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Wednesday, February 18, 2009

> Water back to Selangor?

Selangor Mentri Besar Tan Sri Khalid Ibrahim has accused water concessionaires in the state of practising “pure greed” as his administration tries to rally public opinion behind its bid to acquire the private companies.

Talks with the concession holders appear headed for failure, despite a combined offer of a whopping RM5.7 billion for the companies operating in Selangor.

Under the Water Services Industries Act, all water assets in Peninsular Malaysia must be transferred to the Finance Ministry’s wholly-owned Pengurusan Aset Air Bhd (PAAB) before the agency restructures water supply in the state.

The Selangor government already owns 80 per cent of the state’s treatment plants, dams and pipelines.

Last Friday, the government offered RM2 billion to take over Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (Splash) and RM3.1 billion for Puncak Niaga Holdings’s wholly-owned PNSB and its 70 per cent-owned Syarikat Bekalan Air Selangor Sdn Bhd (Syabas), and the remainder of the amount for Konsortium ABASS Sdn Bhd.

The Malaysian Insider understands that PAAB has indicated it will be capping the deal to buy over Selangor’s water supply assets at under RM9 billion, meaning that the private companies will swallow the lion’s share of the deal.

The private companies are, however, demanding full compensation for losses of future profits derived from the concession agreements that will be cancelled after the restructuring.

Khalid told The Malaysian Insider yesterday that this did not reflect a proper risk-and-reward ratio.

He explained that the companies should not expect to be compensated for the value of profits that they were making previously without having to take any business risks now.

“If deprivatisation means guaranteeing risks, then this is unfair to the taxpayer. Is it fair to charge for 30 years of returns at no risk after doing business for just four years?” he said.

He said by normal standards, a 12-15 per cent per annum return on equity investment was considered a healthy rate and this was what the state government was offering instead of the full value of profits made so far and extrapolated over the length of the concession.

In view of this, the state government had last month tried to challenge the legitimacy of a proposed tariff hike.

It sent a letter to the Energy, Water and Communications Ministry asking for the concessions to be terminated, a move that could lead to a protracted legal battle.

Khalid had claimed that the National Audit Department concluded that Syabas had not met certain conditions of the agreement, such as engaging in direct negotiations instead of open tenders and exceeding capital expenditure allowances.

The state has organised a public briefing this morning to rally support. Another public briefing is scheduled for Feb 24.

Key to this battle is the fact that, under the Water Services Industry Act (WSIA) 2006, the federal government has the discretion to appoint a licensee to manage water supply in the state, and the state government needs to buy over all private water players to force the federal government to hand over the licence to it.

Failure to do so could very well result in the federal government simply handing the reins back to a private company and allowing it the same sort of agreement it used to enjoy.

Sources also told The Malaysian Insider that Puncak Niaga, a company close to Umno, would prefer to sell just its water assets directly to PAAB, whether or not there is a more generous deal on the table, in return for an appointment as water distributor in Selangor.

The private companies and the federal government hold all the cards as Selangor needs to complete the takeovers by March 31 to head off a possible water rate hike under the 30-year concession agreement between Syabas and the federal and state governments in 2005.

Energy, Water and Communications Minister Datuk Shaziman Abu Mansor had said that “according to the National Audit Department’s estimates, Syabas could increase the tariff by 30 per cent although the agreement stated 37 per cent because the company had met almost all the conditions.”

Some 1.5 million consumers in Selangor, Kuala Lumpur and Putrajaya face the increase which may, however, be revoked and restructured if water assets are handed over to PAAB before the hike takes effect in April, according to Shaziman.

Under the WSIA, all water assets in Peninsular Malaysia must be transferred to the Finance Ministry’s wholly-owned Pengurusan Aset Air Bhd (PAAB) before the agency restructures water supply in the state.

With the deadline looming, it plays into the hands of the private companies, which can sit tight and force the Selangor government to “take it or leave it” - The Malaysian Insider.