Splash Offer Unlikely to be Accepted

The revised offer from construction outfit Gamuda Bhd’s 40%-owned associate, Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (Splash), to the Federal and Selangor governments for the takeover of the water services industry in the state is unlikely to go through.

Analysts believe that the stumbling block remained the compensation payable to Syarikat Bekalan Air Selangor Sdn Bhd (Syabas), a 70%-owned subsidiary of Puncak Niaga Holdings Bhd, as the former’s concession would be terminated after the acquisition.

Gamuda had told Bursa Malaysia on Tuesday that the revised offer still stood at RM10.75bil but with the water assets to be parked under the Federal Government’s Pengurusan Aset Air Bhd (PAAB) to comply with the asset light policy under the Water Services Industry Act 2006.

Splash would then lease the assets from PAAB at a rental rate of 6% per year with an annual escalation of 2.5% under a 30-year operating licence.

Currently, the state’s water assets are parked under four concessionaires – Syabas, Splash, Puncak Niaga (M) Sdn Bhd and Konsortium Abbas Sdn Bhd.

Looming over the takeover of Selangor’s water assets, which has been ongoing for the past two years, is a water tariff hike. The increase was initially supposed to be implemented in January last year, then deferred to March but has yet to happen due to the issues surrounding the takeover.

An analyst with a local investment bank said this arrangement would not be very attractive to Puncak Niaga as the company was also looking to obtain the licence to operate and maintain the state’s water infrastructure.

“The offer price will have to reflect some form of compensation for Syabas’ loss of the concession, which in effect means Puncak Niaga exiting the business,” he told StarBiz.

OSK Research Sdn Bhd analyst Vincent Lim agreed, saying the compensation issue would have to be resolved or further talks would not get anywhere.

He said one option was for PAAB to make a higher offer.

Lim said in a report yesterday the revised offer only involved a net book value pricing for Syabas’ water assets but did not take into account the compensation payable to the company from the loss of future profits.

“Although the new offer is favourable to Splash in terms of a lower capital outlay and it being an asset light licensing model, we think that Puncak Niaga, as an indirect party to the offer, will not agree to the terms as it does not make clear Syabas’ compensation status should its concession operation cease after the restructuring,” he said.

AmResearch Sdn Bhd analyst Mak Hoy Ken said in a report that the possibility of other water entities including Puncak Niaga directly negotiating with PAAB to migrate their water assets and liabilities could not be precluded should the former not take up Splash’s offer.

He added that the valuation basis for Splash’s offer had yet to be ascertained nor had there been a specific timeline mentioned.

Mak said the deal would still need the approval of the stakeholders of the state’s fragmented supply chain including the Selangor government, which holds 30% of Splash, 55% of Konsortium Abbas and 30% of Syabas.

Peter: It Is Your Call!

I am not political but it is time that they settled this water fragmentation mess left over from the former government of Selangor. Many hidden hands were involved but that is history and the people wants to know when they can get clean water and to ensure that the water subsidy scheme remains in place.

The person everyone is looking at for a solution is Peter Chin, the Federal Minister of Water. What ever happened to the restructuring exercise?

Let us look at some of the salient points involved here.

The Selangor people wants the best solution. They want the best deal. They are hoping that with the powers vested in him viz the Water Services Industry Act (WSIA), he may work out something good.

“Section 114 of WSIA, if invoked, gives the minister the power to force the water players to hand over the assets in the name of national interest.”

So far there have been three offers. Let us look at them at close range.

i.  The Selangor government’s offer to restructure the state’s water industry.

Apparently it is fair to all water concessionaires as well as benefit the rakyat guaranteeing  no tariff increases for the foreseeable future. This is structured in such a manner due to the lower proposed leasing cost by the state government from PAAB of approximately five per cent. Compare this with Gamuda’s cost of six per cent.

Further cost savings can be realised by “the lower cost of acquiring all assets of water concessionaires”, previously estimated at between RM9.2 billion and RM10.3 billion.

The State Government acquisition is based on the principle and philosophy of not  seeking to “maximise profits but instead maximise returns” to the public. Compare this to Gamuda Bhd's offer that will instead guarantee equity returns in excess of 10 per cent per annum.

This offer  was the attempt by the  Selangor government, via its investment arm Kumpulan Darul Ehsan Bhd, to  take over the restructuring  of the water industry thereby fulfilling  its promise to provide cheaper water to its electorate.

The state’s offer of RM9.2 billion was accepted by water concessionaires, Konsortium ABASS and Splash, but was rejected by Syabas and Puncak Niaga Sdn Bhd (PNSB).

ii. The Federal Government Bid

Done through its Water Asset Management Company (PAAB). It made an “informal” offer to acquire all assets from the water concessionaires amounting to RM10.3 billion in March 2010.However, the offer was rejected by water concessionaires, Abass and Splash, while both Syabas and Puncak Niaga Sdn Bhd (PNSB) have missed the April 6 deadline to repond.

“The deal by the Selangor state government is the best there is for the rakyat as we have affirmed no tariff increases for the foreseeable future. This can be achieved due to the lower proposed leasing cost by the state government from PAAB of approximately five per cent, compared to Gamuda’s cost of six per cent.
Pua added that further cost savings would be realised by “the lower cost of acquiring all assets of water concessionaires”, which was previously estimated at between RM9.2 billion and RM10.3 billion.
He added that the state government was not seeking to “maximise profits but instead maximise returns” to the public. Gamuda Bhd has confirmed their offer will guarantee equity returns in excess of 10 per cent per annum.


iii. Gamuda also made a revised offer yesterday to acquire all of the state’s water concessionaires through its associate, Splash, and this would cost the conglomerate RM10.75 billion. This is the best in terms of the valuation of the water concessionaires, being the highest offer on the table. They have promised to freeze water tariff increase in the first year and increase only between 2-3 per cent annually for subsequent years.

The Pahang-Selangor  Water Transfer Project has already started a month back and yet we see a lack of will among politicians to resolve the problem of the restructuring of water concessionaires.

Who are we waiting for? Godot?

We must be a first world nation with a third world mentality.

Malaysia: The Traffic Back-pedal

We have become a nation of back peddlers. Soon we may just have an international event called Tour d' Langkawi for Backpeddlers. Wouldn't that be fun?

This latest backpedal from the government definitely has something to do with the Hulu Selangor by-election. We should the voters in this constituency for helping us removed three measures that will possibly cause more dismay and apprehension among the poor. I am talking abut the exorbitant traffic fines and the increase in age to 17 before you can drive.

Let us read some excerpts from a news item filed at the Malaysia Insider online  web-site today.

"A controversial increase in traffic fines has been withdrawn from amendments to the Road Transport Act 1987 today after it became a campaign issue in the Hulu Selangor by-election.

Minister in the PM's Deaprtment  Nazri Abdul Aziz revealed that the government has withdrawn three amendments for further revisions after objections raised by its backbenchers. But the DAP has made it a campaign issue, saying raising fines from RM300 to RM1,000 would be a burden to the poor.

This is also the latest laws being taken off from Parliament with the first being the Good and Services Tax (GST) Bill on the eve of the current sitting.

“I had received a letter from the BNBBC through chairman Tiong King Sing, stating their objections to the amendments of the Act. I read its contents and have negotiated with the Dewan and also obtained confirmation from the Prime Minister and the Deputy,” Nazri said, referring to the Barisan Nasional Back Benchers Club (BNBBC).[My toes are laughing!]

“So we have decided to withdraw the amendments to the next session to be discussed along with the objections raised by the BNBBC,” he added, saying the Bill will be retabled in the next parliamentary session.
The three amendments which have been dropped are:

1. Compound fines for vehicles, originally priced at RM300, amended up to RM1000 has been withdrawn.

2. The minimum age for obtaining a vehicle licence, proposed to be raised be 17 years has been retracted, keeping it at the present 16 years old.

3. Amendments to allow only JPJ (Road Transport Department) to assign a registration number plate to any vehicle registered under the act have also been withdrawn."

I do not have to list the string of backpedals beginning with the withdrawal of English as the medium of instruction for Science and Maths.