Selangor sticks to RM5.7b for water assets

Posted on December 27, 2010. Filed under: Water resource |

-themalaysianinsider.com-

Selangor will offer about the same RM5.7 billion to acquire remaining state water assets, and still intends to leave its present owners to pay off their own liabilities.

The Pakatan Rakyat government made the initial offer last February to take back the highly controversial utility, some of the present owners have links to Umno which leads the coalition running the federal government.

The Malaysian Insider understands that Selangor Mentri Besar Tan Sri Khalid Ibrahim is keen to revert to the figure, subject to updated financial data, due diligence and negotiations on debts, and solve the issue which has even drawn the attention of the state ruler.

The offer will likely be made in January for private assets and equity owned by Syarikat Bekalan Air Selangor (Syabas), Puncak Niaga Sdn Bhd (PNSB), Syarikat Pengeluar Air Sungai Selangor (Splash) and Kumpulan Abass, sources said over the weekend.

The companies’ outstanding bonds will not be covered under the proposed offer. All four players are expected to pay off outstanding debts using the proceeds from the sale of their assets.

It is understood, however, that Selangor is willing to negotiate with all four to help them settle their bonds, failing which any price dispute will be sent to arbitration.

Selangor, which already owns 80 per cent of the state’s water supply assets, is preparing to take over the remaining assets after Putrajaya said it did not object to direct negotiations between the state government and concessionaires.

The state plans to then sell the consolidated water assets — treatment plants, dams and pipes — to the Water Asset Management Company (PAAB) to fulfil a statutory requirement. The Finance Ministry’s wholly-owned PAAB has indicated it will cap the deal at RM9 billion.

Selangor intends to retain management of the water assets, which also cover the Federal Territories of Kuala Lumpur and Putrajaya. A project to get water supplies from Pahang has also been delayed because of the issue.

The state government has made two previous offers for the water assets. The first offer, RM5.7 billion for assets and equity, was turned down by all four players, while the second RM9.4 billion offer — this time including liabilities — was rejected by Syabas and sister company PNSB.

Both Syabas and PNSB are controlled by Puncak Niaga Holdings Bhd (PNHB) which belongs to executive chairman Tan Sri Rozali Ismail, who is Umno Selangor treasurer and the 31st richest man in Malaysia, according to Forbes.

The two-year water restructuring saga has been characterised by finger-pointing by water players, federal and state governments keen on deflecting blame for the deadlock.

The impasse began soon after parties that formed the Pakatan Rakyat (PR) unexpectedly took control Selangor, Malaysia’s richest state, in the last general election. Since then, privatisation plans for the water industry have been put in deep-freeze as federal and state governments engage in what industry watchers have called “excessive politicking”.

Control of Selangor’s water assets is important to PR so it can set tariffs and fulfill its campaign promise of free water for all residents in the state. BN, however, appears bent on preventing PR from using water to score political points with the electorate.

Complicating matters is the water companies’ urgent need to repay their creditors in the face of maturing bonds. Several water bonds entered technical default in September after their ratings were slashed by Malaysian Rating Corp Bhd (MARC) and RAM Ratings.

Worried bondholders drafted a letter to Prime Minister Datuk Seri Najib Razak urging him to intervene in the matter to safeguard their bonds from being further downgraded.

The Malaysian Insider understands that major bondholders — including CIMB Principal Asset Management, Hong Leong Investment Bank and Great Eastern Life — drafted the letter to Najib asking the federal government to provide a soft loan worth some RM1 billion to Syabas.

Putrajaya bailed out Syabas once already last year when it gave a RM320.8 million soft loan to parent company PNHB in December to help settle its debts to water treatment concessionaires.

Energy, Green Technology and Water Minister Datuk Seri Peter Chin also told The Malaysian Insider last month the government was considering swapping existing bonds with triple-A government-backed ones to buy stakeholders more time to break the current standoff, if no headway was made.

The potential debt repayment problem began after the state government prevented Syabas from hiking tariffs by 37 per cent, as per its concession agreement. The water distributor has since stopped paying the other concessionaires in full for treated water, leading to cash flow problems for those three companies.

Syabas sued the state government last month for RM471 million for reneging on the agreement. The Selangor government, however, is adamant that Syabas cannot raise prices until fulfils the conditions stipulated in the agreement, such as reducing leakages or non-revenue water.

Selangor, in turn, has threatened to revoke Syabas’ water distribution licence for initiating its Tabung Budi scheme, which it claims is an “insincere” public relations exercise done at the state’s expense.

The fund allows Selangor residents who wish to waive their right to free water, to pay for the 20 cubic metres they receive gratis from the state every month, valued at RM11.40. Syabas says the money collected is then used to help other residents who have no access to clean water.

However, the state government claims Syabas has no right to collect money for water that has already been paid for and accused the company of “double-billing” the state.

Splash is also currently going through the courts to recover from Syabas allegedly outstanding running account charges worth nearly RM600 million so far.

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