Water and Politics Just Don't Mix!

Think that all the hullabaloo that has caused the Selangor State not to buy assets from various parties just a matter of pricing. Think again. There is more than meets the eyes here. It is politics up to your ears!

And so B.K. Sidhu writes in the STAR today (4 December 2009)

After two years of negotiations and talk of restructuring of the water assets in Selangor,nothing has come out yet.

Even though the players are still the same, the script will be new and there will be fresh rounds of negotiations as the one holding the purse strings is a new party.

Pengurusan Aset Air Bhd (PAAB) finally gets to enter the game after being shooed away when it tried earlier this year to restructure the water assets in Selangor.

Will PAAB’s offer be more attractive than the two made by the Selangor government for the four concessionaries to hand over their assets or will the players persist in playing hardball? [Politically 'yes'.]

PAAB, a wholly owned unit of Ministry of Finance, was set up to buy water assets – treatment plants, dams and pipes – from 11 states in the country. The water industry has migrated to a licensing regime where all water players need a licence to operate under the Water Services Industry Act 2006 (WSIA).[Seems a lot of federalization has been taking place since the Fire Services pioneered the trend.]

Of all states, Selangor’s water sector is the most fragmented with four private concessionaries – Konsortium Abass Sdn Bhd (Abass), Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (Splash), Puncak Niaga (M) Sdn Bhd (PNSB) and Syarikat Bekalan Air Selangor Sdn Bhd (Syabas). Even the state government owns water assets. Syabas purchases treated water from PNSB, Splash and Abass and distributes it in the Klang Valley.

The Selangor government was entrusted to restructure the assets and hand them to PAAB but there were roadblocks as two of the four concessionaries rejected its offer.[Why? political interference?]

They saw no value in the deal. More so, they would be out of business as the idea was to have the state’s arm, Kumpulan Darul Ehsan Bhd, distribute water in the state after the restructuring.[Another classic red herring.]

The state had offered RM5.7bil in February and RM9.2bil in July. It is a story of an unwilling seller but PAAB’s emergence throws new light on the whole water saga in Selangor. A better deal? [Think so? Think again.]

Highly unlikely. No bag of goodies and even though there are clauses in WSIA under Section 191, Section 192 and Section 114 that give the Energy, Green Technology and Water Minister absolute power to assume control of the assets and business of an existing operator without any form of compensation, it is not the route that PAAB is looking at.[PAAB wants to be seen as a nice guy under the current Federal Government?]

“It is simply the Johor model that will be implemented in Selangor,” a source said. That simply means the assets will be valued at one-time book valuation, which amounts to RM9bil and PAAB will also take over the liabilities.

The concession agreements will be terminated but the existing players get a chance to migrate to a licensing regime which allows them to remain in the business in perpetuity as long as they keep to their key performance indicators. That is the difference with the offer made by Selangor.[So,performance counts, why not even if it is under the State government. Aren't we jumping the gun here?]

Don’t expect any equity restructuring or consolidation; all that has to be market driven. PAAB will make the offer next week and expects to wrap the deal next month.[Whoa,that fast,meh?]

But if players drag their feet and shove the offer back at PAAB, then they will likely not get any capital expenditure nor raw material from PAAB. They would be on their own.[So,what gives?]

Too much time has been wasted and while it is no denying that the concessionaries want the best deal, the restructuring should not be delayed just because one state is taking too much time to complete the restructuring.[Why the hurry?]

Whichever way the deal goes, tariffs must not be hiked up to burden consumers further and that should be the biggest consideration.[Wanna bet?]

B.K. Sidhu hopes for unfiltered clean water every day. I hope she gets her wish.