Water sector flows with fresh funds

INDUSTRY players and analysts alike are optimistic about prospects for the water industry, following the allocation of RM3bil under Budget 2026, as announced by Prime Minister Datuk Seri Anwar Ibrahim on Oct 10.

The focus is notably on addressing non-revenue water (NRW) issues such as leaks and distribution losses, which form part of the broader RM81bil development expenditure under the 13th Malaysia Plan (13MP), running from 2026 to 2030.

The 13MP aims to enhance infrastructure resilience.

Taliworks Corp Bhd executive director Kevin Chin Soong Jin lauds the government’s allocation, pointing out that Budget 2026 sets a positive tone for the water industry.

Specifically, he tells StarBiz 7 that the initiative ensures funding for consistent and steady project execution aimed at building a more resilient nationwide water supply system, enhancing water security and sustainability.

“Moreover, the RM13bil investment committed by Pengurusan Aset Air Bhd for new treatment plants over the next five years and the RM3bil allocation to replace over 820km of ageing pipelines across Johor, Melaka, Negri Sembilan, Kelantan, Pahang and Selangor, are expected to provide strong momentum for the sector’s growth.

“These investments enable the country to address the supply aspect through the development of new water treatment plants and improve efficiency by reducing NRW leakages.”

Concurrently, Chin believes the construction and utilities sectors stand to benefit the most, as the allocation is expected to create a steady pipeline of project tenders and awards.

Among other priorities, he says the plan to replace dilapidated pipes will drive immediate and substantial demand for new pipe materials, advanced leakage detection technology, and essential rehabilitation services, ensuring rapid work progression.

Similarly, Cosmos Technology International Bhd (CTIB) managing director Datuk Chong Toh Wee remarks that the government funding is poised to stimulate substantial growth in the sector over the next two years, with flood mitigation and water treatment efforts expected to significantly benefit the public.

Key opportunities and challenges

Chong observes that rising demand from data centres (DCs) and rapid urbanisation create a promising landscape of significant opportunities, such increasing capacity and upgrading ageing water infrastructure.

However, he cautions that coordination hurdles between federal funding priorities and the implementation plans of respective states remain the most critical challenge.

Additionally, low water tariffs – despite two rounds of increments – could continue to affect funding for water companies.

Meanwhile, acknowledging that DCs can generate sudden, intensive and immediate demand for high volumes of electricity and water, Taliworks’ Chin opines that the challenge lies in siting them where these resources are readily deployable, rather than allowing their diverse locations to drive new resource deployment.

He says: “The surge in water demand also threatens to erode existing water reserve margins in an industry already facing persistent structural challenges such as ageing infrastructure, high NRW, pollution from urbanisation, and water tariffs that limit full cost recovery for operators.”

To address these challenges, Chin points out that the industry’s financial fundamentals must be strengthened to ensure sustainable, long-term funding for the rehabilitation, upgrading and development of critical water infrastructure that underpins the nation’s economic growth.

He argues that the proliferation of DCs and rapid urbanisation have heightened the urgency for investments in more resilient water infrastructure across Malaysia, which is reflected in Budget 2026, where high-priority government funding has been allocated to the sector.

More importantly, he says these initiatives contribute to significant opportunities for adopting advanced technologies, specialised water services and a steady pipeline of new projects moving forward.

“Industrial water supply for DCs also need not rely solely on potable drinking water resources.

“The utilisation of alternative water sources through water reclamation technologies can enhance the sustainability and resilience of water supply.”

Concurring with Chong, Chin says ultimately, addressing the complex challenges of the water industry will require stronger coordination between the federal and state governments – including migration to the federal scheme for states that have yet to do so – which is essential to facilitate the execution of large-scale water infrastructure projects and ensure long-term water security for the country.

Impact of tariff revisions

Regular tariff revisions under the tariff-setting mechanism and continuous enhancements to the regulatory framework by the National Water Service Commission and the Energy Transition and Water Transformation Ministry are also anticipated to improve the long-term financial sustainability of the water sector, says Chin.

He notes that it is essential to align tariffs more closely with actual operating and capital costs, as operators will then be better able to recover costs, reinvest in infrastructure, and maintain service quality.

“This is crucial to ensuring the financial viability of water operators, particularly in states where tariffs have remained unchanged for years.

“From an investment standpoint, greater tariff transparency and a more standardised regulatory framework will enhance confidence among industry players and financial institutions, encouraging private participation in water infrastructure projects.”

Chin opines that overall, these measures are positive steps toward creating a more self-sustaining and professionally managed water sector that can attract long-term investments while ensuring reliable and equitable water supply nationwide.

CTIB’s Chong concurrently feels that tariff rates should be sufficient to enable operators to invest in modernisation, or fund critical projects that directly boost the sector’s efficiency – especially with respect to NRW reduction, leak detection technology, and pressure management system – allowing for proactive maintenance.

Analysts’ views

Not surprisingly, the water sector is one that analysts are viewing more positively post-Budget 2026, with Peter Kong from Kenanga Research including it on his “positive” list alongside technology, automotive, utilities and renewable energy.

In a note published on Oct 11, the analyst says he is buoyant over water projects, noting that this could play into the hands of companies such as Engtex Group Bhd, given its market share in pipes amid Budget 2026 allocation for addressing NRW-related matters.

Kong’s colleague, Teh Kian Yeong, adds that aside from Engtex, Gamuda Bhd should also benefit given its involvement in several flood mitigation and water treatment plant projects.

Rakuten Trade head of equity sales and seasoned analyst Vincent Lau calls the government’s budget move for the water sector “timely”, given Malaysia’s relatively high NRW percentage of around 36%.

“Companies such as Insight Analytics Bhd (IAB), which is due to be listed this month, could potentially gain from the government’s intention to reduce water wastage,” he says.

Kenanga Research explains that IAB operates primarily through two major segments: providing water management system solutions coupled with supplying Internet of Things devices and instruments, as well as offering intelligent asset management solutions for sectors like hospitality, transportation, and construction.