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The ‘politics’ of water

Both the Federal and Selangor governments are currently interlocked in negotiations with water concession companies in the state. The aim, both say, is to ease the burden on the public due to escalating water tariffs as stipulated in concession agreements signed in 1994.

For the federal government, this is part of its efforts to restructure the water industry under the Water Services Industry Act 2006 where licences will be given either to the state government or concession companies to manage the utility.

However, their approaches are different. For the state, the main aim is to buy out the companies involved – Syarikat Bekalan Air Selangor (Syabas), Puncak Niaga Sdn Bhd (PN), Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (Splash) and Konsortium Abass Sdn Bhd (Abass) – so that it can pull the plug on excesses which have bled the companies, and with that, reduce water tariffs by 10% instead of allowing the scheduled hike of 31% to kick in after March 31.

The federal government, on the other hand, is wary of the state’s ability and resources to manage the utility and reduce tariffs. The federal government said if its takeover of water management through the Ministry of Finance Incorporated’s Pengurusan Aset Air Bhd (PAAB) goes ahead, the hike will be lower than 31%.

However, there is growing agitation among the public over the frequent hikes of everything from water to toll rates which have been blamed on lopsided deals struck with concessionaires.

This issue was raised by parliamentarians on both sides of the divide last week following the scheduled toll hikes which have since been postponed.

The concern over postponements is that the public will still have to bear the cost of penalties to the concession companies. The only difference is that it is paid via their taxes and not at the toll booth or in water bills.

Just two weeks ago, Kinabatangan MP Bung Mokthar Radin, in invoking the details of the declassified toll concession agreements, questioned the competence and interest of government lawyers for signing agreements that are clearly skewed towards concessionaires – and suggested that parliamentarians be allowed to give their input on these matters in future.

However, unlike the declassified toll agreements, the lid is still shut where Selangor’s water concession agreement, signed between the state, federal government and Syabas, is concerned. An application for judicial review to declassify the concession agreement by the Coalition Against Water Privatisation in Malaysia is still pending in court.

In addition, the excesses of the four concession companies, in particular the high annual allowance of RM5.1 million paid to Syabas and Puncak Niaga executive chairman Tan Sri Rozali Ismail, the monthly RM700,000 management fees Syabas pays to its parent company Puncak Niaga and Rozali’s close ties with Umno leaders have also come under scrutiny.

Questions have been raised over the prudence of returning the concession or licence to the concessionaires, despite the fact that they have raked up a collective debt of almost RM6 billion. Also, audit reports have shown that Syabas, in particular, had breached several terms in the concession agreement.

As far as the state’s water review panel, which has gone through the books is concerned, PAAB taking over constitutes a bailout of the bleeding companies which are calling on the federal government to lick their wounds.

In general terms, if PAAB takes over, people living in Selangor will probably face hikes at a lower rate than the initial scheduled hikes up to 2035 but the bigger picture will show that the cost of the lower hikes are to be borne by all Malaysian taxpayers.

In a letter dated Feb 19, 2009 from Puncak Niaga Sdn Bhd to the National Water Commission Malaysia (Span), among the terms proposed is for PAAB to take over its RM2 billion of loans and liabilities, that PAAB is to absorb all costs in relation to workers affected by the migration for concession to licensing and that the interests of shareholders and bond holders will be taken care of.

The state has therefore asked Energy, Water and Communication Minister Datuk Shaziman Abu Mansor to invoke his powers under the Water Services Industries Act to back the state’s efforts to buy over water assets of the four companies in the interest of protecting consumers from further hikes. Under the provisions of the Act, the minister’s decision on the matter cannot be challenged, appealed against, reviewed, quashed or questioned in any court.

However, this is a double-edged sword because the federal government has raised doubts that the state’s resources are enough to afford the promised tariff reductions. Shaziman last week said the state would have to compensate the concession companies some RM38 million a month to reduce the tariffs.

He also questioned the price offered to the concessionaires by the state which was way below what the concessionaire pay the bond holders.

"If the price offered is way lower than what the concessionaire pays the bond holders, I don’t think it will go through," Shaziman said.

"If we are going to the capital market to raise bonds, we cannot allow the confidence of the bond-holders to be jeopardised; otherwise, our plan of raising cheaper bonds will not go through.

Selangor Water Review Panel member Tony Pua, however, said the companies have excessively leveraged their assets.

"They have taken more loans and bonds than necessary to operate these entities and then, after facing problems paying these loans, expect the state to rescue them.

"Our philosophy is that we will pay a reasonable return on invested capital," he said.

"They knew of the takeover following the implementation of the Water Services Industry Act and refunded all the cash to the shareholders and left the bonds as they are; so if you are looking at invested capital they have taken all their invested capital back and expect whoever comes in to pay their bonds. This is very unfair.

"We need to take away the returns taken, and if after that they find they do not have enough to pay their bonds, then the shareholders would have to be responsible, because the state is not responsible for a bailout. The state is here to pay a reasonable price," added Pua.

Maria J.Dass / SUN2SURF


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