FINANCIAL MANAGEMENT OF SEWERAGE SERVICES

4 September 2018

Mr. Lim Choon Line

Indah Water Konsortium Sdn Bhd
FINANCIAL MANAGEMENT OF DESLUDGING SERVICES

1 COST MANAGEMENT

2 TARIFF

3 FUNDING OF CAPITAL EXPEDITURE

4 Q&A

GROUP 2017 BUDGET

1 Budget 2017

2 Summary and Conclusion

 ABOUT IWK
As at 31/12/2017

Desludging Services

125 + 12 standby = 137

383 staff
desludging tankers

83,938 billed customers

 IWK’S REVENUE & COST
– FY 2016

Revenue = RM858 mil

Total Expenditure = RM990 mil

 Cost Management

Cost Management - Overview

IWK’s financial system is designed to capture all operating costs and
the relevant statistical data at all stages of septage services to perform
cost analysis.

Sewage
Sludge
Collection Sludge Disposal
Treatment

The purposes of the cost management system are to provide cost information for:

Strategic management decisions,

Operational control , and

Pricing decision.
 Cost Management

Statistical Data Collected

Septage Services Function Desludging Connected
Services Services
Collection of sewage from customers’
Distance travelled (km);
premises to treatment facilities by Distance travelled;
Sewage Collection man-hours, volume
desludging tankers/underground network of man-hours
desludged, nos of visits
sewers
Focus on removal of contaminants and
water to reduce volume & weight. By
Distance travelled; man-hours; volume of sludge
Sewage Treatment Sewage treatment plants and dewatering
sent to the treatment facilities
facilities (geobags, drying beds &
mechanical dewatering equipment)

Distance travelled, man-hour (Own disposal sites

Transportation of treated sludge to
Sewage Disposal only);
authorized sanitary disposal sites
Volume of treated sludge.

1. IWK practices activity based costing to allocate costs to desludging and connected services.
2. Cost objects are treatment plants, mechanical dewatering equipment, sewer network, sludge disposal
sites etc.
3. All costs which are identifiable to a specific cost objects are charged directly to the objects.
4. Resource and overhead costs are allocated to the services that consumed them.
 Cost Management

Activity-Based Costing
Cost
Account Drivers/Activities
Cost Pool Payable,
General Man hours spent by
Staff costs,
Ledger, etc types of activities,
vehicle
travelling time,
running/staff
volume desludged,
travelling costs
nos of visits,
& other costs Activity
distance
Based travelled,etc
ERP System/SAP Costing
COEDS/CATS

staff cost & other cost Cost per visit;

by activities/cost Cost per km travelled;
centres; vehicle running Cost per cu.m.;
cost by activities/cost Cost per man-hour, cost
centre etc. per PE, etc
 Cost Management

The output of the desludging costs analysis:

Type of Desl Vehicle cost Cost per cubic Average Km Cubic metre Man hours
Activities Services (recharges by metre travelled per desludged per visit
Overheads km travelled visit per visit
(recharges by vehicle)
by Labour
Hours)
RM RM (RM/m3) (Km/visit) (M3/visit) Hrs/Visit
Interworks
IST Demand
Desludging
Responsive Desl –
IST
Responsive Desl –
Pour Flush
Scheduled
Desludging
These analysis can be used :
a) For costing of desludging services to determine the expected tariff rates per cubic metre;
b) To determine the average size of the customer Individual Septic Tank ;
c) Productivity in terms of hours per visit, etc
 Cost Control

eBidding/ Budgetary
Budgetary Control
control system -
system - manual
SAP

Signing of contracts
Issuance of Purchase orders

Commitment Budget

Budget Commitment

1. Budget is controlled at commitment stage (i.e. before contract is signed

/purchase order is issued.
2. e-bidding/e-Auction to bring down tendered prices.
3. Various cost reduction initiatives to contain cost increase.
 Cost Management
Breakdown cost analysis of Desludging & Connected Services (FY2016)

Connected Services

Desludging
Services

Total Expenditure = RM45 mil

Total Expenditure =RM920 mil
 Cost Management
Sludge Disposal Cost per cu.m. by Dewatering Facilities

Sludge
Volume Sludge Total Disposal
Volume after Disposal Sludge Cost per
Dewatering Methods
Original reduction dewatered Cost per Disposal cu.m of raw
volume factor cu.m cu.m cost RM sludge
cu.m (A) cu.m (B) (C=AxB) RM (D) (E=CxD) RM (E/A)
11cu.m. Geobag with Polymer 100.00 9.1% 9.09 130.00 1,182 11.82
11cu.m. Geobag without
polymer 100.00 20.0% 20.00 130.00 2,600 26.00
90cu.m. Geobag with Polymer 100.00 9.1% 9.09 130.00 1,182 11.82
90cu.m. Geobag without
polymer 100.00 20.0% 20.00 130.00 2,600 26.00
Sludge Drying Beds 100.00 16.0% 16.00 139.17 2,227 22.27
Screw Press 100.00 11.1% 11.11 85.00 944 9.44
Belt Press 100.00 11.1% 11.11 85.00 944 9.44
Filter Press 100.00 11.1% 11.11 85.00 944 9.44
Centrifuge 100.00 9.5% 9.52 85.00 810 8.10
1. The above is based on IWK’s in-house study in 2016. It illustrates the importance of
volume reduction factors to reduce sludge disposal cost.
2. Sludge disposal cost include supplies of labour/machineries to remove dried sludge
from drying beds/geobags/MDU, transportation cost and tipping fee to dispose the
sludge at an authorized disposal site.
3. The volume reduction factors may vary subject to amount of sunlight, quality of
polymer used and the condition of the dewatering machines.
 COST PER PE (FY 2017)
BY TYPES OF TREATMENT PLANTS
Nos of STP O&M* Cost
Type of STP Nos of STPs %age Connected PE PE % per PE (RM)
Extended Aeration (EA) 4,625 69.2% 9,008,269 37.0% 27.64
Imhoff tank with pump station (ITPS) # 505 7.6% 369,488 1.5% 19.92
Sequential Batch Reactor (SBR) 359 5.4% 5,686,487 23.3% 17.08
Oxidation Pond with pump station #
(OPPS) 238 3.6% 941,154 3.9% 7.95
Conventional Activated Sludge (CAS) 186 2.8% 2,002,161 8.2% 15.60
Oxidation Ditch (OD) 168 2.5% 2,781,728 11.4% 16.36
Aerated Lagoon (AL) 155 2.3% 1,380,302 5.7% 9.45
Oxidation Pond (OP)# 145 2.2% 435,373 1.8% 8.27
Imhoff Tank (IT)# 134 2.0% 105,965 0.4% 9.79
Bio-Filter (BF) 77 1.2% 281,207 1.2% 14.66
Trickling Filter (TF) 28 0.4% 94,470 0.4% 15.27
Rotating Biological Contactor (RBC) 27 0.4% 115,157 0.5% 20.22
Bio Drum (BD) 24 0.4% 62,041 0.3% 16.84
Upflow Aerobic Sludge Blanket (UASB) 3 0.0% 7,095 0.0% 19.89
Bio-soil (BS) 2 0.0% 43,276 0.2% 7.25
Moving Bed Biofim Reactor (MBBR) 2 0.0% 255,746 1.0% 34.31
Anaerobic Anoxic Oxic (AAO)** 1 0.0% 789,295 3.2% 13.52
Grand Total 6,679 100.0% 24,359,214 100.0% 19.62
1. *O&M cost at service cost centre level excluding depreciation
2. EA is the most preferred plant type by the developers as it is simple to construct and easier to maintain.
3. SBR is the most preferred plant type for regional plants as it requires smaller land space comparing to
EA plant of the same size and generate lower carbon footprint.
4. # IT, ITPS, OP and OPPS are non-mechanical plants
5. AAO STP was taken over at end July 2017. The cost per PE has been annualized to 12 months.
 COST PER PE (FY2017)
BY PE Range

Nos of Connected PE O&M Cost*

PE Range Nos of plants plants% Connected PE % per PE (RM)
(a) 0 - 500 2,064 30.9% 642,555 2.6% 68.08
(b) >500-1,000 1,474 22.1% 1,044,085 4.3% 42.94
(c) >1,000-5,000 2,280 34.1% 4,965,508 20.4% 23.89
(d) >5,000-20,000 685 10.3% 6,396,293 26.3% 16.91
(e) >20,000-50,000 125 1.9% 3,743,482 15.4% 16.22
(f) >50,000-100,000 33 0.5% 2,236,581 9.2% 16.03
(g) > 100,000 18 0.3% 5,330,710 21.9% 12.39
Grand Total 6,679 100.0% 24,359,214 100.0% 19.62

• O&M cost at service cost centre level excluding depreciation.

• The higher the connected PE, the lower the operation & maintenance cost as a result of
economies of scale.
 Cost Drivers

Cost Drivers Desludging Connected

Services Services
1. Manpower x x

2. Fuel cost x x

3. Electricity x

4. Scheduled or demand desludging x

5. In-house vs outsourcing x x

6. Theft & vandalism x

7. The level of geographical dispersion of customers’ premises x

8. The volume of sludge to be collected from each customer x

9. The distance from customers’ premises to the sludge treatment x

facilities/sludge disposal site
10. Stringency of environmental regulation x x

11. Type of treatment plants/dewatering equipment x x

12. Size of the treatment plants (connected PE of the plants) x

13. Availability of industry for bio-solids/bio-effluent reuse x x

 Cost Management

KPIs that have been used by IWK’s regulator:

Revenue and Expenses efficiencies

 Total Operating Cost per billed Customer

 Total Sewerage Revenue per billed Customer

Customer Service Responsiveness

 Percentage of (24-hour LOS) customer operational complaints resolved within LOS

Customer Complaints
 Customer operational complaints per 1,000 billed customers

Billing & collection efficiency/effectiveness

 Percentage of number of bills issued for current year against number of active accounts for
the same period
 Percentage of amount collected from current year billing against current year billed amount
 Percentage of cumulative collection from day 1 against cumulative billed amount from day 1

Operational effectiveness
 Customer operational complaints per 1,000 billed customers
 Cost Management

The KPIs that have been used for internal performance measurement in IWK :

1. No. of public blockages / km of public sewer (connected services)

2. Total O&M Cost for STPs and NPSs / Design PE (connected PE)

3. O&M Cost of Mechanised STPs / Design PE (or connected PE)

4. O&M Cost of Sewer Line / km of public sewer (connected services)

5. STP Energy Costs / Design PE (or connected PE)

6. Desludging Costs / Volume of IST Desludged (m3)

7. STPs Operational Complaints / 1,000 Billed Connected Customers

FINANCIAL MANAGEMENT OF DESLUDGING SERVICES

1 COST MANAGEMENT

2 TARIFF

3 FUNDING OF CAPITAL EXPEDITURE

4 Q&A

GROUP 2017 BUDGET

1 Budget 2017

2 Summary and Conclusion

 Tariff

To determine pricing, full cost of the sewerage services shall be considered.

Other than sewage collection, sludge treatment and disposal costs, the costs
attributable to septage services shall also include:
Any support services that contributes directly or indirectly to
Office providing septage services, e.g. operation planning, Finance,
support Cost IT, Legal, Procurement, Customer relation, communication,
Human Resources etc.

Interest on hire purchase or loan for capital expenditure.

Finance Cost
Doubtful debt provision.

Investment on sludge treatment & dewatering facilities.

Capital Vehicle purchase costs.
Expenditure Other operating assets (furniture & fittings, computers, office
equipment, etc.
 Tariff

The total costs attributable to sewerage services is the breakeven cost,

shall be translated to cost per cu.m. A rate of return shall be
incorporated for this service for negotiation with the Regulator.

If the Regulator is not agreeable to the proposed tariff for septage

services:
a) Any shortfall between the price set by the Regulator and the
breakeven cost rate will have to be funded by subsidy from the
Government.
b) Alternatively, the Government pays a higher rate per cubic metre
(m3) for the same septage services rendered compared to that
charged to the domestic, commercial and industrial customers.
This is indirectly a subsidy given by the Government to the service
provider.
 Tariff

Existing cross-subsidised tariff:

Domestic
Fixed charge per household
Commercial/Government
Fixed charge + Water consumption
No charge for first 100 cu.m. water consumption
Industrial
Fixed charge per headcount

• Domestic and Industrial tariffs have been stagnant while

Commercial tariffs have reduced by 48% since 1997.
 TARIFF RATES

Commercial Basic Charge Commercial Excess Water Charge

Basic IST (RM) Connected (RM)
Basic charge
Annual value of premise charge per Water Usage Excess Charge Excess Charge
Brand per month
(RM) month Up To 100 m3 No Charge No Charge
IST
Connected
More Than 100 m3
1 0 - 2,000 7.00 8.00 but less than 200 30 sen per / m3 30 sen per / m3
2 2,001 - 5,000 8.00 14.00 m3 /
3 5,001 - 10,000 14.00 20.00 More Than 200 m3 45 sen per / m3 45 sen per / m3
4 10,001 - 20,000 19.00 26.00
5 20,001 - 30,000 21.00 29.00 Government Premises
6 30,001 - 40,000 23.00 32.00 IST (RM) Connected (RM)
7 40,001 - 50,000 25.00 35.00 Basic Charge 25.00 40.00
8 50,001 - 60,000 27.00 38.00 Water Usage Excess Charge Excess Charge
9 60,001 - 70,000 29.00 41.00 Up To 100 m3 No Charge No Charge
10 70,001 - 80,000 31.00 44.00 More Than 100 m3
11 80,001 - 90,000 33.00 47.00 but less than 200 45 sen per / m3 45 sen per / m3
12 90,001 - 100,000 35.00 50.00 m3 /
13 100,001 - 200,000 120.00 180.00 More Than 200 m3 95 sen per / m3 95 sen per / m3
14 200,001 - 400,000 330.00 495.00 Industrial
15 400,001 - 600,000 348.00 522.00 IST (RM) Connected (RM)
16 600,001 - 800,000 1,320.00 1,980.00 Charge per head 2.00 2.50
Minimum Charge 20.00 25.00
17 800,001 - 1,000,000 1,440.00 2,160.00

18 1,000,001 - 3,000,000 2,880.00 4,320.00 Domestic

Premises Type IST (RM) Connected (RM)
19 3,000,001 - 5,000,000 5,400.00 8,800.00
Low Cost 2.00 2.00
20 5,000,001 - 7,000,000 6,000.00 9,200.00 Kampung/New
3.00 3.00
Villages/Estate
21 More than 7,000,001 6,600.00 9,600.00
Other Domestic 6.00 8.00
FINANCIAL MANAGEMENT OF SEWERAGE SERVICES

1 COST MANAGEMENT

2 TARIFF

3 FUNDING OF CAPITAL EXPEDITURE

4 Q&A

GROUP 2017 BUDGET

1 Budget 2017

2 Summary and Conclusion

 Funding of Capital Expenditure

Presently, Capital expenditure for sewerage services is funded in the following

manner:
SEWERAGE CAPITAL
EXPENDITURE

National plan – every 5 Government soft loan Obligated to provide

years (completed). treatment facilities for
all property
Existing tariff too low to development.
Capital Contribution have any excess fund Otherwise, contribute to
(SCC) from developers for capital works SCC.
SEWERAGE CAPITAL CONTRIBUTION
Q&A
 Thank You
Mr. Lim Choon Line (limcl@iwk.com.my)