Federal Government to Bail-Out SYABAS!

Over the past 9 months, the Selangor State Government and the Federal Government has attempted to iron out the differences over the water industry consolidation exercise in Selangor in an amicable fashion, behind closed doors. Unfortunately, despite the goodwill shown, the Federal Government had appeared adamant about granting the water concession license to Syarikat Bekalan Air Selangor Sdn Bhd (SYABAS), which is a private company owned and managed by Puncak Niaga Holdings Bhd.

It now appears that the water talks between the state and federal government is completely futile for not only is the Federal Government insistent on awarding the license to Syabas, it has all these while been planning a bailout of Syabas which is suffering from poor management and major cashflow shortages.

In a press statement issued by Malaysia Rating Corporation (MARC) yesterday, it has affirmed’s (SYABAS) RM3.0 billion Bai Bithaman Ajil Commercial Papers/Medium Term Notes Programme (BBA CP/MTN) ratings of MARC-1/AA-.

Among the rationale for maintaining the AA- rating despite the cashflow problems faced by Syabas as well as the mounting number of legals suits for outstanding debt by its creditors, MARC said that

Mitigating the increased event risk faced by noteholders and pressure on SYABAS’ credit profile in the near-term is a 20-year back-loaded interest free unsecured RM320.8 million loan which SYABAS expects to receive from the federal government by the end of the year. The proceeds of the interest-free loan will be used to partially defray the past due amounts to the WTP operators.

MARC was informed by SYABAS that it has reached the final stages of concluding the loan agreement and drawdown is expected by end-December 2009.

As part of this “back-loaded interest free unsecured RM320.8 million loan”, SYABAS will only need to commence repayment only from 2014 with amounts less than RM5 million until 2025, with the overwhelming remainder payable only from 2026 onwards! And as the statement implies, the loan is completely interest-free and requires absolutely no collateral from Syabas.

This is a shocking development and we must ask the Federal Government why it is using tax-payer's monies to provide life support to a private company, and at such lucrative terms? Even when the Government forked out RM4.6 billion in soft loans to Port Klang Free Zone which is a 100% government owned entity, a 4% interest rate was charged. And when governments all over the world undertook “bail-out” exercises to rescue private companies such as banks and motor companies, the tax-payers' monies were utilised under very strict terms. In fact, the Government of United States and United Kingdom became the largest, if not majority shareholders of these companies such as Citibank, General Motors, Crysler and Royal Bank of Scotland.

It is only in Malaysia where the Government is so generous to private concessionaires where “back-loaded, interest free and unsecured” loans amount to hundreds of millions are possible.

The Selangor state government has submitted an extremely comprehensive proposal to take over and restructure the water industry in the state without requiring any special sweetheart deals involving the tax-payers' monies from the Federal Government. In fact, two other key water industry players, SPLASH and ABASS had already agreed to the offers by the Selangor State Government before the overall deal collapse due to non-cooperation from SYABAS and Puncak Niaga, and the clear lack of support from the Federal Government.

The fact that SYABAS is facing critical cashflow problems reflects the complete failure of its privatised management, and should serve as the key reason why the state government should be allowed to take over these concessionaires and be given the opportunity to consolidate and restructure the fragmented and inefficient industry.

In providing a lifeline to SYABAS at such mind-boggling terms, the Federal Government is only doing it at the expense of the Rakyat. We will like to make a last ditch appeal to the Prime Minister and Finance Minister, Datuk Seri Najib Abdul Razak to intervene to revive the water restructuring exercise under the state government to ensure that the rakyat's interest are fully protect. There is no point in the Government going to the public to justify all sorts of higher taxes but at the same time, fail to utilise the Rakyat's monies in the must responsible and accountable manner.