Mixed signals on water asset takeover

by **Cals** Mon 17 Mar 2014, 02:57

Published: Saturday March 15, 2014 MYT 12:00:00 AM
Updated: Saturday March 15, 2014 MYT 7:20:28 AM
[size=40]Mixed signals on water asset takeover[/size]
BY GURMEET KAUR

Anybody’s guess on how the saga will end
TRYING to second-guess the outcome of the water asset restructuring saga is becoming painfully difficult. It is anyone’s guess how this long-drawn-out saga will end.
There are conflicting signals from the Selangor and federal governments on the takeover of the water assets in the state, which beg the question: Will Section 114 under the Water Services Industry Act 2006 (Wasia) be invoked?
This is the Act that allows the federal government to compulsorily take over the water production and management of assets at any price in the name of national interest.
Going by what Selangor Mentri Besar Tan Sri Abdul Khalid Ibrahim has said, it does seem that the water asset takeover is a done deal.
On Tuesday, Khalid gave the market a shock by disclosing that the Government had elected to forcibly acquire the water assets in the state by invoking Section 114 under the Wasia.
The following day, he said post-invocation of the Wasia, the Government is only obliged to pay up to RM7.65bil for the water assets and not fork out anything for the equity portion, as the latter is not required under the Act.
This is RM2bil less from the last offer of RM9.65bil that the concessionaires had rejected on Monday.
This reduction in value will affect Puncak Niaga Sdn Bhd (PNSB), Syarikat Bekalan Air Selangor Sdn Bhd (Syabas) and Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (Splash) – the three water operators that had rejected the offer on March 10. Only Konsortium ABASS Sdn Bhd had accepted the state’s offer.
Khalid was also quoted as saying that “as far as we are concerned, there’s no need to go for international arbitration”.
A day later, Energy, Green Technology and Water Minister Datuk Seri Dr Maximus Johnity Ongkili shed light that the federal government would not invoke the Wasia as yet, but was in the midst of doing so, adding that the process would take three months. And in the meantime, negotiations were still permitted between the Selangor government and the water concessionaires, the Minister said.
Ongkili expressed hope for an amicable outcome between all parties and reassured that “fairplay and justice still applies” when it comes to compensating the water concessionaires. The concessionaires, he added, could opt for international arbitration to ensure their assets were properly valued, even with the Wasia invoked.
The grace period of another three months, from the March 10 deadline, seems like an extension for another round of negotiations between the state and operators.
There appears to be reluctance on the part of the federal government to exercise its power under the Wasia. This is not altogether surprising, given the implications of the Act on the sanctity of contracts involving the Government.
Invoking the Wasia has been seen as draconian, with some quarters even going as far as saying that it was unconstitutional and contravened Section 13 of the Federal Constitution, which states that “no law shall provide for the compulsory acquisition or use of property without adequate compensation”.
The five-year deadlock in the water takeover talks revolved around a commercial dispute, or more precisely, the state government’s valuations for the targeted water assets. But there is also the national interest element of the construction of the Langat 2 water treatment plant to solve the current water shortage problem.
It had been generally thought that the shareholders of the water concessionaires would accept Selangor’s latest offer, considering that the state had teamed up with the federal government under the memorandum of understanding (MoU) signed on Feb 26. This had given the offer more weight.
Puncak Niaga Holdings Bhd, via its interest in PNSB and Syabas, is the state’s largest water concessionaire. The major shareholder of Puncak Niaga is Tan SriRozali Ismail, the former Selangor Umno treasurer. Gamuda Bhd, which owns 40% of Splash, meanwhile, has won some of the large construction jobs in the country.
The water operators are seeking a fairer exit price, but valuations are debatable.
Puncak Niaga wants a higher compounded rate of return than the 12% offered by Selangor and residual cash in PNSB to be returned to it. It also does not want any due diligence post-acquisition and the removal of an arbitration clause, which is surprising. Gamuda, meanwhile, wants the takeover price to be based on the net asset value and an arbitration panel to determine an internationally accepted valuation method.
They now have the option of pursuing injunctions against the Wasia and seeking international arbitration against the state’s offer. However, this would be a long-drawn-out and costly affair for all parties.
The contradictory remarks from the state and federal governments have also caused a lot of confusion among market investors, who rely on clarity of news to make informed investment decisions. Both governments seem to have a different understanding of the Feb 26 MoU that they have entered into. This has also not been made public as promised by Khalid.
On the other hand, the water shortage crisis has gone on for too long, attributable to the federal and state governments’ refusal to cooperate on Langat 2 until now. Whatever measures that can be taken to solve the water problems in Selangor would get the public’s support.
So, the Government should be more decisive in its decision-making and invoke the Wasia if that is what it would take to end our water woes.
Further delays would only hamper efforts to improve the water sector in the state.