Tuesday, October 16, 2012

Frequently Asked Questions on Water Restructuring Process

1. What are the Selangor State Government’s intentions in the restructuring of the water industry in Selangor?
o The Selangor State Government intends to restructure the water services industry in Selangor in a holistic manner, ensuring that the four concession companies are consolidated into one entity, which would eventually hold the operating license to manage the water treatment and water distribution in the state of Selangor.
o This single operator would be a company under the Selangor State Government.
o The Selangor State Governments intends to increase efficiency of the water industry, reduce tariffs by up to 24% in the long run, and to maintain the free water for the first 20m3 policy.

2. How does this fit into the Federal Government’s plans?
o The Water Services Industry Act (WSIA) 2006 was passed in Parliament with the intention of renationalizing all water assets in the country.
o The plan is to eventually have all water-related assets transferred back to the Federal Government through its nominated agency Pengurusan Aset Air Berhad (PAAB).
o The Selangor State Government owns 70% of the State’s water assets, whilst the remaining 30% belongs to privatized concession companies.
o If successful, all Selangor water assets will be owned by the Federal Government, but license to operate given to another entity.

3. What is the Selangor State Government’s proposal for a holistic restructuring of the water industry?
o The Selangor State Government is proposing that it would take over the assets of the concession companies, and also pay them their invested equity at a rate of 12% return on investment. This amounts to RM5.7 billion (RM4.6 billion worth of assets and RM1.1 billion worth of equity)
o After this, the Selangor Government would transfer RM4.6 billion worth of assets from the concession companies and RM9.7 billion worth of its own State water assets to PAAB.
o The Selangor Government would then receive RM14.3 billion in cash and bonds from the Federal Government from the sale of water-related assets.
o A special-purpose vehicle would be set up as a corporate entity to consolidate all the four companies together. The State Government owns shares in some of the companies and hence by virtue of these shares would be able to exercise significant decision-making in the consolidation.
o The special-purpose vehicle would apply for an operating license for the water industry in Selangor, leasing the water assets now owned by PAAB to operate at the State level.

4. Why is it important for the restructuring to take place as quickly as possible?
o It is important to expedite the process of restructuring because under the concession agreement, Syabas can increase water tariffs by up to 70%.
o Even if the Federal Government, after giving the operating license back to Syabas (which the Selangor State opposes), decides not to increase the tariffs, the difference will be borne by the State Government and in turn by the people of Selangor.

5. What did the Federal Government do to sabotage the Selangor State Government’s plans?
o Two days before the Selangor State Government’s offer to the concession companies expired, the Federal Government through its regulatory body Suruhanjaya Pengurusan Air Negara (SPAN) announced that it would bypass the State Government to negotiate directly with concession companies.
o Their offers to the concession companies would obviously be a sabotage since they would offer higher prices to the companies, than what the State was offering.
o The Federal Government’s excuse was that the State Government was intentionally delaying the process of negotiation, when in fact the State Government has always provided the Federal Government information every step of the way.
o All four concession companies rejected the offer made by the Selangor State Government, as expected.

6. Why is the Federal Government’s offer to the concession companies considered a bailout of its Barisan Nasional cronies?
o The Federal Government, in paying a hefty amount of money to the concession companies beyond what is reasonable, is effectively bailing out the concession companies from the great debts that they are facing presently.
o After the WSIA 2006 was signed, accounts show that the concession companies made out huge dividends to their shareholders. These large dividends are unacceptable, since the companies are already in debt.
o The CEO of Puncak Niaga was paid RM5.1 million in 2007, and monthly management fee of RM700,000. If the company is in debt, why pay such a high salary to its CEO?
o The Federal Government continues to support its Barisan Nasional crony companies. Syabas sponsors the UMNO General Assembly annually, including in 2009.

7. Why must the Selangor State Government be included in the process of restructuring of the water industry?
o Clause 191(4) and Clause 191(7) of the Water Services Industry Act (WSIA) require that the State Government must be involved in the process of negotiation, as it is a counterparty to the concession agreement signed with the concession companies.
o In a Cabinet decision dated 16th January 2008, it was agreed that the State Government, through its State subsidiary company, Kumpulan Darul Ehsan Berhad (KDEB), would take the lead in negotiating on the restructuring process of the water industry.
o This Cabinet decision has not been revoked, nor any other Cabinet decision made reversing it. Hence, the State still has to be included. Total exclusion is tantamount to being illegal.
o The Selangor State Government by law still has full rights over the State’s raw water. Excluding the State Government is not a wise or practical idea, as it would need to be involved in the eventual outcome of the water industry.
o More than 70% of the state’s water assets are still owned by the Selangor State Government, including those that are being managed by the concession companies now.
o Under the concession agreements, all water-related assets are to be transferred back to the Selangor State Government. If the companies transfer these back to the Federal Government, it would renege on the agreement to have the assets transferred back to the State Government.

8. What is the Selangor State Government asking of the Federal Government?
o The Selangor State Government demands for the Federal Government to terminate the concession agreement with Syabas, based on its mismanagement, corrupt practices, breach of contract and inefficient delivery of services to the people of Selangor, Kuala Lumpur and Putrajaya.
o The Selangor State Government demands that the Federal Government to exercise its powers under the WSIA to do so.
o The Selangor State Government is demanding that it continues to take the lead in the negotiations of water restructuring with concession companies, according to the earlier Cabinet decision and along with the spirit of the WSIA.
o The Selangor State Government is demanding that the operating license is not given back to Syabas but to give it to the State Government.
o The Selangor State Government demands for reasonable action to be taken by the Federal Government. If both Governments were to co-operate, this outstanding issue will be resolved more quickly without it becoming a political issue.

9. What options are available for the Selangor State Government, if the situation reaches a stalemate?
o The Selangor Government has met with the Ministry of Energy, Water and Communications and the situation seems to have met with a stalemate.

o The Selangor State Government has submitted its proposal for the Minister to consider carefully, in the holistic restructuring of the state’s water industry and awaits its feedback.

o If all else fails, the Selangor State Government will have no choice but to take legal action against the Federal Government.

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