MALAYSIAN WATER UTILITIES PERFORMANCE WITH THE PRESENCE OF UNDESIRABLE OUTPUT: A DIRECTIONAL DISTANCE FUNCTION APPROACH

Abstract

Non-Revenue Water (NRW) is water losses in the distribution process and it affects water supply management worldwide. Malaysia is not excluded and the authority has put a high priority on NRW as it affects the revenue collection. Consequently, NRW is established as one of the Key Performance Indicators (KPIs) to assess the efficiency of Malaysia water supply industry. However, the current policy is impractical; the assessment of all the water utilities is against a single NRW target. Moreover, NRW should be considered as an undesirable product in the water supply system. Therefore, an alternative to Data Envelopment Analysis (DEA)-based approach called Directional Distance Function (DDF) is applied to measure the performance of the integrated production of desirable and undesirable outputs. The result shows that the measurement of water technical efficiency is more explicit using DDF model, where the potential reduced level of NRW for each inefficient water utility can be determined in order to improve their performance. This is in line with the government’s aim to reduce the NRW level countrywide.