Selangor fights 30pc water hike, wants Syabas concession cancelled

By Shannon Teoh and Debra Chong, The Malaysian Insider

The Selangor state government has signaled its intention to take on the federal government in a battle over water supply in the state after sending a letter to the Energy, Water and Communications Ministry asking for the 30-year concession agreement with Syarikat Bekalan Air Selangor (Syabas) to be terminated.

While the immediate concern is to block a 30 per cent hike in water tariffs come April, the actual ramifications may stretch into talks that have begun in earnest this week over the sale of water supply assets – water treatment plants, dams and pipelines – in the state to the Finance Ministry’s wholly-owned Pengurusan Aset Air Bhd (PAAB).

Under the concession agreement inked in 2005 between Syabas, the federal government and the Selangor government, periodical tariff hikes are provided for as long as Syabas meets certain conditions.

Energy, Water and Communications Minister Datuk Shaziman Abu Mansor recently said that “according to the National Audit Department’s estimates, Syabas could increase the tariff by 30 per cent although the agreement stated 37 per cent because the company had met almost all the conditions”.

This has left some 1.5 million consumers in Selangor, Kuala Lumpur and Putrajaya facing the increase which may, however, be revoked and restructured if water assets are handed over to PAAB before the hike takes effect in April, according to Shaziman.

Under the Water Services Industry Act 2006, all water assets in Peninsular Malaysia must be transferred to PAAB with Malacca recently inking an RM889 million deal and Negri Sembilan following suit this afternoon.

But the letter sent by Menteri Besar Tan Sri Khalid Ibrahim is a clear signal that the state government is not certain that this handover of assets will take place by the end of March and is now forcing the cancellation of the concession outside of the mechanism of asset transfer.

The situation could lead to a protracted legal battle and the state government will most certainly apply for an injunction to block any tariff hike until it is resolved.

Should it be successful in lifting the April deadline for the hike, it will give the Pakatan Rakyat government some breathing space to engage in the negotiations over the water assets deal.

Khalid confirmed when asked by The Malaysian Insider that he sent the letter at the end of December 2008 to challenge the concession agreement on the grounds of non-compliance by Syabas.

“The National Audit Department concluded that there were a lot of discrepancies that were not in accordance with the agreement.

“For example, the agreement said that they must give tender for projects so we can get the best price. Over RM600 million of projects were not tendered,” he said.

Sources also told The Malaysian Insider that a majority of projects were in fact, handed via direct negotiations and that total capital expenditure exceeded the approved amount.

Khalid also added that Shaziman’s “most” is not good enough and that “Syabas is getting a free ride.”

Several factors are standing in the way of a smooth transfer of water assets to the federal government, chief among them being the discrepancy in “fair exit value” for private companies who own about 20 per cent of the assets.

One of the asset owners, Puncak Niaga, also owns 70 per cent of Syabas, and has an obvious vested interest in prolonging negotiations and activating the tariff hike.

Khalid clearly hinted at issues with differing valuations when he told The Malaysian Insider that if the deal is “done at a fair price, the concept of a 30 per cent increase may be unnecessary.”