educated on the importance of water and the depletion of water resources, to instil greater responsibility in the usage of water. By curbing wasteful demand, there will be less water shortage.

  8. The provision of a separate water distribution and reticulation network for industrial and general-purpose usage. Even though the initial capital outlay will be high, the long-term savings in terms of water treatment plants and loss of water will be substantial.

  9. Review water charges to discourage wastage based on higher tariffs for greater consumption.

  10. The water pipelines should be cleaned and repaired to prevent leakage and reduce water loss.
  • Sewerage

Indah Water Konsortium (IWK) has taken over more sewerage treatment plants than the originally estimated 1,800 plants. The extent of refurbishment and maintenance needed has also been underestimated. With rising costs, IWK faces problem with revenue collection because its customer database is not up-to-date and many customers refuse to pay their rates. IWK also claims that it is unable to commence with the planning and design of new treatment plants because of the unavailability of land. It is also unable to desludge and refurbish existing treatment plants due to the lack of sludge disposal sites.

On the other hand, customers feel that the tariffs charged are high and are an additional cost for them to bear. They perceived that the price of a public utility has increased following the transfer of the service from the Government to the private sector.

The following measures are recommended:-

  1. IWK should increase its operational efficiency and productivity.

  2. IWK should provide services at reasonable rates to encourage customers to use its services.

  3. Local Authorities need to give a rebate on sewerage costs to consumers from assessment rates once IWK takes over the services. Customers do not want to pay twice for the same service.
  • Electricity

Peak demand for electricity is expected to increase by 10 per cent per annum during the latter half of the Seventh Plan period. Power Generation capacity in 1998 is expected to total around 13,600 Megawatts (MW), while peak demand is forecast to be approximately 9,200 MW. As a result, the reserve margin will register a comfortable 47 per cent in 1998. i.e. the generation capacity is more than adequate to meet domestic demand.

The main problems lie with the transmission and distribution networks which, as yet, are unable to guarantee continuous electricity supply to the consumers. Interruptions due to trippings caused by factors such as lightning, incorrect operations, relay failures and inadequate maintenance have caused delays and downtime in transmission, with a total of 25 Giga Watt hour (GWh) of energy lost. Many transformers are also operating beyond firm capacities leading to inefficiencies in the system.

The distribution sector determines the quality of service to consumers. Supply disruptions have been caused by factors such as overloading that causes fuses to blow, excavation that damage underground cables and poor workmanship of materials and equipment. To improve the quality and security of supply, the Supervisory Control & Data Acquisition System/Data Automation (SCADA/DA) programme needs to be installed in the distribution network in stages from 1998 - 2004 costing more than RM550 million. However, TNB faces budget constraints. TNB proposes to execute the project in phases, with the first phase (1998-2002) covering the areas of Putrajaya, the Federal Territory, Selangor, Johor, Penang and Perak. The second phase (2002-2004) is to cover all state capitals in Peninsular Malaysia.

The following measures are recommended:

  1. Upgrade and increase the number of substations and carry out overall systems development.

  2. Institute faster measures for inspection and rectification to minimise the occurrences overhead line trippings. In addition, undertake proper and regular maintenance of equipment.

  3. TNB should review the effectiveness of a scaled-down SCADA programme and the financing aspects of the system.

  4. Expedite the formation of a company to distribute electricity.

  5. All entities in the country should keep a maintenance manual to ensure proper and regular maintenance is carried out.

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