The Pitfalls of Water Privatization: Failure and Reform in Malaysia

This paper examines why private participation in infrastructure (PPI) in water continues to be promoted despite poor results in developing countries. It argues that the main characteristics of infrastructure discourage private investment and necessitate state subsidies which dilute private risks and incentives and facilitate rent-seeking. As a result, PPI is characterized by public financing, selective private investments and inconclusive efficiency gains. This is reflected globally and in Malaysia where PPI continues to be promoted because it provides captive rents. The political factors that drive PPI invariably compromise institutional solutions as Malaysia's water sector reforms illustrate.