Selangor water: Where do I sign, MB Khalid.(Part II)

1. My last two write up on the water issue (Write up No1, Write up No 2) invited some comments from my regular readers. Unfortunately, the activity is limited to a few people and I suspect the poor interest in commenting because the subject matter is not juicy enough and probably very academic in nature. However difficult it is, I believe the people of Selangor and Kuala Lumpur must analyze the issues surrounding the water deal carefully and makes a clear stand. It is no good making a stand based on party politics and not understanding the issues surrounding it especially when it has a direct bearing on us, Selangorians and Selangor immigrants.
   

    

2. My perspective of the water services is that it should be run efficiently within an optimal operating cost environment. It is not a trade-able commodity as it is a GOD given essence of life. It should not be use as a means to enrich a few people at the expense of millions of others. As the population increase water need to be distributed more efficiently and in a more equitable manner but it must be done within reach of significant majority of people.
   

    

3. From my understanding and analysis the objective of the current Selangor Government is in tune with my thinking. It agrees to transfer and lease back its water asset to PAAB, a newly setup government GLC which will focus on financing and managing water related assets. Selangor government wants to be the operator. It believes that it can manage the operational cost better which will be translated into a lowered water supply program in Selangorians. This can be achieved via reducing non revenue water, reducing water treatment cost and several other financial measures. Currently Puncak Niaga expenses are top heavy. Despite that it is making a very decent after-tax profit. In Malaysia, like in many businesses the declared profit is low because or creative accounting.
   

    

4. The SSG has been engaging the water players in Selangor. The SSG has made financial offers to buy back the companies. Unfortunately despite the initial hiccups in coming up with an offer, a firm offer of RM5.7 bill was made but unfortunately it was circumvented by the Federal Government within 48 hours before the 4 water operators decide on the offer by the state (Feb 18, 2009). The FG indicated that they will negotiate directly with these 4 operators directly.
   

    

5. This means that State Government is now competing with the Federal Government to buy out these 4 water operators. This does not augur well for the people. Why would the FG compete with the State Government? This would push the price of the takeover to be higher. It does not make sense for two governments to compete for the same business especially if the objective is to ensure that Selangorians has access to good water at a reasonable rate. Could it be that the FG wants to protect certain party interest in the matter? Fact remains that from Feb 18, 2009 till now the FG has yet to make any offer.
   

    

6. In view of the complex negotiations and the disagreement on increasing the water rates by 37%, Puncak has failed to service its dues to the various water producers in the state. Their bond term is in default and the bonds security rating has been downgraded. There is a very strong indication that the FG is planning to bail out the bond holders by swapping existing bonds with triple-A government-backed bonds. The FG actions defy logic? Whose interest is the FG looking after? For the second time the FG is trying its best to prevent the return of water operations back to the state.
   

    

7. Is the FG protecting the interest of the bond holder which includes CIMB Holding Group, Hong Leong Bank and Great Eastern Life? Published news reports indicates the bond holders are asking the government
   to intervene? Are the bondholders being suggested to take this unusual route? If the FG plans to intervene in this bond, what about billions other bonds in the market. Is the government planning to do the same? The bondholders shares in the bonds that involves Syabas, RUN Holding SPV Bhd , PNHB, SPLASH, Viable Chip (M) Sdn Bhd and Titisan Modal (M) Sdn Bhd is not clear. Most of these issuing companies are inter-related and strong rumors are spreading that CIMB is one of the largest bondholder.
   

    

    

8. The bondholders can halt the sliding of their bond rating and value by exercising their powers. They can take over the negotiation from the operators and discuss directly with SSG. FG intervention can be interpreted as political powers are helping the cronies and not the Selangorians. If this happens than this would be the third time the government is doing so. The FG should let market forces dictates this degrading commercial bond arrangement which will force the bond holders to take measures that will protect their own interest.
   

    

9. The main contention is the actual value of Selangor water asset. PAAB says it is worth RM 1 billion which in my mind is illogical considering the extensive network of pipes and other water related facility in the state. Audited figures confirm that the actual number of assets in Selangor to be the highest in Malaysia and yet the compensation offered does not tally with the asset size. Clearly, either PAAB is intentionally undervaluing the assets. To solve this problem, there is a need to have a common unitized value of the assets and apply it across the board for the whole country. I believe the way out is to get a proper value of the asset and like Tan Sri Khalid says, arbitration is probably a way out. He is also right that it is best that a neutral foreign arbitrator should look at it.
   

    

10. The way I see it, the ball is in FG court. Only someone that is confident about his own position will call for arbitration and if the opposing party disagree than it reflects badly on that party. Right now the people in Selangor must decide based on facts and not based on emotions. To understand the SSG position on the matter visit www.airuntukrakyat.net and to appreciate the Federal Government position visit www.paab.my. After reading and you feel that you wished to send an e-petition to the DYMM Agong, you can visit the site at HERE. Don’t forget that you need to click the confirmation email that the system sends to you; otherwise your petition will not be registered.