Often taken for granted, water is a necessity for life, and potable water, in particular, is a critical factor for the development and evolution of a community. The public provision of water began in Penang in 1805, when the island was administered by the East India Company. In response to complaints from residents as well as traders using the port, Governor Farquhar built an aqueduct system made of ceramic pipes running from waterfalls at the base of Penang Hill to George Town (Barber, 2009).

Since that time, the state's population and water needs have expanded significantly. From a sparsely settled trading outpost, Penang has become the industrial centre for Northern Malaysia. In particular, since the 1970s, the state has witnessed rapid development in the manufacturing, tourism, and international trade sectors.

As such, the organizational capabilities of Penang's water management bodies have had to evolve to meet these challenges. In 1968, water was provided to the state's residents by two different agencies, one run by the George Town City Council and the other by the State Water Department. Following recommendations made by the Asian Development Bank, this was streamlined and, in 1973, the Penang Water Authority was established as one of Malaysia's first statutory bodies charged with water supply.

The Authority built its reputation as one of the best water supply operators in Malaysia. A rapid introduction of a computerized billing system in 1975 enabled more effective revenue management. This, coupled with commitment to improving water supply and an efficient connection system, enabled the Authority to expand coverage and lower levels of non-revenue water.

However, there was a price for Penang's progress. As it prospered, the state became increasingly water-stressed due to its geographical limitations and a growing population. Water consumption increased by almost four-fold, from 59,663,636 m3 in 1975 to 285,583,785 m3 in 2010. With catchments totalling only 6% of its total land area of 1,031 sq. km., the state needed a forward-thinking and result-driven organisation that could effectively manage its water demand.