A/HRC/42/47/Add.2 Sabah State Water Department manages bulk water and is responsible for retail water supplied to households in both rural and urban areas. In terms of sanitation, Sabah is striving to have a streamlined approach for all its divisions by consolidating the responsibility that is distributed among each local government. The Sabah Public Works Department is in the process of taking over responsibility for sewerage systems from local authorities in accordance with the Sewerage Services Enactment 2017. 17. In Sarawak, the provision of water services is under the purview of the Ministry of Utilities Sarawak. The water supply agencies under the Ministry are Kuching Water Board, Sibu Water Board, Laku Management and the Rural Water Supply Department. Both Kuching Water Board and Sibu Water Board are statutory bodies providing water supply to Kuching and Sibu, respectively, and their surrounding areas. Laku Management is a wholly owned company of the Sarawak Government and provides water supply to Miri, Bintulu and Limbang. The Rural Water Supply Department provides water supply to the remaining areas of Sarawak, including the other towns and rural areas. The Sewerage Services Department Sarawak, linked to the Ministry of Local Government and Housing, provides centralized sewerage services to parts of City of Kuching, while Bintulu Development Authority provides centralized sewerage services in Bintulu. Other areas rely on individual solutions and on the support of local and municipal authorities. 2. Financial sustainability of service providers 18. In order to address the financial sustainability of service providers, the reform resulted in the creation of a water asset management company, a Government-owned entity responsible for water asset management. The company works on the concept of “build and lease”: after funding the construction of water infrastructure, the company leases it to water service providers. The company operates in Peninsular Malaysia, while the federal government supports the two states in East Malaysia to supply urban water and sewerage through loans, often in the form of soft loans. After listening to interlocutors in the two states, the Special Rapporteur observes that the budget allocated by the federal government is insufficient, particularly considering the high costs involved in providing water and sanitation services to the sparsely located population in remote rural areas, which account for the majority of the territory covered by those states. 19. The levels of water and sanitation services in Sabah, Sarawak and Kelantan are lower than in the rest of the country. In order to bridge this difference, the Government must implement focused policies that include sufficient and sustainable funding for those states. Those three states would benefit if the federal government allocated more financial resources in the form of grants specifically dedicated to improving water and sanitation services until they reach an acceptable level. Disparities in access to water and sanitation require focused attention in order to make the country progress towards more equal and adequate access to services in all its regions. 3. Regulation 20. Another outcome of the reform was the establishment of a water and sanitation regulator. All water and sewerage services in Peninsular Malaysia are licensed and regulated by the National Water Services Commission, under the Water Services Industry Act 2006. The Special Rapporteur finds the regulatory strategy currently in place at the federal level adequate. The National Water Services Commission requests providers to develop a three-year plan. It provides institutional support linked to the achievement of agreed performance indicators. The Special Rapporteur recommends that the National Water Services Commission carry out its regulatory functions in a manner free from pressure from any illegitimate interests and that the main objectives of regulation are aligned with the human rights to water and sanitation (see A/HRC/36/45). 21. The National Water Services Commission does not play a role in East Malaysia and therefore the national regulatory strategy does not apply in those states. In Sarawak, the State Water Authority regulates water supply authorities. It also has the role of managing water resources and water catchment areas in the state. Since Sabah does not have an independent regulator, the water department in Sandakan performs that role. The Special Rapporteur encourages the Government, in consultation with state governments, to 5