Thursday, April 15, 2010

Water Deal Hangs As Ministry Pussyfoots

On 12th April 2010, Gamuda Bhd has again made a revised offer to acquire all water concessions in Selangor via its 40% associate, Syarikat Pengeluar Air Sungai Selangor Bhd (SPLASH) to comply with the requirement that all water assets will be owned by federal agency, Pengurusan Aset Air Berhad (PAAB), and leased back at a rate of 6% per annum. This will include an offer to acquire all concessions for RM10.75 billion.

The Selangor state government had made a combined offer of RM9.2 billion to acquire all water concessionaires in June last year, which was accepted by two of the concessionaires, SPLASH and ABASS, but was rejected by SYABAS and Puncak Niaga Sdn Bhd (PNSB).

The Federal Government, via PAAB has previously in March 2010 made an “informal” offer to acquire all assets from the water concessionaires for the amount of RM10.3 billion. Under the proposed scheme, the Federal Government has been adamant that the control over the overall water industry remains with the Puncak Niaga group despite protests from the state government. However, this offer is effectively dead after it was rejected by ABASS and SPLASH as the offer made to them was lower than that offered by the State Government, despite the higher combined price. This effectively means that the government made a substantially higher offer to acquire the assets of both SYABAS and PNSB.

Despite the substantially higher offer made last month to SYABAS and PNSB, the companies have shown a care less attitude having missed the offer deadline of April 6th, two weeks ago.

We call upon the Minister of Energy, Water and Green Technology Datuk Peter Chin to quickly decide on the best deal in the interest of the people of Selangor and Kuala Lumpur, and exercise his powers vested in him under the Water Services Industry Act (WSIA). The Section 114 of WSIA, if invoked gives the Minister the power to force water players to hand over the assets in the name of “national interest”.

The offer by Gamuda is the best in terms of the valuation of to water concessionaires, being the highest offer on the table. Despite that they have promised to freeze water tarriff increase in the first year and increase only between 2-3% annually for subsequent years.

The proposal by the Federal Government is the worst possible outcome for the consumers as it will mean an immediate increase of more than 10% increase in tarriffs in the first year, and more in the subsequent years under the scheme where Syabas and PNSB are put in control.

However, the deal by the Selangor state government is the best there is for the rakyat as we have affirmed no tarriff increases for a foreseeable future. This can be easily achieved due to
  1. the lower proposed leasing cost by the state government from PAAB of approximately 5%, compared to Gamuda's cost of 6%.
  2. the lower cost of acquiring all assets of water concessionaires of RM9.2 billion, or even in the case of RM10.3 billion as offered by the Federal Government (which the state is now requesting)
  3. the fact that the state government seeks not to maximise profits, but instead to maximise returns to the rakyat. Gamuda has confirmed that under their offer, they are still able to make equity returns in excess of 10% per annum.
There is without a doubt that the Selangor State Government's offer to restructure the water industry is fair to all water concessionaires, and is the best possible outcome for the rakyat in terms of lowest tariff rates and best service levels.

Therefore the decision of Datuk Peter Chin where “rakyat didahulukan”, must be that of fully backing the offer by the Selangor state government. We are disappointed that the Minister is pandering to cronies and vested interest parties who are after an extension of patronage and rent-seeking exercise which occurred in the late 1990s when the water industry was privatised, particularly to the Puncak Niaga group.

Any decision less than exercising the powers of the Minister to further the interest of the rakyat will make a mockery of the call by the Prime Minister to “not tolerate rent-seeking and patronage” under the proposed New Economic Model.

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