Water restructuring not a ‘cockerel and dowry’ affair

WHY should a federal minister issue a “cockerel and dowry” statement in a professional context? Perhaps limited knowledge of the Water Services Industry Act 2006 (WSIA) explains why the Minister of Energy, Green Technology and Water used unorthodox methods of negotiation. Whom should we blame for delays when WSIA gave restructuring negotiation mandate to the Ministry of Energy, Green Tehnology and Water (KeTTHA)?

The National Water Services Industry Restructuring was supposed to be completed by end of the 9th Malaysia Plan and we are now half way into 11th Malaysia Plan.

Back in 2014, the Cabinet gave approval to the minister to invoke Section 114 of WSIA to takeover water concession companies in Selangor, Kuala Lumpur and Putrajaya to complete the restructuring process. This section gives power to the minister to order the National Water Services Commission (SPAN) to take over the operations of the water services industry, in the name of national interest, after seeking approval from the Cabinet and gazetting it. This caused Puncak Niaga, Syabas and Konsortium Abass to quickly accept the Selangor state government’s offer and restructure. Splash refused to accept the offer and a six-month deadline has been dragged to date.

Point 1, concession holders are nothing without the concession. If a state government did not give the concession, no bond can be secured for their project. So, these group of people do not have bargaining chips.

Point 2, water services industry is a matter of national interest and not a normal business transaction. WSIA is clear on this aspect. Concessionaires would not be able to use WSIA to arm twist.

Point 3, if similar takeover methodology is used and Splash is still asking for more than what it is actually worth, Section 114 is the only way forward.

If the Selangor state government fails to complete fair negotiation with Splash, they should write to the minister to invoke Section 114 to complete the takeover. In case the minister fails to initiate the takeover, the Selangor state government can seek a judicial review to compel the minister, his ministry and SPAN using WSIA. Due to national interest weighing in, the minister’s decision can be challenged. Plus, the Cabinet has given approval to invoke Section 114.

During a takeover in restructuring, Pengurusan Aset Air Bhd (PAAB) will have to step in to absorb the liabilities. A leasing agreement will be signed to facilitate the transaction between PAAB and a state government. So, we do not need unpleasant salutes, just follow WSIA to protect the interest of the rakyat and our economy.

The treated water capacity in the Klang Valley for 2015 is 4,675 million litres per day, which is 28.9% of Malaysia’s water demand. Therefore, any disruption becomes a national security matter, immediately.

Lately, we have received complaints about PAAB. Due to poor financial rating in the water services sector, PAAB is used as a temporary financier until the industry rating stabilises. Loans given by PAAB are amortised and converted to a leasing model. PAAB is supposed to offer short-term, mid-term and long-term (45 years) loans to the water services industry. Unfortunately, PAAB now only offers 45-year loans. For example, if a vehicle and a pump has a 15-year and 20-year life cycle respectively, it is inane to place them under 45year leasing.

The current method that is being deployed by PAAB is against the WSIA model and needlessly keeps to the same rigid template. PAAB’s action makes no economic sense and is detrimental to the water services industry.

Based on the WSIA model, water and sewerage operators can compare financial package offered by PAAB and other commercial financial institutions to accept the least cost to tariff offer. PAAB has no authority to force a loan on any industry player. If they are forcing via any form of agreement, the agreement is against the WSIA model and can be challenged. Even if the minister stands by PAAB, all of them can be dragged to court because their actions are against the WSIA model.

It is time SPAN regulated PAAB just like how water services industry are regulated. The government took great effort to restructure an important sector but incompetence and impotence of KeTTHA and its agency are choking the water services industry’s robust development.

This article was contributed by Piarapakaran S., president of the Association of Water and Energy Research Malaysia (Awer), a nongovernment organisation involved in research and development in the fields of water, energy and environment.