KUALA LUMPUR: Malaysia’s overall non-revenue water (NRW) remained high at c.37% in 2024, exceeding the international best-practice range of 15–20%.
NRW reduction is a key pillar of Malaysia’s long-term water sustainability agenda under WST2040, requiring large-scale investments across the next 10 years.
According to CIMBequity research analyst, Walter Aw Lik Hsin, they view NRW reduction as a structural ESG investment theme, with beneficiaries linked to digital water analytics, leak detection solutions, and water infrastructure upgrading.
“Malaysia’s NRW issue is one of the country’s most persistent water sector inefficiencies, and, in our view, represents a compelling long-term ESG investment theme. NRW refers to treated water that is produced but does not generate revenue because it is lost before reaching end users,” said Aw, adding that these losses typically arise from physical leakages in ageing pipe networks, commercial losses from inaccurate metering or illegal connections, and operational inefficiencies in the water distribution system.
Despite years of investment, Malaysia’s national NRW level remained high at 37.1% in 2024, well above international best practice levels of 15–20%.
“This implies that above one-third of treated water is effectively lost, underscoring scale of the inefficiency and the urgency of addressing it,” said Aw.
From an ESG perspective, he said, elevated NRW is a key environmental concern, as treated water is lost despite having undergone energy-intensive treatment and distribution processes.
On the environmental side, lower water losses would reduce the need for further raw water extraction, treatment and pumping, thereby lowering energy consumption and the associated carbon footprint of water production.
On the social side, improved distribution efficiency would strengthen the reliability and resilience of water supply, particularly in areas still prone to disruptions. In this respect, NRW reduction is well aligned with Sustainable Development Goal 6 (SDG 6; clean water and sanitation), while also supporting broader water security, climate resilience and
sustainable infrastructure goals within Water Sector Transformation 2040 (WST2040).
The WST2040 roadmap seeks to improve water sector efficiency through initiatives with stronger governance, infrastructure upgrades, smart technologies, enhanced data integration, and alternative financing mechanisms.
This includes the adoption of Industrial Revolution 4.0 (IR4.0)–enabled water technologies as well as greater public private collaboration to support long-term sector development. It also identifies performance-based contracts for NRW reduction as one of the proposed implementation models for state water operators.
“In our view, this is a structural ESG investment opportunity for companies within the water infrastructure ecosystem, including digital water solution providers such as Insight Analytics Berhad (Buy; TP: RM2.10), and contractors involved in pipeline replacement and rehabilitation works,” said Aw
NRW is treated water that enters the distribution system but is not billed and collected. It comprises physical losses: leaks, bursts, reservoir overflows and commercial losses: meter under-registration, data/billing errors and illegal connections .
“We believe that NRW can be viewed as a high-signal indicator of network efficiency and asset health. It reflects pipe condition, maintenance discipline, metering accuracy, and operating controls. High NRW means operators are treating and pumping water that is not monetised, raising unit costs and weakening cash generation,” Aw said.
He said they view NRW as a relevant environmental, social, and governance (ESG) indicator for the water sector.
- Environmental. NRW reflects embedded resource inefficiency. Treated and pumped water is lost before monetisation, implying unnecessary raw water abstraction, energy use, and associated emissions. Reducing NRW improves resource efficiency and lowers the environmental footprint of water delivery.
- Social. Lower NRW improves supply reliability, service continuity, and system resilience, especially in regions prone to water disruptions. In practical terms, reducing losses lifts effective available supply without equivalent expansion in production capacity, supporting more stable and affordable access to clean water.
- Governance. Elevated NRW often points to weak asset management, maintenance planning, metering integrity, billing controls, performance monitoring, and execution discipline. It may also reflect fragmented accountability and poor data visibility over where losses occur and how they should be prioritised.
“We therefore view NRW not just as a technical KPI, but also as an indicator of operational governance and capital allocation discipline,” said Aw.
Under WST2040, the government aims to reduce NRW to 28.8% by 2030.
“In our view, recent trends suggest NRW remains a structural sector issue rather than a short-term operational problem, implying the need for sustained pipe replacement, metering upgrades, digital monitoring, and tighter execution. Despite Suruhanjaya Perkhidmatan
Air Negara (SPAN)’s target to reduce NRW to 31% by 2025, the national average for Peninsular Malaysia and Labuan stood at 34.3% in 2024,”said Aw.
Based on data from the Ministry of Natural Resources, Environment and Climate Change (NRECC) and industry reports in 2023, physical losses account for the bulk of NRW at about 75%, mainly from pipe leaks and faulty joints, while commercial losses such as theft and meter inaccuracies make up a further 20%.
In their view, Aw said Malaysia’s persistently high NRW is driven by four main factors: - Ageing infrastructure. Older mains and distribution pipes are more prone to leaks, bursts, and pressure-related failures. This remains the biggest source of physical losses.
- Limited leak detection and monitoring. Without stronger real-time visibility over pressure, flow, and network anomalies, utilities are slower to identify and prioritise losses as well as replace ageing metering devices.
- Weak data integration and asset management. Fragmented data and inconsistent decision making reduce the ability to prioritise repairs and capex effectively.
- Funding and execution constraints. Sustained NRW reduction requires recurring capex, stronger financing capacity, and better programme execution. WST2040 broadens the solution set beyond just pipes.
The Water Sector Transformation 2040 (WST2040) roadmap signals that NRW reduction is a strategic priority for Malaysia’s water sector.
“In our view, the significance of WST2040 lies not only in supporting infrastructure upgrades, but also in expanding the solution set beyond traditional civil works. While pipe replacement remains core, the roadmap also highlights governance, financing, digitalisation, and data-led water management as critical enablers of long-term NRW reduction,” said Aw.
We see three main implementation levers: - Pipes and rehabilitation. Replacement of ageing pipes, leak repairs, pressure management, and network optimisation remain central to lowering physical losses.
- Digitalisation. Wider use of sensors, telemetry, smart monitoring, and predictive maintenance tools should help utilities detect leakages earlier and respond more efficiently.
- Data integration. Better integration of network data should allow operators to identify loss points more accurately, prioritise capex more effectively, and improve operating discipline.
Consequently, Aw said they see Malaysia’s future NRW “opportunity set” expanding beyond conventional infrastructure contractors to also include companies exposed to metering, monitoring, analytics, and digital water management solutions.
Deeper dive: Why digitalisation and data integration matter Digitalisation and data integration are increasingly important because NRW reduction depends not only on repairing physical infrastructure, but also on improving how utilities monitor, interpret, and act on network data. Utilities are less able to reduce losses efficiently when leak detection, flow monitoring, and asset data remain fragmented or incomplete.
Digitalisation and data integration are pivotal to NRW reduction in three key areas: - Faster leak detection and response
Tools such as smart sensors, district metering, pressure monitoring, and telemetry can help utilities identify abnormal flows, pressure drops, and potential leak points earlier, reducing response time and limiting physical losses. - Better asset prioritisation
Integrated data systems can help operators pinpoint high-loss zones, rank asset conditions more accurately, and direct capex towards the weakest parts of the network rather than relying on broad-based replacement programmes. - Stronger operating discipline
Better quality and more integrated data should improve performance tracking, benchmarking, and accountability across districts and operators, supporting more consistent NRW management over time.
“In our view, Malaysia’s NRW investment opportunity lies in both digital water enablement and physical water infrastructure. We think the beneficiary set can be divided into three buckets: Direct digital / NRW enablers; Physical execution / rehabilitation beneficiaries and Broader utility / water capex beneficiaries”
The direct beneficiaries would be companies whose offerings improve water efficiency, network visibility, and leakage control. Indirect beneficiaries should be contractors and operators that participate in the wider capex cycle around treatment, distribution, and system upgrading.
Digital solution providers offer the cleanest direct exposure to water efficiency, monitoring, and optimisation, while engineering contractors and utility-linked names offer broader exposure to the capex cycle around rehabilitation, treatment, and distribution.
“We would also include SMRT as a secondary digitalisation beneficiary via its Air Selangor exposure, though we view this as less direct than IAB’s water-focused positioning,” said Aw.