Environmental Technologies Industries

Environmental Technologies Industries

Market Plans

Malaysia Environmental Export Market Plan

Chapter 2 - Overview of Malaysia's Environmental Market

In Southeast Asia, Malaysia was among the first countries to give priority to the environment in its long-range economic plans. While the country's pollution problems are not as severe as those of other rapidly developing countries in Asia, the lessons of environmental degradation have not been lost on Malaysia, which has been growing at an average of 8 percent annually for most of the last 10 years.

With rapid urbanization and industrialization, however, the waste management infrastructure is inadequate to meet the country's burgeoning requirements. The past decade of unprecedented economic growth has caused serious pollution problems, most caused by industry. Poor land use planning, weak enforcement, and inadequate investment in environmental technologies have led to widespread soil erosion, massive deforestation, worsening soil conditions, and water and air pollution.

Malaysia was among the first Asian countries to formalize environmental management policies in its Third Plan (1976-1980) listing the country's long-range economic objectives. In response to the rising international importance attached to environmental issues, the government implemented measures in the Sixth Plan (1991-1995) to ensure that productivity and economic growth were not compromised in the long term. Malaysia plans to continue efforts under the current Seventh Plan (1996-2000) with hopes of increasingly integrating environmental and conservation considerations with development planning.

How these plans will be carried out amid the current economic turmoil is unclear. Historical precedents have shown that an economic slowdown can lead to corresponding decreased expenditures on environmental improvement. There is no question that under Prime Minister Mahathir’s ambitious template for industrialization, economic development will remain the overarching principle, with environmental protection playing a distant background role.

At the same time, Malaysia's prolonged haze problem, emanating mainly from man-made fires perennially set in the heavily forested areas of Indonesia, has highlighted the country's continuing environmental ills. Alongside the financial crisis, the haze also coincided with a rash of water contamination incidents, prompting widespread public criticisms of the country's deteriorating quality of life. Fueled by a growing middle class, increasingly vociferous environmental groups, and persistent media attention, public pressures reached a crescendo during September and October 1997, when the haze was at its worst. While the haze and the public outcry both abated in the wake of monsoon rains that controlled the fires, industry analysts believe the situation led to greater environmental awareness among business and industrial communities and the general public, as well as highlighting the probability that the haze problem will continue to get worse before it gets better.

Over the past decade, the government has given a higher priority to environmental matters, beginning with water and wastewater treatment, air pollution control, hazardous waste management and, more recently, solid waste management. The recent tightening of regulatory and legal enforcement mechanisms, as well as other initiatives, has yielded some favorable results. But as the country continues to pursue rapid economic development, its ability to combat the deterioration of the environment has been undermined. Despite the government's implementation of environmental laws and regulations, it has found that enforcement measures need to be further strengthened to ensure full compliance.

The authorities have noted a deterioration of water quality in most of the country's waterways and, until recently, there has been little public attention on air pollutant discharges, which were at their worst in 1997. The country is only now beginning to address worsening problems of hazardous and solid wastes. Still unknown is the extent of soil and groundwater contamination from septic tanks, landfills, disposal sites, leaky storage tanks, and oil spills that occur with great regularity in Malaysian waters.

While the government has embraced a vision of sustainable development, the Department of Environment (DOE), under the Ministry of Science, Technology, and the Environment (MOSTE), has not been equipped with adequate powers, financial resources, sufficient manpower, or the technical tools to do its job effectively. The 1997 federal budget allocated $106 million to DOE, which is only about 0.01 percent of the total 1997 budget-a low commitment compared to the amounts allocated to other sectors. In a climate of severe economic uncertainty, industry executives assert that enforcement becomes a true measure of the government's commitment to environmental improvements.

As government agencies try to head off the impact of sharply curtailed budgets, a hard-pressed DOE nevertheless appears serious about enforcement, pursuing a multipronged approach to ensure regulatory compliance. DOE’s 1998 budget was cut to about half the 1997 level. DOE officials said that the impact of the cuts would most likely be felt in development rather than in operations. This means that cuts will probably not affect monitoring and enforcement; instead, a few projects will be delayed. However, the agency will be even more hampered by financial constraints in undertaking comprehensive enforcement.

Amendments in August 1996 to the 1974 Environmental Quality Act (EQA) provided a much-needed stimulus to Malaysia's emerging environmental market. These amendments introduced a twofold increase in penalty fines and prison terms and granted greater authority to DOE to close down polluting factories and confiscate property. In addition, the new provisions strengthened regulations and introduced requirements on hazardous substances. Three principles were engendered in the provisions: a cradle-to-grave approach in dealing with toxic and hazardous substances; resource conservation through introduction of deposit and rebate schemes; and the expansion of the “polluter pays” principle by establishing an environmental fund that will be used to compensate for property losses or damages. However, even government officials acknowledge that much more remains to be done to update many other pieces of environmental legislation. Some of these laws are out of date, while others are unclear or face overlapping jurisdiction.

Amid the economic uncertainties, the authorities appear to be forging ahead with environmental improvements in water-wastewater and waste management sectors. Some of these programs have the advantage of being considered essential. However, the pace of development, particularly of large infrastructure projects such as hydroelectric dams, will be slower. In the short term, the government's austerity package and policy changes will dampen private sector interest. Domestic financing has been adversely affected, with banks drastically curtailing credit facilities and revenue growth delimited by the Central Bank.

Market Potential

The market opportunities are diverse. However, under the Seventh Plan Malaysia is giving top priority to waste reduction and development of integrated solid waste management. Senior DOE officials have listed eight priority areas for public-private collaboration in the environmental sector. These are water treatment technologies, site remediation, air pollution control, commercial production of pollution equipment, total quality management, resource training and development, research and development, and promotion of energy efficiency and conservation programs. Malaysia also participates in a number of international initiatives that enhance cooperation with private sector technology and service providers in the environmental field.

Malaysia's industries, particularly the more forward-thinking large enterprises that rely on exports, are also beginning to adopt advanced technologies to improve competitiveness. Some industries have adopted environmental management systems and are cultivating a “greener” corporate image.

Privatization

Malaysia's proven commitment to private sector involvement in infrastructure development in general and environmental management programs in particular has led to successful privatization of most major environmental services sectors (see table 2). The national privatization policy was implemented in 1983 with a toll road project that was part of Malaysia's economic reform and deregulation. The major objectives of privatization were to:

Relieve the financial and administrative burden of the government;
Improve efficiency and increase productivity;
Reduce the size and presence of the public sector in the economy; and
Help meet national development targets.

Since then, privatization has been a cornerstone of Mahathir’s vision of Malaysia as a fully developed economic powerhouse by 2020. Implementation comes in different forms, including sale of assets or equity, lease of assets, management contracts, build-operate-transfer (BOT), and build-own-operate (BOO). However, many large infrastructure projects have been awarded to prominent business groups without competitive bidding.

Malaysia's aggressive privatization campaign has been touted as a showcase for environmental infrastructure programs in the region. Water and wastewater treatment, air and water quality monitoring, commercial vehicle inspection, hazardous waste management, and medical waste management programs are underway, and the foundations have been laid for a nationwide solid waste management program, which is scheduled to be implemented in 1998-99. Near-term opportunities are in private vehicle emission monitoring and aerial surveillance and monitoring programs. The monitoring of hazardous waste transport and disposal and of marine pollution from ships will also be privatized.

Privatization will probably continue to underpin Malaysia's overall economic development in the longer term, including that of its environmental industry. For instance, the privatization of Malaysia's sewer system design and construction has spawned equipment and services contracts in capital improvements. In the shorter term, however, these projects will be affected by the government's fiscal austerity measures and policy changes.

Major privatization opportunities in the environmental arena have focused on water and wastewater treatment. In the water supply sector, the market for major concessions is virtually saturated, mostly by the large French and British utilities and their Malaysian partners. Most notable was the award of the country's biggest privatization contract to date: the 28-year concession to overhaul the country's sewer system, at an estimated cost of approximately $2.5 billion.

The contract, awarded in 1993 to Indah Water Konsortium, a Malaysian and British group, put Malaysia firmly in the forefront globally in the privatizing of environmental infrastructure. It also highlighted the ways in which Malaysia's influential groups with access to the country's top decision-makers secure key privatization deals under the government's first-come, first-served policy of developing projects. At the time, the award procedure garnered some criticism for its lack of transparency and competitive bidding. Subsequently, the sewer overhaul program had several hurdles to overcome, including lack of public support and opposition by industry when tariffs were raised without any commensurate improvements in the service.

Table 2: Privatization of Environmental Projects

Type	Investment	Concession Holder	Scope
Sewerage	$2.5 billion	Indah Water Konsortium (Malaysian/British)	28-year program to improve and operate nationwide systems
Air/water quality monitoring	$10 million	Alam Sekitar Malaysia Sdn. Bhd. (Malaysian/ Canadian joint venture)	20-year concession to provide air and water quality monitoring nationwide
Hazardous waste management	$106 million	Kualiti Alam Sdn. Bhd. (Malaysian/ Danish)	20-year concession to build and operate the country's first integrated hazardous waste management facility
Medical waste	N/A	Faber Group/ Tongkah Medivest/ Radicare (M)	3 concessionaires to provide hospital support services
Vehicle inspection (commercial units)	$60 million	Puspakom (DRB-HICOM Group)	15-year concession of vehicular inspection (including emissions monitoring) for commercial units
Water supply	N/A	Various	long-term concessions for supply/treatment

Source: Environmental Business International, Inc. (San Diego, CA).

In the solid waste management sector, the government deferred implementation of a nationwide plan, in part because of concerns over imposing new tariffs. Under the plan, the country has been split into four zones, to be managed by four separate consortia. Malaysia is one of the few countries that has opted to privatize solid waste management. A pilot program operated by Alam Flora Sdn., a Malaysian company, has begun in the Federal Territory of Kuala Lumpur.

Among the projects, the estimated $106-million Integrated Waste Management Centre, the country's first hazardous waste management plant, has had the most problems. The project, awarded to a Malaysian-Danish consortium in 1992, was delayed chiefly because of contractual differences. However, construction has been under way since 1995, and the project was expected to be fully operational in 1998.

Market Size

Malaysia's environmental market is in a state of flux as a result of recent economic uncertainties. The market, which has been growing at an average rate of 15 to 20 percent annually, faces mixed growth prospects over the next few years. The value of Malaysia's environmental market is estimated at between $700 and $750 million (see table 3).

Water utility revenues make up nearly half (about 48 percent) of the country's total environmental market. The remaining 52 percent comes from federal, state, and local government and industry clients. Malaysia receives relatively minimal multilateral assistance compared with its Southeast Asian neighbors.

Table 3: Environmental Market Breakdown (1997)

Segment	In $Millions
*Equipment*
Water equipment and chemicals	100
Air pollution control	25
Instruments and monitoring systems	20
Waste management equipment	20
Process and prevention technology	5
*Services*
Solid waste management	50
Hazardous waste management	5
Consulting and engineering	30
Remediation	3-5
Analytical services	10
Water treatment works (municipal and industrial)	100
*Resources*
Water utilities	330
Resource recovery	2-3
*Total*	700

Note: Figures adjusted for devaluation and rounded. RM3.3 to $1
Source: Environmental Business International, Inc. (San Diego, Calif.).

Competitive Situation

The country's environmental market is evolving, and its growth has been uneven. Tightening regulatory standards and enforcement in recent years has stimulated expansion of some equipment sectors, particularly in water-wastewater treatment and air pollution control. Some market players in subsectors have reported annual rates of revenue growth of 15 to 20 percent and higher. (Table 4 lists key foreign market players.) However, Malaysia's environmental consulting and engineering services sector has experienced much slower growth than its equipment providers. In fact, some consulting firms have shrunk.

Imported environmental goods and services account for roughly 35 to 40 percent of Malaysia's total environmental market. There are few trade barriers for pollution control equipment. In fact, the government has introduced tax and other initiatives for industrial environmental investments. While there are no duties imposed on pollution control equipment if proper DOE approval is given, some dual-use machinery components are subject to tariffs.

U.S. equipment generally is highly regarded for quality and advanced technology. However, U.S. firms are usually not as competitive as European, Asian, and other companies because price and availability are the most important competitive factors. In addition, U.S. suppliers tend to be weaker than other suppliers in support services and long-term commitment. The key foreign companies are listed in table 4.

Despite its attractions, Malaysia's environmental services and equipment sectors are complex and difficult to break into. Competition is extremely tough because of the relatively small market (18 million population) compared with those of other Southeast Asian countries, except Singapore. Gaining access to decision-makers and influential groups by establishing relationships with local partners is challenging. Malaysia's economic crisis and the country's inherent institutional weaknesses will make a strategic, long-term commitment even more imperative to the success of environmental companies.

Table 4: Key Foreign Players in Malaysia

Type of Company	Core Activities
*Utilities*
Lyonnaise des Eaux (France)	water
United Utilities plc (U.K.)	wastewater
Thames Water plc (U.K.)	water
Biwater International (U.K.)	water
*Environmental Firms*
Lurgi Bamag (Germany)	C&E*, air, water/wastewater
Det Norske Veritas Industry (Norway)	consulting
SGS (Switzerland)	consulting
Bovar Environmental (Canada)	air/water C&E
Danish Waste Treatment Services/Chemcontrol	hazardous waste management
Dames & Moore (U.S.)	C&E
Montgomery Watson (U.S.)	C&E
ERM (U.S.)	C&E
*Infrastructure*
CH2M Hill (U.S.)	C&E, O&M**, et al.
Hagemeyer-CosaLiebermann (Netherlands/Switzerland)	C&E, O&M, et al.

*C&E = construction and engineering
**O&M = operations and maintenance
Source: Environmental Business International, Inc. (San Diego, Calif.), 1998.

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