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.