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I guess this post is not likely to win the support of people who had firm believe that whatever the FEDERAL GOVERNMENT (FG) does is right and whatever solution that PR SSG has to offer is inferior. My view is simple. Any governments of the day that can guarantee a lower water cost to the public deserve my support. The governments that can ensure water bills stay low are thinking about the people and therefore should deserve all the support from all quarters.
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Until recently, the issue of water in Selangor was quiet. Today SYABAS announced free water for the poor for a year. Who are considered poor and how poor is being defined has not been publicly announced. Going by FG statement that there are only 108 hard core poor people left in this country, I guess less than 30% would be in Selangor. Why for a year only? I guess the poor will no longer be poor after 12 months or the 13th GE will be soon and not later than a year from today. Since the inception of water issue, the SSG wanted the water operations to be reverted back to the state. This was in line with WSIA as well as agreed by the FG before 2008 election.
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The SSG wants it back because it feels it can deliver a lower water cost to the people. Obviously the detractors would not agree and FG would not like it as it will create huge political repercussion among the people in the state. It will enhance people support of PR in Selangor if they could maintain or lower water prices. A responsible FG would have acted in a manner that would facilitate such intention but because of politics, it is not happening.
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I was shocked to read a newspaper clippings from PAAB site about the bond take over by a SPV under PAAB. Since there are no denial from PAAB and the article is scanned and place there, then I assumed it must be true. Do READ them here and let me know what do you think? Please pay attention to how the bond is to be valued. It is pretty obvious that FG decision to buy back the bond at PREMIUM is to deny SSG from having the strategic advantage in getting controlled of SYABAS or PN. A control that would effectively ensure that they would be able to continue their promises to reduce the consumer water bills.
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Key points of the article are:
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The offer is made on the book value and not the outstanding amount. WHY? BOND SHOULD BE VALUED BASED ON PV OF FUTURE EARNINGS AND NOT ON THE BASIS OF BOOK VALUE.
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The offer is made with the yield to maturity AND book value. WHY COMBINE THE TWO. THIS IS AN UNUSUAL COMMERCIAL PRACTICE. IT SHOULD BE ON THE BASIS OF YTM (YIELD TO MATURITY) OR IN OTHER SIMPLER LANGUAGE, PRESENT VALUE OF FUTURE EARNINGS. (RM1 TODAY IS WORTH MORE THAN RM 1 THAT IS BEING PAID NEXT YEAR. YOU CAN ALSO READ ABOUT BOND VALUATION HERE)
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A bondholder (the bondholders consist of several banks, the EPF and Great Eastern) said there was “no hair cut” but a premium payment. WHY A PREMIUM? BY RIGHT IT SHOULD BE ON THE BASIS OF A DISCOUNT BECAUSE:
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IT HAS BEEN RATED DOWNWARDS
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THE CONCEPT OF PV OF FUTURE EARNINGS CERTAINLY ENTITLED THE PARTY THAT IS TAKING OVER HUGE DISCOUNTS
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THAT MEANS SHAREHOLDERS WHO HAS ENJOYED SPECIAL DIVIDENDS PREVIOUSLY ARE GETTING AWAY WITHOUT HAVING TO BE RESPONSIBLE FOR THEIR ACTIONS OF NOT SERVICING THE BOND. THEY ARE GETTING OFF SCOT FREE!
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hello, a debt paper is just a promise to pay by the issuer. there’s a separate contract behind the underlying the contract and you assess then terms of the contract and bear the risk. there is no god-guarantee that the issuer wouldnt default. even governments do when it ran out of cash. THATS BASIC.
now if the issuer did not adhere to the terms of the underlying contract, the affected party has every right to challenge the terms of the contract. Let the go to the courts to sort it out. THATS BASIC.
IN this instance, the issuer was smart and upfront monetise the piratisation contract. It issued the bonds against future cash flow and declared a huge dividend for their pockets. The bondholders take the bite and must bear the risk accordingly.
there is also such a thing as moral hazards when government comes to bail out a “failed” piratisation. Ultimately, the taxpayers are paying. And its a double whammy. First, the beneficiaries have a first bite of the plum cherry at the expense of the taxpayers. Then, another round of burden on the bail-out for the bondholders.
And its also a cliche, “Buyers BEWARE”. Dont you agree its BASIC.
basic enough!
Let’s fry the UMNO/BN government in deep oil coming election. Then roast them till burnt black, figuratively speaking of course, not for real. It means give them a hair cut coming election making their candidates lose their deposits.
Deep fry or just fry! LOL
two points,
investors who bought the bonds are professionals. you take a position and the market goes against you, too bad. why should the government bail the investors out> the same with holders of government bonds elsewhere.
rozali did not get the water assets on air value. it was given to him on a silver platter. he was milking the concession and monetise it with a declaration of a huge dividend via securitisation of future cash flow. he was laughing all the way to the bank while the bondholders bought the story on unreasonable future price hike. and you want the rakyat to shoulder that by bailing out the bondholders? that RM6.5b comes handy aint it as the govt screams enough is enough on subsidies?
You are wrong. This is basic. When investing it’s reasonable to rely on contracts. Thus if a company announce they’ve got contracts people buys into it. Then if the contract is signed by government it’s more than reasonable to assume government would abide by it. Why? Because thats the best credit risk. Govt can’t default. If they do the rest of the contracts entered by companies and individuals become worthless.
Thus it is not reasonable for government to renege the contract. Selangor govt just created another risk which only creates additional cost to the transaction.
Below from MI is the proof that UMNO government signed the lopsided contracts and making ordinary people to pay the inflated price to feed UMNO goons & cronies.
Ani (former TNB chairman Tan Sri Ani Arope) said the national utility company was producing electricity at eight sen per kWh but was asked to buy from IPPs at up to 23 sen per kWh for a specific number of years and at a certain volume regardless of its actual requirements.
“There was no negotiation. Absolutely none,” Ani said.
You are lopsided.Always selective. There’s only one ppa agreement which is take or pay like ytl. It’s a first generation ppa. Look at many many other ppa. Tell me why third generation ppa are lopsided?
Who can look at the ppa? They have all been OSAed.
Then ask. I can explain. Otherwise don’t make assumption.
Why TNB was forced to buy at 23 sen per kwh? Why there was no negotiation? If this was not lopsided contract, what was it?
Common, Chairman from TNB said it.
As always you just quick to jump to defend UMNO deliberate mismanagement!!
Didn’t you hear your youth master said that IPP contracts ‘unfair’ to the public?
When we criticised you said we were selective. Wasn’t UMNO government responsible for this lopsided contract?
You again as usual being selective. You didn’t read what I wrote. You judge the whole ipps by referencing to one ppa. Tell me why isn’t it selective. You as usual judge a person on one act rather
than a whole. As usual you plainly ignore as we progress to third generation we improve tremendously according to time. You also purposely ignore in all countries 1st generation ppa was always better to ipp than later generation ppa’s. You also choose to deny as of yesterday electric from hydro ppa was sold at only 6.25 sen. I can go on and on.
You just pakai hentam. Malas membaca again i think. You don’t want to do a simple google search pun. As usual the first line of defence is to say I’m political when Im pointing you out facts. Now go read and google. Tell me why do you say third generation ppa is lopsided? I dare say you can’t. It’s no longer like that kan?
(Don’t divert and ramble as usual.)
All I said to you UMNO is always signing lopsided contracts and inflated costs!!
Why in the first place signed the lopside contract? I don’t care whether Ist generation ppa or not. Why? Why such a rip off? Why making ordinary to suffer? That is all I am asking.
Look at PLUS Toll, another lopsided contract. Who are suffering? The poor rakyat are suffering!!
Look at Proton & AP, millions ordinary rakyat are subsidising Proton. Millions are struglling with car loans debts. Millions would be better off with cheaper and better quality imported cars. Can you sell Proton in overseas after so many years? You know nobody wants it in overseas!
This is typical of UMNO government incompetent or deliberate mismanagement !!
Below was reported in MI:
But Pua said that Ani had told The Star on June 26, 2006 that “there was no negotiation. Absolutely none. Instead of talking directly with the IPPs, TNB was sitting down with the EPU. And we were harassed, humiliated and talked down every time we went there.”
“After that, my team was disappointed. The EPU just gave us the terms and asked us to agree. I said no way I would,” Ani had said.
Ani was also reported to have said that the agreed prices were “all fixed up. (They said) this is the price, this is the capacity charge and this is the number of years. They said you just take it.”
Who is paying UMNO government misdeeds and deliberate mismanagement? Ordinary Rakyat are paying and suffering!!
To those who think Malaysian Insider made up the story, can visit ANI AROPE facebook
There again. By your writing you are only able to mention one ppa lopsided. So the many many more second and third generation ppa are not lopsided. Betul tak? Why don’t you say govt got it right? Oops sorry I forgot. Only pr can be right kan?
Admit it you can’t prove all other ppa except ytl are lopsided. Even it benefits 99% for t rakyat you will always say lopsided.
Caught you again with sweeping insensical syatement. Dont understand why you are lazy to read. There’s a few points you can argue even w 3rd generation ppa but coz malas membaca always argue on elementary level.
Can you confirm that you have seen all the PPAs and read each one from end to end? If you have and assure the rest of us that the terms are very favorable to the people then we the “tin kosong yang malas membaca” would go to bed happy that our dear leader has taken care of our interest. If you also assure us that all govt contracts so far have been very fair to the govt (meaning us) then we would be happy to appoint Najib dictator-for-life.
Typical of you come to defend lopsided contract and corrupt regime!!
ONE lopsided contract already making millions ordinary rakyat suffering!! Billions were lost due to this ONE lopsided contract!! Wasn’t this enough to make ordinary rakyat suffering?
Again, what a hyporite? Why mention PR here? We are talking about UMNO government misdeeds.
ARE you trying to say that it is okay for UMNO government to sign ONE lopsided contract and making million ordinary rakyat to pay and suffer? And Costing billions to TNB and rakyat.
You are basically saying that you are okay to those goons and cronies to do billions lootings because it was just One Lopsided contract? We should praise the UMNO government. Is that what you are tying to say?
What kind of Hopeless arguement you are tying to put through? This is typical UMNO arguement!! Hopeless!!
One so cal guy use to say ” Apa nama tu..” and now we have a idiot always writing…” Malas membaca ”
All I can say his go hold your KONTOL.
After all, if PR can take over federal government, all this can be settled easily…….vote PR…simple…..
Totally misguided. By same token if bn takes over this is also resolve. No more unnecessary middle man profit which burdens the rakyat.
Talking about middle man? Did you forget that UMNO pay over RM500M in relation to second hand & could not dive submarine to middle man? Did PR get involved? No, all the lopsided and inflated contracts were signed by UMNO government.
Didn’t UMNO government responsible also for the lopsided Plus contract?
You are champion to defend corrupt regime!! Why?
As usual talking on unrelated events. Worse if you think scorpene is wrong and condemn it how can you defend a middle man profit by the state. Your logic is as usual amazing.
Further point to one instance when I defend the middle man amount in the scorpene contract? Tak da kan.
You are indeed champion of stupid argument and false accusation.
What a hyporite? Didn’t you always talk about Anwar when we talk about UMNO governemnt misdeeds? Malay mudah lupa?
Since you talking about middle man profit, why can’t I give you a very real example of middle man RM500M commission?
So far I see all your comments are champion and defending corrupt regime! You will quick to jump to defende basically all UMNO misdeeds, corruption pratices, lopsided contracts, and etc.
Again accusing me but can’t point when I defended scorpene? What did I say? Quote? You’re spewing rubbish by the moment. Why not baca sikit improve your knowledge.
You are a jewel….., Ellese….., just that you talk cock and always feel you are cock sure, when in fact you are just GAS.
Meek
If you disagree with Ellese, you should debunk him based on professional argument and facts. Show that his argument and line of thoughts are wrong.
Doc,
Agree with you…? sorry,
Okay Ellese…., who are the players in Puncak Niaga..?
Will await your reply and then answer.
Okay……., how much markup for a job given to a crony or relative..?
Will also await and reply.
Why Subsidiary of Puncak making money….not PN…?
Then we know who you are and what you’re and whether all this is just cock tales.
Should have posted this in a different forum.
Anyway.., I hope you take up Ellese offer to meet the Feds and then arrange with the SSG…., can be done.
Dear doc,
I hope you don’t mind i start this new thread. Our views on water are poles apart. Between ourselves we can go to hundreds commentaries. So I don’t think I want to repeat.
I’m starting this thread to focus on the way forward. Probably we’ve tried this but can’t remember the result. If you can indulge me, I propose we narrow down to solutions and get feedback from stakeholder ie SSG n FG. You approach ssg and me the FG. Whether both of them will follow we leave it to them. I need to caveat though that I do not claim I have any access to the minister or political master, but having been in the industry I will try to get the ear of influential person in the governtment. So I don’t want to overpromise. If it works we shall meet then, finally (even then if you so wish)
If you can entertain me, my view is that there are only two issues on this. One is what is the value of concessionaires assets and the other is value of state assets. If we can come to an agreement on the method of valuations and mechanics of these, I believe it can be solved. In relation to politics and timing, a different mechanics can be figured out later to save face of both FG and ssg politically.
Are you in essence agreeable with these two issues that I see paramount to the restructuring? If not what else? If okay perhaps we can go deeper.
Ellese
In general – Boleh.
The approach would be (1) value of the company which could be work out on any accounting/valuation basis (2) determine the appropriate basis of valuation (3) How differences arising from valuation from respective parties is to be addressed.
Feel free to start
Doc,
If not mistaken…., a debate with the stake holders were on…, some thing went wrong.
Hope you trigger this off..? SSG….I think no problem.., PUAB…or FG…., you need to find the relevant one.
Just want to menyibuk, Doc.
If you meet Ellese, I want to tag along. I want to put a face on the smart but misguided man
Ellese, I have to give you mad props; you are clearly an intellectual Malay, and while I don’t necessarily agree to most of your views, I have a few friends who are like you – UMNO man to the core.
The reason why I want to tag along is simply because I want to know if, off the record, and like my friends, you will agree that there are elements – majority of those in power – in UMNO that are rotten and have outlived their usefulness.
‘s all.
Sorry, I went off base
I apol this thread is coming at an inopportune time. Im going away and been bogged down. I will however endeavour to answer as i can.
Dr R- No worries. Equally busy
Let’s cut through this.
Can we have an established principle in determing the value as well. End of day we want tariff to be lower so our objective must be for lower cost by PAAB. Orherwise PAAB has to charge higher rentals and lead to higher tariff. This concept cuts both way. Ie PAAB must purchase as low as possible a price from concessionaire and state. Is this fair?
Dr R- Cost of water is not 100% dependent on the financing cost by PAAB which is lease back to SSG. It is equally dependent on operational expenses and other cost. In a simplified formula cost of water to consumer = Lease back cost from PAAB+Treating water cost+ Distribution water cost+Overheads+others. If we take the lease back cost alone, it would have negligible impact/unit volume of water. Allow me to illustrate
(1) Lease back cost 9 bill spred over 30 years at 4% p.a. monthly rest, the monthly lease back cost is RM42,967,000 (42.3 mill) or RM1.4323 mill per day.
(2) Lease back cost 12.06 bill spred over 30 years at 4% p.a. monthly rest, the monthly leas back cost is RM57,576,000 (57.6 mill) or RM1. 919200 mill per day
In 2006, water production is 4600 MLD . That means the lease back cost/volume of water produced = 0.0417 sen/litre
What I have demonstrated here is that despite the leaseback increase from RM9 bill to RM12.06 bill the cost per unit water produced as per 2006 data is negiligible. The main cost is in the operational. The RM2 bill can be used to modernize treatment plants and distribution network to reduce the total water cost. The impact is negilble. With increasing water demand on 15% per annum and a fixed repayment cost, the impact of lease back repayment is even further reduced. It becomes extremely negligible
Let me start on concessionaires assets, can we have a mechanic to allow PAAB itself to purchase rather than state. State and FG have common interest (despite many thinking there’s rozali shadow) to take assets out of concessionares at the lowest price. PAAB/FG has three leverages as I see. Wsia license, concession and now if succeed bondholders threat. Selangors leverage on this is purely the concession terms. PAAB has been purchasing assets in other states on net book value as I understand. Think they have tried that with syabas puncak and Splash. Why not allow them use the leverages? To me I don’t think the concessionaire can accept the book valuation but I’m willing to go for even discounted method so long as FG or sg get the asset and no excessive payment made to these concessionaires.
Dr R – Lets take one step back. Define what it means by (1) PN or Syabas Asset (2) State Asset
There are state issue of wanting to operate but can we get this parameters agreed first. Can I get you to give either a yes or no answer doc? No just joking:-). Feel free.
You know I like to engage you coz your ability to go deeper and thus intellectual. Very similar to sb4s. Your argument on figures reminds me some the way sb4s argued.
I’ve not extrapolated any numbers but seek your clarification.
First why do you assume the rate of 30 years.
Dr R – That is not the bond issue period but lease back period. In Penang, the lease back is spread over 45 years. I believe Selangor is looking at 40 years but I chose 30 years because the online financial calculator has limitation of 30 years
PAAB is going to get the money from the market. The longest tenure is MGS twenty years.but PAAB is issuing a AAA rating corporate bonds which has higher coupon rate. Can you show me whether there is in the market a aaa bond more than 10 years? I’ve come across 3 to five years at 5% .
Dr R- As mentioned, you misunderstood me. My apologies if the original explanation is not clear enough
Why do you assume that the financing cost is wholly borne by PAAB and not the state. I don’t follow this thought process. Paab buys at 9 billion. It borrows money then lend out a straight line scheme with repayment of principle only for 30 years. Why should Paab bear the financing costs? Do you have PFI /PPP example in other jurisdiction like this? This is strange and have not come across it.
Dr R- PAAB will lease back with to state including their bond/operational cost. I have taken this point into consideration in my pricing simulation
The better way to see the portion of income payment is to see historical records. We can then determine how much it is operational cost and debt repayment. Can’t determine and verify your allegation on syabas. May be we should look sector by sector. Since Puncak is a treatment company it’s similar to ABAS which is controlled by selangor state.
Can you give a breakdown in terms of percentage between their operational cost vis a vis their debt payment. It’s not a perfect comparison but a general start of which when we can scrutinize how puncak fare.think it’s a better comparison.let’s compare ratio to see efficiency. If ratio of Abass similar to puncak, I think state should not harp on efficiency since they can’t even improve their efficiency. But if the ratio is better then puncak should not be rewarded or paid. One of the objective of wsia is to benchmark the cost. Any unreasonable cost would not be considered in calculating the tariff. Thus operator has to bear themselves.
Dr R- The figures I used includes all water produced by ALL operators in Selangor as we need to spread
on your quare of AAA bond price, it should be lower. An AAA bond has lower yield or coupon rate. Why? coz less risk. Aqua made purchase based on ytm. Thus paying lower price than what the bondholders are entitled to receive.
Dr R- Have explained this previously. Please read prior explanation
On your repeated allegation on premium. Please note this is as opposed to “par”‘or discounted bonds. Everytime a bondholders sells above par / amount paid for it there is a premium.
Dr R- Have explained this previously. Please read prior explanation
Doc just reread this and realise we can’t even agree on the first parameter. In simple terms, objective is to get lower tariff. Should we not than work out to a lesser lease rental as a principle. Even by this straight line principal calculation your cost is 0.0417. the tariff we pay now based on 20m3 is 0.00057.
Thus the tariff is approximately less than 100 times cheaper than the your simple straight line basis. It’s still unsustainable. If selangor objects even to syabas 32% increase why should it agree to impose a rental nearly 100 times more. To me it doesn’t make sense.Let’s concentrate on principle first. We must allow Paab to buy as low as possible. Agreeable doc?
Dr R- Your maths is wrong and there is mistake in my daily loan repayment (i suspect you realized it but did not tell me about it. I had wrongly written the numbers of zero)
Selangor water rates for DOMESTIC USE is :First 20 litre rate is 57sen/1000l and for the next 15 litres 103sen/1000 litre and subsequent is 200sen/1000litre
For buy back amount of RM 9 bill
The daily water repayment is 1.43225 mill. Using the 2006 water production of 4600 MLD, then fixed cost/litre of water produced is 0.000311357869637681.
ASSUMING that we charge 57sen/1000litre per day (THE LOWEST RATE) this is equal to 0.0057 per litre. Therefore the percentage of fixed cost per litre/water cost per litre = 0.546% Which is negligible
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For buy back amount of RM 11 bill
The daily water repayment is 1.7505231 mill. Using the 2006 water production of 4600 MLD, then fixed cost/litre of water produced is 0.000380548507318841.
ASSUMING that we charge 57sen/1000litre per day (THE LOWEST RATE) this is equal to 0.0057 per litre. Therefore the percentage of fixed cost per litre/water cost per litre = 0.668% Which is negligible
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For a buy back amount of RM 20 bill and every other parameters remains the same, the percentage of fixed cost per litre/water cost per litre = 1.213871% Which is negligible
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Based on my assessment, assuming we use the LOWEST tariff and USE DOMESTIC RATES ONLY, cost of pipe leasing/minimal domestic rates is minimal and less than 1%. WE MUST NOT FORGET THAT WE ARE NOT USING THOSE RATES ACROSS ALL DOMESTIC AND COMMERCIAL OR INDUSTRIAL RATES.
The point I am making here is that the buy and lease back price has a very minimal impact on the final water price to domestic consumer and whether SSG wants 9 bill or 12bill is not really relevant. What is relevant is managing the super high operational expenses.
Whatever it is, I am still OK to follow your lead in this discussion. In a summary
(1) I have justified that the argument of bond buy back is on a wrong price basis
(2) The contribution of lease back on per volume of water produced is extremely low and negligible
(3) I would appreciate if you notice any of my calculation is erroneous, please let me know.
Dear doc
This is funny. I’ve not done any maths simulation lagi. My intent is to establish principles and parameters. Then we decide which is negligible. We also need to compare how negligible syabas is asking with how state is pricing it. Ok tak doc. Can we agree Paab should be able to buy the lowest? Got to go.
Ellese
(1) I have said before- boleh. I follow your lead.
What I have done is to illustrate that asset cost and lease back is not the real issue. PAAB has money. State owned asset. Meet at willing buyer willing seller. Whatever money states get will be spent on state. The previous argument you had was that the extra cost demanded will burden the people has clearly been expunged as the lease back cost as shown is negligible. For now I will follow your lead. Please lead
Dear Ellese
Let me look at the hard copy in the office and see if I could find the said piece. At this stage, I believe your interpretation of value on AAA and AA bonds is mixed up.
On a FRESH ISSUANCE - You are right, AAA has lower risk than AA and it is more attractive. Therefore the cuopon is lower. This approach is correct when looking at fresh issuance before it is being subscribed
When addresssing ISSUED and SUBSCRIBED bond. If one were to buy this issued bond, the way to value it is by (1) Calculating the PV of future cuopons . The inability to service means the value of this bond is lower. Bond holders has to take a hair cut as the possibility of being repaid is lower.
Therefore value is lower. Trust this explains. You may say that why should bondholder should be penalize? It is a commercial transaction which there is risk. The bond subscribers knows the risk when they take it up. The action of FG is bailing out the bondholders. They are very quick to show the impact of subsidy on the country but how many realized that the excesses like this is the reason why the government is not able to contain the subsidy.
On concessionaire assets owned by it including all such rights of concessionares entitled under the concession. This also includes all the immovable assets of concessionaires.
Assets actually owned by state which state has control. Thus if state has a land but gave right to use and charge over it, such encumbrances should be considered. Also includes all rights of state under the concession agreements
List above not exhaustive but hope it clarifies.
Ellese
Asset owned by Syabas or PN should not include those in concession because many of this asset is still in its original status when they took it from the state. It should be limited to
(1) Asset that was built by PN or Syabas after the concession agreement was signed
(2) Pipes and infrastructure which they have upgraded during the concession
All other asset should be owned by the state.
This should be fair approach
Ellese
Asset owned by Syabas or PN should not include those in concession because many of this asset is still in its original status when they took it from the state. It should be limited to
(1) Asset that was built by PN or Syabas after the concession agreement was signed
(2) Pipes and infrastructure which they have upgraded during the concession
All other asset should be owned by the state.
This should be a fair approach
Doc,
My contention is still the same. You know my stand. Since you’re repeating it, allow me to give a different perspective to readers. I hope you allow my points without comment. I don’t intend to repeat all the argument we had save for valuation by aqua.
Dr R- My current posting mainly focus on Aqua SPV bond acquisition which was done in a lopsided manner
1) the SSG should not be making middle man profit in the billions. It doesn’t have money. It buys from concessionaires and sell it to PAAB. All this profit will translate to higher purchase price to be paid by PAAB. Consequently higher rentals to SSG later and thus also higher water tariff.
Dr R- Please read my comments above with regards to 2 step process
2) argument that if taken by SSG water tariff is low is spurious and inconsistent if SSG intends to benefit billions from being middle man.
Dr R- I think if SSG can maintain rates for a few more years it is already good enough. As mentioned in my other comments, the current OPEX of Syabas is very high because of very high management expenses and “internal milking” by the keyman. The supply of chemicals, cleaning services, landscaping, repair services of plants belongs to PN is all done via a 3rd company that belongs to the keyman. The keyman also deploys high tech approaches in water treatment which is high cost on trial basis. One such plant is Kepong where he wanted to make “Malaysian Periere”. All this and many other cost are charged back to syabas These rates are exorbitant. I know because one of the senior management in PN is a close associate. He explains the modus operandi
3) the current free water is bleeding the state. All know reason for kps acquiring water assets from kdeb was due to bleeding of cash flow resulting free water. This is a flawed model where the poor did not get subsidy but instead the rich resulting in wastages. Why? Most low cost does not have separate individual metering.
Dr R- I take it as a social agenda. It may bleed the GLC but for a good cause. Unfortunately many of the rich and affordable could sent a refund check to SSG for the free water they receive. How many did that. I have already did it for 2011 water bills in advance several months back. If people feel it is not right they should make a refund.
4) the nation water industry was restructured by wsia because all can’t even pay for capex and some not even opex. This is a highly unsustainable model. Nrw for some were even 50%. Meaning to say we produce 100 liter and lost 50 in the distribution line.
Dr R- Agree and SSG did not deny this. In the case between Syabas and SSG, there is a disagreement on the NRW loss inhibition program.
5) if companies cannot pay for capex, and if SSG acquire all this where is the money coming from to replace all this pipes. Selangor is not honest on this. If it tries to evaluate higher on existing old pipes so they have money from it or alternatively use PAAB money for capex, it can only lead to one thing: higher lease rental or higher tariff.
Dr R- Read the two step process again.
6) the water restructuring of wsia was not political. In fact Kelantan is leading this. Kedah and Penang embraced fully. It’s selangor who wants middle man money resisting this.
Dr R- Agree it is not suppose to be political but in Selangor, the FG has done so. How else can one interpret the acquisition of bonds at a premium. Your basis that it will have impact on future bonds has merit but not significant enough. Simply because this are commercial bonds and unlike PAAB government backed bonds.
7) SSG went into the restructuring in bad faith. It’s main role is to deny rozali money. That’s why restructuring stalled. It sees shadows. It should approach this irrespective of rozali. See rozali as a concession holder and how to get this at fair value. There are many established fair value basis which can be used. But because of this shadow it wants to buy at below market value. That’s why not even puncak rejecting all other players are rejecting it. (save Abass which is control by SSG)
Dr R- Then can you explain why Rozali turn down FG and Gamuda offers
8) FG wants to wrap the water restructuring fast as with other states. This is in line with wsia model. They also want to complete the langat project for the water supply. It’s not in their interest to delay.
Dr R- If they really means it they should not have interfered with the bonds. Let nature takes its course. Bond holders will take steps to control company and will go into negotiation directly with SSG
9) in fact to the contrary. Selangor has been given the first option to restructure but approached this in a political manner. Thus can’t get anyone to take up it’s offer. So it’s I disingenuous to spin otherwise.
Dr R- Disagree on who spun
10) our water is very cheap. Lets take selangor. For 1st 20m cube it cost 57 sen per cubic m. And next 15 m cube at 1 rm per cubic meter. Thus if you use normal consumption of 35m cube it costs around 26/27 ringgit.
Now I cubic meter is equivalent to 1000 liter. We spend around mOre than 1 rm for I liter bottle of mineral water. Which means if by current rate the drinkable water by PN costs 0.00057 sen per one mineral bottle (based on 20m3 rate) Doesn’t it make sense to increase tariff by even 100% to upgrade the pipes to have drinkable water. Our water when produced is drinkable but pipings are the problem.
Dr R- In this country Allah gave us water. It is so much that we take it for granted and did not manage the natural sources properly. If you ask me I see no valid reason to make something very expensive when raw materials are readily available
11) That’s why this scare mongering of tariff hike by state is unjustifiable and irresponsible. When wsia was restructured everybody knows our water tariff is unsustainable. Thats why you see even Penang kedah and Kelantan will ask or have asked for higher tariff.
12) so the SSG trying to leverage on bondholders for political purposes is truly unfair. They bought the bonds as an innocent investors. Why should they be penalized due to this political game?
Dr R- It is not about penalizing anyone. Its business. All the bond holders need to do is to invoke their powers. Take over the company and discuss directly with SSG and I believe they will see that the discussion would be smoother
13) aqua spv is acquiring the bonds at fair value. Look at the latest edge issue. Some bondholders are complaining that aqua is pricing it on a lower yield. Aqua assumes it’s an AAA bond.currently it has AA bond rating. Since it’s AAA aqua argues that the yield should be lower than current yield. Bondholders complaining of this.
Dr R- Disagree
14) so stop this political shenanigan. For me if we don’t have enough water for next couple of years, as I said before, I will kick ssg pr butt literally.
Dr R- For me I am clear on who I should kick and kick hard! ROLOL
I admit that I don’t understand what the argument here on water issue, to me, the better ways shall be one that take into consideration of public interest.
Take the privatized toll road as my case of reference, the ‘innovative’ approach help to construct infrastructure, but not each and every infrastructure is needed and were utilize within optimum manner. But the privatization method allow us to live and build something not within our means, therefore I think it is not wrong to claim that this is not far off from credit card facilities, we spend our future money without knowing how the future looks like. Some toll highways make sense and some don’t but due to the available ‘resources’, the government continue to privatise and build as long as it doesn’t affect their balance budget. Therefore if without proper scrutinized and guideline, the people will lose in the long run as similar to those credit card user. Common people like me and you can’t fight the profiteers bank and private enterprise and that is why we want a government that could take up the responsible and role to ensure our interest is being safeguarded. We can’t print money like what US is doing though in reality, we all know US is actually a bankrupt country. Personally I think we shall cultivate a value that go back to very basic of living.
Now back to water issue, I might be wrong but I yet see how refick justification was detrimental to the people.
Hua yong,
Your are right…., we just have a mentally retarded bunch of businessmen…, who forgot there have generations to feed.
STUPID…, but then we are also in the same boat to placate previous stupid arrangements of the Government.
Who thought that…the Mamak…was stupid…, and will milk us dry..? Then only we realize he was a genius to milk us alive….and the malays fell into his trap…., they still are …due to Leaders carrying skeletons in their closet…., some walking zombies.
Dear HY,
Please allow me to appraise you on circumstances surrounding the water industry. Except for selangor and johor, water is not privatized in other states. Even when the water is with the state and not privatised. The water tariff in certain states is insufficient to cover opex what more capex. Meaning to say that most of the pipes for example can’t be replaced and consequently a higher water loss sometimes amounting to 50%. This is also the reason for most of the state debt. The model is unsustainable and thus had to borrow huge money from fg for water infrastructure. The exception is Kelantan which has minimal debt but due to this it has a very low penetration of water supply to the public and low quality of water.
Thus there is a need to restructure the water industry. It’s no longer sustainable.
What FG sought to do was to make it sustainable at lower price and make the regulation transparent with kpi. The FG through PAAB was established to acquire all the assets. Why? It’s fully backed by govt to achieve lower funding cost. I think this is an excellent pfi model. The idea then is to allow each operator to only do water. All their income is ring fenced so no more unrelated project. They have kpi and a terminable license if kpi not met.
Why is this not workable?
(The only problem is selangor who sees too much shadows affecting their decision ability and inability to see the bigger picture.)
I think most of your concern is captured by wsia mechanics. There is no premium
In aqua bond. Not a hair cut but bondholders have to get lower price since government taking it as if it has an AAA rating rather than current AA rating. Read also edge write up on the offer.
(FOR ISSUED BONDS) Shouldnt AAA be more expensive than AA. If the current rating is AA , why is the government paying AAA price?
Ellese
Please advice which article on the edge. If you are referring to this one there is no analysis being done except the edge reporter just republish what was told to him. The reporter was merely repeating what he was told.
He also said…”… many prominent personalities…” giving clear impression on the basis of decision
You cant take this as the truth. I know about bonds and familiar on their basis of valuation and rating. I can say with confidence that what was published is not true
I would say TONY PUA makes sense here.
Read what penang (A SMALL ISLAND STATE) gets in completing the deal with PAAB. READ HERE. Reproduced here for your convinience
The terms of the agreement are as follows:
• Penang’s outstanding loan of RM655.24 million to the federal government will be converted into a grant;
• Penang will be given a grant allocation of RM1.2 billion for the expansion project of Mengkuang Dam;
• The federal government will be fully responsible for the source work of water supply projects;
• The state government will be relieved of the financial burden to develop and upgrade water supply assets;
• PBAPP can focus solely on providing water treatment and distribution services and concentrate on achieving operational efficiencies, good quality water and services;
• PBAPP can work towards full cost recovery and financial independence in the long term;
• Any revision or variation in water tariffs must obtain the approval and consent of the Penang state government.
In essence
(1) Cash Value 1.85524 bill
(2) Penang dont have to pay for new water supply projects or upgrade existing water supply assets
(3) They retain control on distribution rights and pricing rights
Not this one. Read it over the weekend paper but I think by the same author. Not an in-depth analysis but explained the AAA yield basis for the purchase.
Read Tony phua. You know I have aversion to mi. I only use it when they talk something bad against pr coz there must be something worse than it. Other than that I take them as similar to Utusan: Pinch of salt. Can’t understand phuas rationale and how he derives.
On Penang. on face of it, it’s what is envisaged by wsia. I’ve not gone to the site and analyze further. somehow ESG has different unbeneficial political agenda.
ESG should be SSG.
Doc,
Tan Sri Ani Arope…, gave us a insight of what privatization.., was all about in the Mamak era.., now we know some details about it…, but there are people who know a whole lot of it.
Now this Najis with his Muhi…, are making us look like asses.
Just wait and see where they lead us.., more so the Malays.
FEDERAL GOVERNMENT will only look after the cronies interest but not the Rakyat. They want rakyat to pay..pay..& pay!! They can let those cronies make huge profits and make the rakyat to pay! This is a very typical of UMNO government.
If Cronies companies pay them to make decision! Guess who would the FD listen to? When did they ever put the rakyat interest first? They would willingly sign all kind of lopsided contracts with cronies companies and make ordinary people to pay.
FG talking all crap about subsidies cut but continuing spending big money somewhere and letting or jointly doing lootings from rakyat coffers!!
Doctorji,
Azmin who?
That was a good one!!!!!!!!
1) Selangor should nationalize SYABAS and get it over with. Then pay compensation to the previous owners using Selangor’s own valuation.
2) To ensure market confidence, I suggest Selangor starts a petition and get as many Selangor residents to sign in support for the nationalization. At least investors and business owners it is for public interest.
Thats the route that I would have taken and I questioned william leong in 2009 on why didnt they do that. He said that would be the last resort. I am still waiting from him on the parameters that defined as last resort
1) For PR, the current stalemate is to their advantage. It supports their bid for Putrajaya in the next election.
2) But, we have to appreciate that nationalization will lead to legal challenges and instability. It is tough for PR. No complains here. I think they are right to take their time.
I think the approach should be finding a solution and not delaying matters. Both FG and SSG must find solution with objective of returning water management to SSG.
Dear Doc,
Delay solution is better for FG, ie UMNO.
Fast solution, victory for SSG.
UMNO just want to sabotage to whole deal.
Perhaps, squeeze more money out of it.
If SSG do it in a haste before GE13 to win support for the election with the expenses of HUGE taxpayer’s money, it would backfired. This also what UMNO is planning to bad name SSG. Khalid got it for sending lembu to korban, they have labelled Khalid for abuse of power for a few lembu. Teoh Beng Hock jumped for a few thousands.
It is a game of chess, as you mentioned doc…
“SELANGOR WATER – WHO IS PLAYING POLITICS?”
Who benefits?
(1) If FG faciliate water management transfer to SSG and they are able to maintain prices in the current environment where everything goes up, it would appear that SSG is efficient and would probably win the support of the people in selangor this will affect BN plan to recapture selangor.
(2) If FG delays the process, SSG would appear incompetent and draining state funds which BN can use as “modal” for campaign. The bailout of the bond holders is another step to delay the process.
The thing is people in the urban areas understand this. People in the rural areas need to be enlighthened on this matter and make them thing logically.
I don’t follow this nationalisation argument. Under wsia only FG can invoke not SSG.
There may be ‘nationalisation’ clause in the concession agreement. Probably the state has the right to acquire in the event of default. But state has to still compensate for this. My contention is that ssg not willing to go this on two accounts. It cannot claim default coz it has been acting in bad faith. Two it will lead to state paying higher than the below the market value they espoused.
Dr Rafick
Why returning the water management to SSG? Just because they are giving you cheaper water?
Bias aside, I wonder how SSG can afford to subsidize miilions of dollars just to win votes. If not mistaken, it is costing over RM10 million per month as reported by Khalid Samad. This spendings could be put into other better use; especially on education and development of infrastructure.
KK
(1) water issue now is a political tool. Personally, I believe that if SSG owns and manage the water business they would be able to run it at a lower cost which can be translated to lower water bill. Today yes our water bill is subsidize but not by state but by state GLC.
Why is the water cost is expensive in selangor today? The following are some of the reasons
(1) high management cost especially top management whose wages are astronomical
(2) many privately owned business units that is owned by top people in PN are actually providing supply and services to SYABAS at exorbitant cost. Money change hands from public listed company to private entity.The decision makers are the same on both side. They just bleed the company. It’s like having a cow which is being milked dry till the tits shrunk!
I have seen enough of such model where finally the main company collapsed. This is again has high impact on water cost.
Personally I am supporting PR in this issue not because the RM 11.50 water subsidy but be because I believe they can do a better job in managing the water business in a cost effective manner.
I think you have just explained why PLUS is paying 4 times the international average to maintain their highways.
Doc/ Kok,
Spot on….., no need to add on.
Have been taken for a ride far to long.
I had explained about PLUS way back in 2007 where i had explained on how PLUS was and still being milked to the bone.
Read here
http://rights2write.wordpress.com/2007/11/27/should-the-government-buy-over-plus/
As far as I know, FG does not have any problem with water management be run by SSG.
Dr Rafick- PAAB current action does not reflect that they meant what they said. Old adage, cakap tak serupa bikin …..!
Other models in other states showed this. But issue is this. If SSG wants to run it it must acquire it from current concessionaire. If it insists on below market value, who in the world would let go off the asset.
PAAB has also made an offer but was rejected by PN. Why is that? Gamuda offered several billions more that FG and SSG offers, they still don’t want to sell. WHY?
If SSG wants, it has to sort it outlah. But drag everyone in. Why? Coz it doesn’t have money and want to use PAAB’s money.
Two: the main problem is capex. However efficient you manage puncak you still need money to replace old old pipes. Who is going to bear this? How is SSG going to get this money?
Dr R- pipe replacement program would be funded by PAAB on the basis of buy and lease program.
Their free water model are bleeding it’s glc to the hilt.
Dr R- if really that is your concern than shouldn’t STEP 1 be accelerated? Instead now step 1 is being sabotaged
Sooner or later it will hit ssg books directly. Now what about capex cost. If it wants to go solo without PAAB and raise money through bonds, it will surely either be undersubscribed or at higher costs. Why?
Dr R- Firstly the issue of SSG raising bond does not arise. It has been accepted that it is best done via PAAB if it is related to the water related assets. What obligation SSG renegaded? If you are talking the increase in water price, that power is given contractually. This matter is in court now. There is a disagreement on whether PN has met it’s obligation and based on SG State Sec affidavit PN did not meet their obligations.
On the issue of ability os SSG raising bonds, they can do it via many GLC without having to use the water related assets arrangement. The state has many assets at it’s disposal that can be use to raised bonds.
Coz selangor way of dealing this by reneging state contractual obligations will get back to it. It doesn’t take a genius to see what’s coming.
Dear Doc,
This is really the symptoms of 22 years of mismanagement. This what One Million Youth should defend Putrajaya from.
Privatisation has “killed” a lot of Malaysian. It it one of the main cost of INFLATION besides corruptions. Actually, corruptions lead to this. Malaysia Incorporated started with the ex-dictator with his regime to spread the disease of making money from the rakyat.
Malaysia Incorporated has done some good (just to make some BN supporters here happy). UMNO under his dictatorship for 22 years had overdo it. It become a liability to the Rakyat when the basic needs is turn into private profiteering. The government must defend and guard selfishly all the basic needs of the Rakyat.
Instead of admitting fault in the water issue, UMNO has spin it into an expensive acquisition for SSG. Making it very difficult for the citizen of Selangor to reap the benefits.
For all the harcore BN supporters, UMNO can do no wrong.
Syabas! SYABAS?
Wave33,
A middle aged cock then want to upgrade the Malay’s by creating a Super rich class of Malay’s including his son’s…, numbering about 1000.., leaving millions of malay’s off tract
Now these aged cock……, still talk about how to fleece the rakyaat and make ordinary malays look stupid.
But then we cannot blame him…, we had sick leaders stuff to the brim.
You are not appraised of the facts. I believe one of the major issue now is valuation. SSG wants FG to pay more for assets they sell to PAAB. FG says why should they pay more for old pipes which they will need to repair and replace? How do you intend to solve this?
Dear ellese
Firstly we must appreciate that this is a multistep process. Allow me to simplify for you
1. STEP 1- SSG buy back the concessions or the company. This step has not progressed. In fact SSG has even allowed PAAB to buy directly from SYABAS. This also has not been agreed upon. Why the owners refuse to agree with any price?
2. STEP 2- Assuming SSG manage to buy FROM SYABAS and they want to sell to PAAB. They have to negotiate a settlement price. This step is not due yet as STEP 1 has not been finalized. Whether PAAB has to pay a premium or not that can only be determined by mutually agreed method of valuation and appointment of independent valued. The issue of SSG wants more more for the assets does not arise at this stage.
What is clear at this stage, PAAB decision to pay a premium for the bonds is wrong and not based on the norm of bond valuation. They have given a lifeline to PN shareholders which means they have sabotaged the attempt to gain control of SYABAS.
Also not related to yr post. Any idea if the govt is going ‘cold turkey’ in preventing the IPPs fro getting their RM 21 billion ‘opium’. Hope to Allah Ani Arope in good health
Satu lagi project BN, errr silap, project dari Syabas!
silap to projek bn melalui syabas
ROLOL
Not related to your post, but just a check of things in BA:
How’s Azmin Ali doing his job for his constituents in Bukit Antarabangsa? Has he done anything so far for your area?
Azmin who?
Azmin,…..your office boy dulu…., now YAB.
Forgot…., or getting old..?
How does he look like?
Half the size of Ibrahim Katak…., but handsome.