19 February 2009
Independent power producers (IPPs) and Tenaga Nasional Bhd (TNB) do not derive any financial benefit from the subsidised gas price, according to Penjanabebas, the association for IPPs.
“This subsidy is actually intended to be for the benefit of consumers in the form of lower electricity tariffs,” it said in a statement today.
Penjanabebas said under the Malaysian IPP model, all fuel cost incurred in power generation are “passed through” to TNB.
“The national utility is then able to adjust the fuel cost component of generation in the final tariff charged to end users, as reflected in the recent electricity tariff adjustments,” it said.
“This fuel pass-through mechanism is an international norm for any independent power producing business where a power purchase agreement exists with a single off-taker and a single fuel supplier to enable the project to be financed,” it added.
The association said its clarification was in reaction to a statement by Penang Chief Minister Lim Guan Eng which said that Penjanabebas members are the direct beneficiary of the reported RM35.7 billion in gas subsidy.
It described the picture presented by Lim as “misleading and distorts the realities of the situation”.
On concerns raised by Lim in relation to a shortfall of gas domestically that has hampered investment inflows, Penjanabebas said that decisions related to the allocation and pricing of gas do not fall under its control. — Bernama
Thursday, February 19, 2009
Create laws to review lopsided highway contracts
STAR, 19 February 2009
By Florence A. Samy
PETALING JAYA: An “Unfair Public Contracts Act” should be passed in Parliament to set aside or review lopsided contracts, including those for highway projects that have not benefitted the people.
Lawyer Tommy Thomas said only such an Act would make it compulsory for such contracts to be revised.
“The Act should give legal power to an independent public contracts commissioner. He should be allowed to access and review all public contracts and supporting documents, be given the power to subpoena and have a team of experts to aid him,” he said when speaking at a public dialogue entitled “Can we get back our highways?” Wednesday night.
“The commissioner must then certify in his judgment whether the contract is unfair, and he should also be given the power to set aside or renegotiate the contracts and provide compensation where it is due,” he added.
There should also be relevant guidelines on compensation, limiting them depending on past profits, he added.
Panellist and Petaling Jaya Utara MP Tony Pua said that it was contractually possible for the Government to buy back certain highways such as the Lebuhraya Damansara Puchong (LDP) at a reasonable figure as stated in the declassified concession agreement.
“For the LDP agreement, there is an expropriation clause where the Government can terminate the agreement by giving the concessionaire three months’ notice.
“LDP cost RM1.33bil to build, but they stand to make RM18.8bil by 2019 according to profit projections based on their listing prospectus,” he said.
He added that at the end of last year, the Government paid a total of RM628mil in compensation to the concessionaire Lingkaran Trans Kota Sdn Bhd (Litrak).
“The toll rates are expected to increase to RM3.10 in 2016. Even if the Government absorbs some of the cost and we pay RM2.60, it is still the taxpayers’ money that has to be used to pay the compensation,” he added.
By Florence A. Samy
PETALING JAYA: An “Unfair Public Contracts Act” should be passed in Parliament to set aside or review lopsided contracts, including those for highway projects that have not benefitted the people.
Lawyer Tommy Thomas said only such an Act would make it compulsory for such contracts to be revised.
“The Act should give legal power to an independent public contracts commissioner. He should be allowed to access and review all public contracts and supporting documents, be given the power to subpoena and have a team of experts to aid him,” he said when speaking at a public dialogue entitled “Can we get back our highways?” Wednesday night.
“The commissioner must then certify in his judgment whether the contract is unfair, and he should also be given the power to set aside or renegotiate the contracts and provide compensation where it is due,” he added.
There should also be relevant guidelines on compensation, limiting them depending on past profits, he added.
Panellist and Petaling Jaya Utara MP Tony Pua said that it was contractually possible for the Government to buy back certain highways such as the Lebuhraya Damansara Puchong (LDP) at a reasonable figure as stated in the declassified concession agreement.
“For the LDP agreement, there is an expropriation clause where the Government can terminate the agreement by giving the concessionaire three months’ notice.
“LDP cost RM1.33bil to build, but they stand to make RM18.8bil by 2019 according to profit projections based on their listing prospectus,” he said.
He added that at the end of last year, the Government paid a total of RM628mil in compensation to the concessionaire Lingkaran Trans Kota Sdn Bhd (Litrak).
“The toll rates are expected to increase to RM3.10 in 2016. Even if the Government absorbs some of the cost and we pay RM2.60, it is still the taxpayers’ money that has to be used to pay the compensation,” he added.
PAAB starts talks with Selangor concessionaires
STAR, 19 February 2009
By YEOW POOI LING
KUALA LUMPUR: Pengurusan Aset Air Bhd (PAAB) has “moved in” to negotiate directly with the water concessionaires in Selangor to take over their assets as part of the initiative to restructure water services in the country.
According to National Water Services Commission (SPAN) chief executive officer Datuk Teo Yen Hua, the Selangor government had failed to meet the deadline given by the Federal Government although it had been extended twice after the first deadline of end September last year.
“The Federal Government had then given the state government until Feb 14 to submit an offer for the takeover of the water assets and equities, but up to today, there has been no response,” he told a press conference yesterday.
“It’s been too long and time is of essence. It’s only appropriate for PAAB to move in and resolve the issue,” he added.
Teo said there was no offer on the table yet for the water assets as PAAB had only started “looking at the books.”
Under the initial restructuring plan, the Selangor government, via its investment arm Kumpulan Darul Ehsan Bhd (KDEB), would consolidate the concessions, following which it would hand over the water assets to PAAB.
The assets would then be leased back to KDEB as the sole concessionaire. The Ministry of Energy, Water and Communications has ordered the restructuring to be completed by end March.
Should the state government fail to hand over the water assets to PAAB by then, consumers would risk paying water tariff that is 37% higher.
However, only last Friday, did Kumpulan Perangsang Selangor Bhd (KPS), which is the subsidiary of KDEB, initiate the move to restructure via an offer for some RM6bil for the four water concessions.
Puncak Niaga Holdings Bhd was offered RM3.1bil for its water assets and operations as well as those of its 70% sub-subsidiary Syarikat Bekalan Air Selangor Sdn Bhd (Syabas) without assuming any liabilities.
Gamuda Bhd’s 40% own unit, Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (Splash), was offered RM2.1bil without liabilities while KPS’ own Konsortium Abass Sdn Bhd was offered RM525.7mil.
The concessionaires have until tomorrow to respond to their respective offer but news reports so far have indicated that the offers were unattractive.
Teo said if the negotiations between PAAB and the concessionaires failed to meet the March deadline, a higher tariff would be imposed.
On the state government’s request for the Energy, Water and Communications Minister to intervene in the restructuring, Teo said it was unnecessary.
“Concessionaires have the option of either migrating to licensing or continuing the concessions based on new terms set by SPAN. We have not gone through that process. If the concessionaires refuse to come forward for renegotiations, SPAN will advise the minister accordingly,” he said.
By YEOW POOI LING
KUALA LUMPUR: Pengurusan Aset Air Bhd (PAAB) has “moved in” to negotiate directly with the water concessionaires in Selangor to take over their assets as part of the initiative to restructure water services in the country.
According to National Water Services Commission (SPAN) chief executive officer Datuk Teo Yen Hua, the Selangor government had failed to meet the deadline given by the Federal Government although it had been extended twice after the first deadline of end September last year.
“The Federal Government had then given the state government until Feb 14 to submit an offer for the takeover of the water assets and equities, but up to today, there has been no response,” he told a press conference yesterday.
“It’s been too long and time is of essence. It’s only appropriate for PAAB to move in and resolve the issue,” he added.
Teo said there was no offer on the table yet for the water assets as PAAB had only started “looking at the books.”
Under the initial restructuring plan, the Selangor government, via its investment arm Kumpulan Darul Ehsan Bhd (KDEB), would consolidate the concessions, following which it would hand over the water assets to PAAB.
The assets would then be leased back to KDEB as the sole concessionaire. The Ministry of Energy, Water and Communications has ordered the restructuring to be completed by end March.
Should the state government fail to hand over the water assets to PAAB by then, consumers would risk paying water tariff that is 37% higher.
However, only last Friday, did Kumpulan Perangsang Selangor Bhd (KPS), which is the subsidiary of KDEB, initiate the move to restructure via an offer for some RM6bil for the four water concessions.
Puncak Niaga Holdings Bhd was offered RM3.1bil for its water assets and operations as well as those of its 70% sub-subsidiary Syarikat Bekalan Air Selangor Sdn Bhd (Syabas) without assuming any liabilities.
Gamuda Bhd’s 40% own unit, Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (Splash), was offered RM2.1bil without liabilities while KPS’ own Konsortium Abass Sdn Bhd was offered RM525.7mil.
The concessionaires have until tomorrow to respond to their respective offer but news reports so far have indicated that the offers were unattractive.
Teo said if the negotiations between PAAB and the concessionaires failed to meet the March deadline, a higher tariff would be imposed.
On the state government’s request for the Energy, Water and Communications Minister to intervene in the restructuring, Teo said it was unnecessary.
“Concessionaires have the option of either migrating to licensing or continuing the concessions based on new terms set by SPAN. We have not gone through that process. If the concessionaires refuse to come forward for renegotiations, SPAN will advise the minister accordingly,” he said.
SPAN's decision to negotiate directly with concessionaires unwarranted
Edge Daily, 19 February 2009
by Yong Min Wei
KUALA LUMPUR: The Selangor state government has described as unwarranted the decision by Suruhanjaya Perkhidmatan Air Negara (SPAN) to negotiate directly with the four concession companies to acquire their water treatment and distribution assets as part of the water restructuring exercise in the state.
Selangor Menteri Besar Tan Sri Abdul Khalid Ibrahim said the move by SPAN was inconsistent with the Federal Government's decision on Jan 16, 2008, to allow the state government, through Kumpulan Darul Ehsan Bhd (KDEB), to take over the operation and maintenance of the water assets from concessionaires in a joint exercise.
"It has therefore come as a shock to learn that SPAN is embarking on an obvious U-Turn to the Federal Government's earlier decision - even before our letters of offer to the concessionaries dated Feb 13, 2009, are set to expire Feb 20, 2009," he told a press conference at the parliament lobby yesterday.
The main concession holders in Selangor are Puncak Niaga (M) Sdn Bhd (PNSB), Syarikat Bekalan Air Selangor Sdn Bhd (Syabas), Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (Splash) and Konsortium Abbas Sdn Bhd.
He pointed out that should the SPAN be successful in its negotiations, the concessionaires would subsequently enter into a sale and leaseback of the water treatment and distribution assets from Pengurusan Aset Air Bhd (PAAB).
"The Selangor state government questions the decision made by SPAN on a matter that falls under the jurisdiction of the Ministry of Energy, Water and Communications," he said.
He also said the state had taken all efforts to ensure the restructuring exercise is completed with the benefits of the people of Selangor and Kuala Lumpur prior to SPAN's latest move, adding that SPAN has acted inconsistently with the spirit of the Water Services Industry Act 2006 (WSIA).
According to Khalid, Section 191(4) of the WSIA required the concession companies to negotiate with both the Federal Government and the Selangor Government in its capacity as a counter party to each of the concession agreements and supplementary agreements.
He slammed SPAN for not supporting the state government's initiative to buyback these water concessions in the interest of the rakyat with a fair offer, noting that SPAN's chief executive officer Datuk Teo Yen Hua appeared to be pandering towards the interest of the private concessionaires.
"We urge that he (Teo) declares his interest on the matter. If any irregularity is found, we call for his resignation," he stressed.
On the possibility that water tariffs would be lower should PAAB acquire the water assets, Khalid replied: "If they (SPAN) think they can negotiate on behalf of Selangor at a very much lower price, then tell us and we will work behind him (Teo)."
He said the state was only doing what was appropriate under the international standards of takeovers, where a due diligence study must be done and a reasonable offer as well as sufficient time be given to the parties for consideration.
"I don't think when you do a takeover today, you say [that] tomorrow I [can] cancel the arrangement," he noted.
In an announcement to Bursa Malaysia last week, Puncak Niaga had stated that it had received an offer of RM3.1 billion for its assets - namely RM1.6 billion for PNSB and RM1.5 billion for Syabas, excluding the debts accumulated.
Khalid said the offer by the state was reasonable as it was more than the value of assets, such as treatment plants and pipes. He added that the state also provided an exit value that is not tangible.
"If you pass it to PAAB, then the intangible cost or price will have to be translated by the state," he said.
"What happens if PAAB says I pay RM2 and I want to claim from the state RM3 as a result of poor negotiations?" he asked.
by Yong Min Wei
KUALA LUMPUR: The Selangor state government has described as unwarranted the decision by Suruhanjaya Perkhidmatan Air Negara (SPAN) to negotiate directly with the four concession companies to acquire their water treatment and distribution assets as part of the water restructuring exercise in the state.
Selangor Menteri Besar Tan Sri Abdul Khalid Ibrahim said the move by SPAN was inconsistent with the Federal Government's decision on Jan 16, 2008, to allow the state government, through Kumpulan Darul Ehsan Bhd (KDEB), to take over the operation and maintenance of the water assets from concessionaires in a joint exercise.
"It has therefore come as a shock to learn that SPAN is embarking on an obvious U-Turn to the Federal Government's earlier decision - even before our letters of offer to the concessionaries dated Feb 13, 2009, are set to expire Feb 20, 2009," he told a press conference at the parliament lobby yesterday.
The main concession holders in Selangor are Puncak Niaga (M) Sdn Bhd (PNSB), Syarikat Bekalan Air Selangor Sdn Bhd (Syabas), Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (Splash) and Konsortium Abbas Sdn Bhd.
He pointed out that should the SPAN be successful in its negotiations, the concessionaires would subsequently enter into a sale and leaseback of the water treatment and distribution assets from Pengurusan Aset Air Bhd (PAAB).
"The Selangor state government questions the decision made by SPAN on a matter that falls under the jurisdiction of the Ministry of Energy, Water and Communications," he said.
He also said the state had taken all efforts to ensure the restructuring exercise is completed with the benefits of the people of Selangor and Kuala Lumpur prior to SPAN's latest move, adding that SPAN has acted inconsistently with the spirit of the Water Services Industry Act 2006 (WSIA).
According to Khalid, Section 191(4) of the WSIA required the concession companies to negotiate with both the Federal Government and the Selangor Government in its capacity as a counter party to each of the concession agreements and supplementary agreements.
He slammed SPAN for not supporting the state government's initiative to buyback these water concessions in the interest of the rakyat with a fair offer, noting that SPAN's chief executive officer Datuk Teo Yen Hua appeared to be pandering towards the interest of the private concessionaires.
"We urge that he (Teo) declares his interest on the matter. If any irregularity is found, we call for his resignation," he stressed.
On the possibility that water tariffs would be lower should PAAB acquire the water assets, Khalid replied: "If they (SPAN) think they can negotiate on behalf of Selangor at a very much lower price, then tell us and we will work behind him (Teo)."
He said the state was only doing what was appropriate under the international standards of takeovers, where a due diligence study must be done and a reasonable offer as well as sufficient time be given to the parties for consideration.
"I don't think when you do a takeover today, you say [that] tomorrow I [can] cancel the arrangement," he noted.
In an announcement to Bursa Malaysia last week, Puncak Niaga had stated that it had received an offer of RM3.1 billion for its assets - namely RM1.6 billion for PNSB and RM1.5 billion for Syabas, excluding the debts accumulated.
Khalid said the offer by the state was reasonable as it was more than the value of assets, such as treatment plants and pipes. He added that the state also provided an exit value that is not tangible.
"If you pass it to PAAB, then the intangible cost or price will have to be translated by the state," he said.
"What happens if PAAB says I pay RM2 and I want to claim from the state RM3 as a result of poor negotiations?" he asked.
Water: Of timing and pricing
Edge Daily, 19 February 2009
by Fong Min Hun
KUALA LUMPUR: CIMB Research said yesterday the water sector was still an attractive investment option even though investors had sold down the shares of water-related stocks earlier this week.
The Selangor state government recently made the headlines after it formally made an offer to buy up the state’s water assets through its investment arm, Kumpulan Darul Ehsan Bhd (KDEB), as part of a restructuring exercise.
However, the lower-than-expected RM5.7 billion offer sent the share prices of key water players, which include the likes of Puncak Niaga Holdings Bhd, Gamuda Bhd and Kumpulan Perangsang Selangor Bhd (KPS), tumbling.
CIMB Research has nonetheless maintained a trading buy on water stocks signalling its bullishness on their prospects over the near term. The research house said it was likely that the Selangor concessionaires would unilaterally reject the offer, which would prompt KDEB to come back with an improved offer.
“Although the offer prices for the Selangor water assets are disappointing... we think there is a good chance of a more attractive offer,” CIMB said in its report yesterday.
“Furthermore, the potential intervention by the federal government via PAAB (Pengurusan Aset Air Bhd) to take over the physical assets and liabilities could lead to favourable alternative valuations for the concession assets.”
To recap, the Selangor state government is looking to acquire the state’s water assets in a bid to improve efficiency and prevent tariff hikes as stipulated in the concession agreements.
For example, Puncak Niaga is expected to hike tariffs by as much as 37% by April this year if the KDEB takeover is unsuccessful.
Presently, Selangor has the highest water tariff average in the country, CIMB Research said. If KDEB is successful in its acquisition, the research outfit said KDEB might propose a tariff cut of up to 14% from the current average of RM1.39 per cubic metre.
Selangor’s water assets are owned by four companies — Puncak Niaga Sdn Bhd (PNSB), Syarikat Bekalan Air Selangor (Syabas), Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (Splash) and Konsortium ABASS Sdn Bhd.
PNSB is a wholly owned subsidiary of Puncak Niaga Holdings, which also owns 70% of Syabas. The other 30% ownership of Syabas is divided equally between KDEB and KPS.
Splash is 30% owned by KPS, 40% by Gamuda and 30% by The Sweet Water Alliance (TSWA), a company linked to Tan Sri Wan Azmi. Lastly, ABASS is 55% owned by KPS (through its 55% owned subsidiary Titisan Modal Sdn Bhd) and 45% by Operasi Murni Sdn Bhd.
Earlier this week, KDEB offered RM1.6 billion for PNSB, RM1.5 billion for Syabas, RM2.1 billion for Splash and RM525.7 million for ABASS.
The offer has been universally declared unattractive, as the offer did not take into consideration the liabilities of the companies. KDEB’s decision to value the companies through their respective capitalised values rather than through their expected cash flows also came under criticism.
“The offers did not disclose the debt/liability and cash components of the concession assets, which should have been accounted for in arriving at the effective acquisition costs. Factoring this in, the valuations in the offer are significantly lower than our DCF (discounted cash flow) estimates for PNSB, Syabas and Splash,” CIMB Research said.
“Effectively, Puncak’s 100%-owned PNSB is valued at RM308 million (75 sen/share) while Syabas’s equity value is negative. The offer price for Splash works out to RM464 million, translating into 10 sen/share for Gamuda’s 40% stake.
“ABASS is valued at RM334 million, lower than the RM529 million price tag it had fetched when KPS took over in Apr 2006. The effective offer price would slip into negative value if we consider Titisan Modal’s outstanding bonds of RM572.3 million. KPS’ 55% effective stake via Titisan Modal is worth 40 sen/share.”
As a result, the concessionaires are expected to unilaterally reject the offer, which means that either KDEB will have to come back with an improved offer, or the concessionaires will deal with federal-owned PAAB.
Should KDEB succeed in taking over the assets, the concession agreements would be converted into licensing agreements subject to various key performance indicators (KPI) to qualify for tariff increases. KDEB has until the end of March to finalise the acquisitions.
In the other scenario where KDEB fails in its bid to acquire the assets, PAAB would then step in as per the legislated requirement.
“Under this scenario, the federal government will intervene via PAAB and acquire the physical assets and liabilities of all water operators, which will take some time to conclude,” CIMB Research said.
“We gather that Puncak Niaga’s delayed 37% tariff hike will be enforceable by Apr 2009. All water operators will eventually be asset-light carrying zero debt in their balance sheets, with future capex to be managed by PAAB.”
The research house added that it expected PAAB’s valuations of the water assets to be higher because it was using the DCF method to value the assets.
“We gathered from our channel checks that PAAB uses the DCF valuation methodology which implies that its offer prices could be more attractive than the Selangor state government’s offer. Furthermore, PAAB will take over the liabilities of the concession assets,” CIMB Research said.
News reports are also suggesting that the concessionaires could fare better by dealing with PAAB, which is willing to pony up to RM9 billion for the assets. However, this is still significantly lower than the concessionaire’s expectations of between RM12 billion-RM13 billion.
So far as consumers are concerned, the silver lining in this scenario is that the proposed hike by Puncak Niaga could be lower than the expected 37% because the company did not meet the requirement to lower non-revenue water (NRW) to the 28% mark.
CIMB Research said Puncak Niaga has lowered NRW to 30%, which meant it could only hike tariffs by 29.6%.
Also upcoming is the deadline for the transfer of all water assets in Peninsular Malaysia to federal-owned PAAB by the end of 2009, as stipulated in the Water Services Industry Act 2006. The transfer will go on regardless of who owns the water assets.
Elsewhere in the peninsula, PAAB has managed to recently secure assets in Melaka for RM889 million and Negri Sembilan for RM1.2 billion. The goal is to ultimately streamline water operations to make them profitable.
“Consolidation remains the key catalyst for the sector,” CIMB Research said.
As for PAAB’s acquisitions elsewhere, CIMB Research said next in line were Pahang and Johor.
“We gather that PAAB has been in active negotiations with Syarikat Air Johor (SAJ) which is the main water concession holder in the state with a 30-year concession ending 2030. SAJ is a subsidiary of the recently privatised Ranhill Utilities. Although the total acquisition cost is still not known, we gather that SAJ has outstanding debts of RM597 million,” it said.
The research house added that expectations of new water infrastructure projects, particularly the award of a 45-kilometre water transfer tunnel between Pahang and Selangor, could also serve to stimulate the water sector in the near term.
The project is expected to be awarded to a consortium that includes local construction players IJM Corp Bhd and the UEM Group.
Should the tunnel project take off, CIMB Research said it could be the catalyst for the development of a RM5 billion water treatment plant in Langat, which is lead by KPS. Financing has already been secured for the tunnel, it added, but the financing plans for the water treatment plant is still unknown.
by Fong Min Hun
KUALA LUMPUR: CIMB Research said yesterday the water sector was still an attractive investment option even though investors had sold down the shares of water-related stocks earlier this week.
The Selangor state government recently made the headlines after it formally made an offer to buy up the state’s water assets through its investment arm, Kumpulan Darul Ehsan Bhd (KDEB), as part of a restructuring exercise.
However, the lower-than-expected RM5.7 billion offer sent the share prices of key water players, which include the likes of Puncak Niaga Holdings Bhd, Gamuda Bhd and Kumpulan Perangsang Selangor Bhd (KPS), tumbling.
CIMB Research has nonetheless maintained a trading buy on water stocks signalling its bullishness on their prospects over the near term. The research house said it was likely that the Selangor concessionaires would unilaterally reject the offer, which would prompt KDEB to come back with an improved offer.
“Although the offer prices for the Selangor water assets are disappointing... we think there is a good chance of a more attractive offer,” CIMB said in its report yesterday.
“Furthermore, the potential intervention by the federal government via PAAB (Pengurusan Aset Air Bhd) to take over the physical assets and liabilities could lead to favourable alternative valuations for the concession assets.”
To recap, the Selangor state government is looking to acquire the state’s water assets in a bid to improve efficiency and prevent tariff hikes as stipulated in the concession agreements.
For example, Puncak Niaga is expected to hike tariffs by as much as 37% by April this year if the KDEB takeover is unsuccessful.
Presently, Selangor has the highest water tariff average in the country, CIMB Research said. If KDEB is successful in its acquisition, the research outfit said KDEB might propose a tariff cut of up to 14% from the current average of RM1.39 per cubic metre.
Selangor’s water assets are owned by four companies — Puncak Niaga Sdn Bhd (PNSB), Syarikat Bekalan Air Selangor (Syabas), Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (Splash) and Konsortium ABASS Sdn Bhd.
PNSB is a wholly owned subsidiary of Puncak Niaga Holdings, which also owns 70% of Syabas. The other 30% ownership of Syabas is divided equally between KDEB and KPS.
Splash is 30% owned by KPS, 40% by Gamuda and 30% by The Sweet Water Alliance (TSWA), a company linked to Tan Sri Wan Azmi. Lastly, ABASS is 55% owned by KPS (through its 55% owned subsidiary Titisan Modal Sdn Bhd) and 45% by Operasi Murni Sdn Bhd.
Earlier this week, KDEB offered RM1.6 billion for PNSB, RM1.5 billion for Syabas, RM2.1 billion for Splash and RM525.7 million for ABASS.
The offer has been universally declared unattractive, as the offer did not take into consideration the liabilities of the companies. KDEB’s decision to value the companies through their respective capitalised values rather than through their expected cash flows also came under criticism.
“The offers did not disclose the debt/liability and cash components of the concession assets, which should have been accounted for in arriving at the effective acquisition costs. Factoring this in, the valuations in the offer are significantly lower than our DCF (discounted cash flow) estimates for PNSB, Syabas and Splash,” CIMB Research said.
“Effectively, Puncak’s 100%-owned PNSB is valued at RM308 million (75 sen/share) while Syabas’s equity value is negative. The offer price for Splash works out to RM464 million, translating into 10 sen/share for Gamuda’s 40% stake.
“ABASS is valued at RM334 million, lower than the RM529 million price tag it had fetched when KPS took over in Apr 2006. The effective offer price would slip into negative value if we consider Titisan Modal’s outstanding bonds of RM572.3 million. KPS’ 55% effective stake via Titisan Modal is worth 40 sen/share.”
As a result, the concessionaires are expected to unilaterally reject the offer, which means that either KDEB will have to come back with an improved offer, or the concessionaires will deal with federal-owned PAAB.
Should KDEB succeed in taking over the assets, the concession agreements would be converted into licensing agreements subject to various key performance indicators (KPI) to qualify for tariff increases. KDEB has until the end of March to finalise the acquisitions.
In the other scenario where KDEB fails in its bid to acquire the assets, PAAB would then step in as per the legislated requirement.
“Under this scenario, the federal government will intervene via PAAB and acquire the physical assets and liabilities of all water operators, which will take some time to conclude,” CIMB Research said.
“We gather that Puncak Niaga’s delayed 37% tariff hike will be enforceable by Apr 2009. All water operators will eventually be asset-light carrying zero debt in their balance sheets, with future capex to be managed by PAAB.”
The research house added that it expected PAAB’s valuations of the water assets to be higher because it was using the DCF method to value the assets.
“We gathered from our channel checks that PAAB uses the DCF valuation methodology which implies that its offer prices could be more attractive than the Selangor state government’s offer. Furthermore, PAAB will take over the liabilities of the concession assets,” CIMB Research said.
News reports are also suggesting that the concessionaires could fare better by dealing with PAAB, which is willing to pony up to RM9 billion for the assets. However, this is still significantly lower than the concessionaire’s expectations of between RM12 billion-RM13 billion.
So far as consumers are concerned, the silver lining in this scenario is that the proposed hike by Puncak Niaga could be lower than the expected 37% because the company did not meet the requirement to lower non-revenue water (NRW) to the 28% mark.
CIMB Research said Puncak Niaga has lowered NRW to 30%, which meant it could only hike tariffs by 29.6%.
Also upcoming is the deadline for the transfer of all water assets in Peninsular Malaysia to federal-owned PAAB by the end of 2009, as stipulated in the Water Services Industry Act 2006. The transfer will go on regardless of who owns the water assets.
Elsewhere in the peninsula, PAAB has managed to recently secure assets in Melaka for RM889 million and Negri Sembilan for RM1.2 billion. The goal is to ultimately streamline water operations to make them profitable.
“Consolidation remains the key catalyst for the sector,” CIMB Research said.
As for PAAB’s acquisitions elsewhere, CIMB Research said next in line were Pahang and Johor.
“We gather that PAAB has been in active negotiations with Syarikat Air Johor (SAJ) which is the main water concession holder in the state with a 30-year concession ending 2030. SAJ is a subsidiary of the recently privatised Ranhill Utilities. Although the total acquisition cost is still not known, we gather that SAJ has outstanding debts of RM597 million,” it said.
The research house added that expectations of new water infrastructure projects, particularly the award of a 45-kilometre water transfer tunnel between Pahang and Selangor, could also serve to stimulate the water sector in the near term.
The project is expected to be awarded to a consortium that includes local construction players IJM Corp Bhd and the UEM Group.
Should the tunnel project take off, CIMB Research said it could be the catalyst for the development of a RM5 billion water treatment plant in Langat, which is lead by KPS. Financing has already been secured for the tunnel, it added, but the financing plans for the water treatment plant is still unknown.
Water fight in the offing
Edge Daily, 19 February 2009
by Jose Barrock & Yong Min Wei
KUALA LUMPUR: As expected, the federal government-backed Pengurusan Aset Air Bhd (PAAB) has put in a bid for the water assets in Selangor even as an offer from the Pakatan Rakyat-controlled state government to the four concessionaires has yet to lapse.
In an announcement yesterday, Suruhanjaya Perkhidmatan Air Negara’s (Span) chief executive officer Datuk Teo Yen Hua said that PAAB would commence negotiations with the Selangor water concession holders after the state government failed to comply with a set timeline to take over the assets.
“The federal government via the Ministry of Energy, Water and Communications has given a timeline until Feb 14, for the state government to respond on the offer for the takeover of assets and equities. Till now no response was received. So as agreed upon before this, PAAB will commence initiatives to take over the water assets directly from the concession holders,” he told reporters in a press conference in parliament yesterday.
Teo also said that if the assets are not taken up by March 31, Span has no choice but to allow a water tariff hike of 35%.
Under the concession agreement, the concessionaires were scheduled to get a 35% tariff hike in January this year but it was pushed to March 31 to facilitate a takeover offer.
To a question if the move by Span technically tantamounts to asking the state government to back down, Teo replied: “I don’t think I can entertain this type of issue. We are all working in cooperation with all parties except that we think time is the essence. To start talking with the concessionaire is only in the interest of the public.”
The latest development could effectively scuttle the Selangor state government’s plan to take over the assets.
Ironically, earlier yesterday, the Pakatan Rakyat coalition, which controls Selangor state, had a briefing explaining the merits of their offer to the public. The crux of the briefing was to explain the seemingly low offer price made for the assets.
The main concession holders in Selangor are Puncak Niaga (M) Sdn Bhd (PNSB), Syarikat Bekalan Air Selangor Sdn Bhd (Syabas), Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (Splash) and Konsortium Abbas Sdn Bhd.
PNSB is a wholly owned unit of Puncak Niaga Holdings Bhd, which also controls a 70% equity in Syabas. Splash meanwhile is 40%-controlled by construction giant Gamuda Bhd while Konsortium Abbas is 55%-owned by Kumpulan Perangsang Selangor Bhd (KPS).
In an announcement to Bursa Malaysia last week, Puncak Niaga had stated that it had received an offer of RM3.1 billion for its assets, namely RM1.6 billion for PNSB and RM1.5 billion for Syabas, excluding the debts accumulated. This offer was deemed low, as Puncak had amassed debts in excess of RM3.7 billion. Gamuda had also received an offer, valuing its 40% equity in Splash at about RM824 million.
In a nutshell, the dispute arises as the concessionaires are looking at a higher price, based largely on discounted cash flow and future tariff hikes, while the Selangor state government’s offer is based on the concessionaires asset value.
During the briefing by Pakatan Rakyat, Tony Pua the member of parliament for North Petaling Jaya had said: “The state should not compensate the concession holders for future profits because the concession itself was government concession”. Pua is a member of the Selangor Water Review panel.
Another member of the panel, Charles Santiago when contacted said: “It was clearly understood that the state would take the lead (in the consolidation of assets) from day one. Teo (chief executive officer of Span) was informed that the state government will not support any one-on-one meetings between the concessionaires and PAAB... we don’t have a neutral regulator, it appears that Span is on the side of the concessionaires,” he said.
Yesterday, Puncak Niaga slipped one sen to RM2.82, while Gamuda shed five sen to RM1.94. KPS was unchanged at RM1.45.
by Jose Barrock & Yong Min Wei
KUALA LUMPUR: As expected, the federal government-backed Pengurusan Aset Air Bhd (PAAB) has put in a bid for the water assets in Selangor even as an offer from the Pakatan Rakyat-controlled state government to the four concessionaires has yet to lapse.
In an announcement yesterday, Suruhanjaya Perkhidmatan Air Negara’s (Span) chief executive officer Datuk Teo Yen Hua said that PAAB would commence negotiations with the Selangor water concession holders after the state government failed to comply with a set timeline to take over the assets.
“The federal government via the Ministry of Energy, Water and Communications has given a timeline until Feb 14, for the state government to respond on the offer for the takeover of assets and equities. Till now no response was received. So as agreed upon before this, PAAB will commence initiatives to take over the water assets directly from the concession holders,” he told reporters in a press conference in parliament yesterday.
Teo also said that if the assets are not taken up by March 31, Span has no choice but to allow a water tariff hike of 35%.
Under the concession agreement, the concessionaires were scheduled to get a 35% tariff hike in January this year but it was pushed to March 31 to facilitate a takeover offer.
To a question if the move by Span technically tantamounts to asking the state government to back down, Teo replied: “I don’t think I can entertain this type of issue. We are all working in cooperation with all parties except that we think time is the essence. To start talking with the concessionaire is only in the interest of the public.”
The latest development could effectively scuttle the Selangor state government’s plan to take over the assets.
Ironically, earlier yesterday, the Pakatan Rakyat coalition, which controls Selangor state, had a briefing explaining the merits of their offer to the public. The crux of the briefing was to explain the seemingly low offer price made for the assets.
The main concession holders in Selangor are Puncak Niaga (M) Sdn Bhd (PNSB), Syarikat Bekalan Air Selangor Sdn Bhd (Syabas), Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (Splash) and Konsortium Abbas Sdn Bhd.
PNSB is a wholly owned unit of Puncak Niaga Holdings Bhd, which also controls a 70% equity in Syabas. Splash meanwhile is 40%-controlled by construction giant Gamuda Bhd while Konsortium Abbas is 55%-owned by Kumpulan Perangsang Selangor Bhd (KPS).
In an announcement to Bursa Malaysia last week, Puncak Niaga had stated that it had received an offer of RM3.1 billion for its assets, namely RM1.6 billion for PNSB and RM1.5 billion for Syabas, excluding the debts accumulated. This offer was deemed low, as Puncak had amassed debts in excess of RM3.7 billion. Gamuda had also received an offer, valuing its 40% equity in Splash at about RM824 million.
In a nutshell, the dispute arises as the concessionaires are looking at a higher price, based largely on discounted cash flow and future tariff hikes, while the Selangor state government’s offer is based on the concessionaires asset value.
During the briefing by Pakatan Rakyat, Tony Pua the member of parliament for North Petaling Jaya had said: “The state should not compensate the concession holders for future profits because the concession itself was government concession”. Pua is a member of the Selangor Water Review panel.
Another member of the panel, Charles Santiago when contacted said: “It was clearly understood that the state would take the lead (in the consolidation of assets) from day one. Teo (chief executive officer of Span) was informed that the state government will not support any one-on-one meetings between the concessionaires and PAAB... we don’t have a neutral regulator, it appears that Span is on the side of the concessionaires,” he said.
Yesterday, Puncak Niaga slipped one sen to RM2.82, while Gamuda shed five sen to RM1.94. KPS was unchanged at RM1.45.
Sunday, February 8, 2009
Lower electricity tariffs
New Straits Times, 8 February 2009
TAMPIN: The government will announce soon a reduction in electricity tariffs that will take effect from March 1.
Energy, Water and Communications Minister Datuk Shaziman Abu Mansor said he would present a report on the proposed downward tariff revision to the cabinet on Wednesday.
Shaziman said his ministry had been in discussion with the Economic Planning Unit to revise the gas price for the power sector to facilitate for lower electricity tariffs.
"We are pushing for an early review of the price of gas that Petronas sells to the power sector, in view of the declining prices of crude oil."
Shaziman, who is also the member of parliament for Tampin, said this after opening the Olek Kampung harm reduction (methadone) programme at the district health office here yesterday.
A review was supposed to be due only in the middle of this year, which will be a year after the previous review, but the larger reduction in crude oil prices from US$140 per barrel to US$43 per barrel has prompted the authorities to make an early revision.
Electricity tariffs were raised 24 per cent last July following the rise in gas and coal prices and maintenance costs.
At present, domestic users are paying 21.8 sen per kilowatt hour (kWh) if their monthly usage does not exceed 200 kWh. However, for usage of between 201 kWh and 400 kWh, they have to pay 34.5 sen per kWh unit.
The rates increase on subsequent 100 kWh -- 30 sen for 401-500 kWh, 39 sen (501-600 kWh), 40 sen (601-700 kWh), 41 sen (701-800 kWh) and 43 sen (801-900 kWh).
A maximum of 46 sen is charged for each kWh when electricity usage reaches 901 kWh and above.
Shaziman said a comprehensive study was being carried out into industries and sectors that used a lot of energy to identify the relevant categories that were eligible for special tariff discounts.
"The incentive for electricity should ideally benefit value-added industries, for example business sectors that contribute to the country's economic growth."
Meanwhile, he said that Johor was expected to be the third state to hand over its water assets to Pengurusan Aset Air Bhd later this month, after Malacca and Negri Sembilan.
He also said he had responded to a letter written by the Selangor government, requesting for his views on whether the state should terminate the 30-year concession agreement with Syarikat Bekalan Air Selangor.
TAMPIN: The government will announce soon a reduction in electricity tariffs that will take effect from March 1.
Energy, Water and Communications Minister Datuk Shaziman Abu Mansor said he would present a report on the proposed downward tariff revision to the cabinet on Wednesday.
Shaziman said his ministry had been in discussion with the Economic Planning Unit to revise the gas price for the power sector to facilitate for lower electricity tariffs.
"We are pushing for an early review of the price of gas that Petronas sells to the power sector, in view of the declining prices of crude oil."
Shaziman, who is also the member of parliament for Tampin, said this after opening the Olek Kampung harm reduction (methadone) programme at the district health office here yesterday.
A review was supposed to be due only in the middle of this year, which will be a year after the previous review, but the larger reduction in crude oil prices from US$140 per barrel to US$43 per barrel has prompted the authorities to make an early revision.
Electricity tariffs were raised 24 per cent last July following the rise in gas and coal prices and maintenance costs.
At present, domestic users are paying 21.8 sen per kilowatt hour (kWh) if their monthly usage does not exceed 200 kWh. However, for usage of between 201 kWh and 400 kWh, they have to pay 34.5 sen per kWh unit.
The rates increase on subsequent 100 kWh -- 30 sen for 401-500 kWh, 39 sen (501-600 kWh), 40 sen (601-700 kWh), 41 sen (701-800 kWh) and 43 sen (801-900 kWh).
A maximum of 46 sen is charged for each kWh when electricity usage reaches 901 kWh and above.
Shaziman said a comprehensive study was being carried out into industries and sectors that used a lot of energy to identify the relevant categories that were eligible for special tariff discounts.
"The incentive for electricity should ideally benefit value-added industries, for example business sectors that contribute to the country's economic growth."
Meanwhile, he said that Johor was expected to be the third state to hand over its water assets to Pengurusan Aset Air Bhd later this month, after Malacca and Negri Sembilan.
He also said he had responded to a letter written by the Selangor government, requesting for his views on whether the state should terminate the 30-year concession agreement with Syarikat Bekalan Air Selangor.
Wednesday, February 4, 2009
Selangor MB confirms move to end water pact
by Karen Arukesamy, EDGE
SHAH ALAM (Feb 4, 2009) : Selangor Mentri Besar Tan Sri Abdul Khalid Ibrahim confirmed today that he has asked Energy, Water and Communications Minister Datuk Shaziman Abu Mansor to terminate the 30-year Selangor water concession agreement.
“Based on the audit report presented to us in December, I have written a letter, as a matter of course, to the minister because the agreement states if Syarikat Bekalan Air Selangor (Syabas) did not deliver as per the agreement signed about four years ago, then the state has a duty to ensure that action is taken,” Khalid told a press conference after a state executive council meeting in his office.
He said that among the measures he proposed in his letter was the termination of the contract. However, Shaziman has not replied to him yet.
“The minister must approve whether we (the state government) can take such an action,” he said.
On the outcome of the Selangor State Economic Council (MTES) meeting on the issue last Friday, Khalid said: “Discussion is on-going. I think I should not reveal each party’s position yet as it is still in the negotiation stage.”
theSun reported on Friday that Syabas, owned by Puncak Niaga (70% share) and state investment arm Kumpulan Darul Ehsan Bhd (30%), had failed to fully comply with the requirement for contracts to be awarded on an open tender basis.
The water concession agreement was signed between the federal and state governments and Puncak Niaga.
The report said the audit of Selangor’s water concessionnaire operations revealed that more than 72% of the contracts worth a total of RM600 million were awarded to selected companies through direct negiotiations and only 25% through competitive open tender.
It said the audit had also found more than RM325 million in discrepancy between the summary of contracts awarded in 2005, 2006 and 2007, and Syabas’ review document.
The audit was a requirement before the company could be allowed to implement a tariff increase, which has been rescheduled to March 31 from the initial Jan 1 this year.
Earlier, Khalid announced that state executive councillors Teresa Kok and Iskandar A. Samad, and Gombak MP and Bukit Antarabangsa assmblyman Azmin Ali have been made members of the Selangor Development Corporation (PKNS) board of directors in a move to strengthen the state-owned companies.
Kok is the chairman of the state investment, industrialisation and trade committee, and Iskandar is the chairman of the housing, building and squatters management committee.
SHAH ALAM (Feb 4, 2009) : Selangor Mentri Besar Tan Sri Abdul Khalid Ibrahim confirmed today that he has asked Energy, Water and Communications Minister Datuk Shaziman Abu Mansor to terminate the 30-year Selangor water concession agreement.
“Based on the audit report presented to us in December, I have written a letter, as a matter of course, to the minister because the agreement states if Syarikat Bekalan Air Selangor (Syabas) did not deliver as per the agreement signed about four years ago, then the state has a duty to ensure that action is taken,” Khalid told a press conference after a state executive council meeting in his office.
He said that among the measures he proposed in his letter was the termination of the contract. However, Shaziman has not replied to him yet.
“The minister must approve whether we (the state government) can take such an action,” he said.
On the outcome of the Selangor State Economic Council (MTES) meeting on the issue last Friday, Khalid said: “Discussion is on-going. I think I should not reveal each party’s position yet as it is still in the negotiation stage.”
theSun reported on Friday that Syabas, owned by Puncak Niaga (70% share) and state investment arm Kumpulan Darul Ehsan Bhd (30%), had failed to fully comply with the requirement for contracts to be awarded on an open tender basis.
The water concession agreement was signed between the federal and state governments and Puncak Niaga.
The report said the audit of Selangor’s water concessionnaire operations revealed that more than 72% of the contracts worth a total of RM600 million were awarded to selected companies through direct negiotiations and only 25% through competitive open tender.
It said the audit had also found more than RM325 million in discrepancy between the summary of contracts awarded in 2005, 2006 and 2007, and Syabas’ review document.
The audit was a requirement before the company could be allowed to implement a tariff increase, which has been rescheduled to March 31 from the initial Jan 1 this year.
Earlier, Khalid announced that state executive councillors Teresa Kok and Iskandar A. Samad, and Gombak MP and Bukit Antarabangsa assmblyman Azmin Ali have been made members of the Selangor Development Corporation (PKNS) board of directors in a move to strengthen the state-owned companies.
Kok is the chairman of the state investment, industrialisation and trade committee, and Iskandar is the chairman of the housing, building and squatters management committee.
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