Saturday, August 11, 2012

Federal Government Support for Selangor Water Restructuring Mere Lip Service?

It was announced on Wednesday evening by the Special Cabinet Committee chaired by Tan Sri Muhyiddin Yassin that “the Selangor government can implement water supply restructuring scheme as long as it adheres to the Water Services Industry Act 2006, as well as all water concession agreements and laws in force.”

The statement also stated that “the committee has no plan to interfere with the state government's efforts to take over equity in the concession companies since it is a commercial transaction between the two parties that should be implemented on willing buyer-willing seller basis.”

While we will give the above statement of “support” the initial benefit of doubt, we call upon the Special Cabinet Committee to state concrete steps which the Federal Government will take, as an equal party to the water concession agreements as well as the rights of the water industry in Malaysia to ensure that the state can be successful.

In fact, the mere statement by the Federal Government that the restructuring transaction should be carried out “on willing buyer-willing seller basis” is already an interference to the concession agreement.

The concession agreements with the water concessionaires in Selangor – SYABAS, Syarikat Pengeluaran Air Sungai Selangor (SPLASH) and Konsortium ABASS contains clauses which specifically allows the state government to “expropriate” the concessions using a pre-determined and pre-agreed formula.

The only hurdle to the Selangor government exercising the mutually agreed clauses in the concession agreements is the consent of the Federal Government.  If Tan Sri Muhyiddin Yassin is sincere in wanting the state government to take over the water industry, then we call upon the Cabinet to grant the consent to the expropriation exercise based on the pre-agreed compensation formula will be the fastest and easiest method to resolve the stalemate  in Selangor.

If the Federal Government is not willing to grant a consent for the expropriation exercise, despite it being part of the concession agreements, then surely the Federal Government must agree to an international arbitration exercise to determine a fair valuation for the acquisition of these water companies by Selangor government.  Tan Sri Khalid Ibrahim has mooted the proposal to submit to an international arbitration panel to determine the fair price for the acquisition of the four water companies in Selangor since 2010 but this proposal has been obstinately rejected by the Federal Government.

Similarly, Tan Sri Khalid Ibrahim has written letters to the Federal Government seeking the latter’s consent to terminate the concession agreement due to various breaches by SYABAS.  However, the Federal Government had refused to accede to the state’s request, and has instead insisted during various restructuring negotiations for  SYABAS or Puncak Niaga to lead the revamped water industry.

Instead of helping the state government in pressuring the return of the water concessions, the Federal Government did the exact opposite by bailing out these heavily indebted water companies.  The Federal Government has “taken over” RM6.5 billion of the water debts to prevent the water companies from going into default insolvency.  The bailout exercise of these water companies at the most crucial moment destroyed any incentive for these water companies to come to a restructuring agreement with the Selangor Government.

The above responses or the lack of response by the Federal Government to the State Government’s intent of taking back control of the water industry as per the spirit of the Water Services Industry Act (WSIA 2006) exposes the bad faith on the part of the Federal Government.  They would either prefer SYABAS/Puncak Niaga to continue to lead the water industry in Selangor, or for the Selangor Government to pay through the nose to acquire these companies.

By taking the hands-off position and paying just lip service, there will be absolutely no reason for SYABAS and the other concessionaires to come to the table. Hence to demonstrate the Federal Government’s sincerity and good faith over this matter, it must announce its full support, particularly to accept the proposed international arbitration panel to decide on a fair price for the acquisition of the water concessionaires.
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