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.