Syabas breaches contract

by Maria J. Dass (The Sun)

PETALING JAYA (Jan 30, 2009): An audit of Selangor's water concessionaire operations has revealed that the company had breached several important terms of the 30-year concession agreement, and the state government is using this to press for the lucrative contract to be terminated.

It is learnt Syarikat Bekalan Air Selangor (Syabas) – owned by Puncak Niaga (70% share) and state investment arm Kumpulan Darul Ehsan Bhd (30%) – had failed to comply fully with the requirement for contracts to be awarded on an open tender basis.

Sources said the audit showed that more than 72% of contracts worth a total of RM600 million were awarded to selected companies via direct negotiations and only 25% via competitive open tender, which clearly violates the agreement.

In addition, the audit also found more than RM325 million in discrepancy between the summary of contracts awarded in 2005, 2006 and 2007 and Syabas's review document (referring to general accounts).

The audit was a requirement before the company could be allowed to implement a tariff hike scheduled for Jan 1 this year. That has since been deferred as the Pakatan Rakyat state government is still in negotiations with the federal government on management of water assets and related issues.

Syabas's concession agreement was signed between the federal and state governments and Puncak Niaga.

theSun learnt the state has written a letter to the ministry asking for the concession agreement to be terminated.

This is not the first time the question of breaches in the contract was brought up.

In June 2005, then energy, water and communications minister Datuk Seri Dr Lim Keng Yaik announced that Syabas had breached the water privatisation concession by using imported pipes from Indonesia for its RM375 million pipe replacement project in the Klang Valley instead of sourcing them locally.

He had produced several photographs as proof that Syabas had used pipes manufactured by an Indonesian company, PT Growth.

Lim himself had then demanded for transparency.

"This breach of contract is grounds for termination," a state official pointed out.

Lim had at that time questioned Syabas's move in appointing a local company to procure the pipes when a special committee comprising officials from his ministry and the Finance Ministry had yet to approve the tender. It is not known what came out of Lim's public statement.

Aside from the breach of contract issue, questions are also being raised over the RM51.2 million spent to renovate the Syabas office when the Selangor Water Regulatory Department (JKAS) only approved RM23.2 million for this in 2005. The audit review found that Syabas had failed to comply with the requirement as approved by JKAS.

At the heart of this tussle over the water contract is the state government's desire to see water tariff kept low to benefit the people of Selangor. When it came to power, among the first things the new administration did was to give free water up to 20 cubic metres a month.

In December last year, Energy, Water and Communications Minister Datuk Shaziman Abu Mansor had said that according to the concession agreement, water tariff in Putrajaya, Selangor and Kuala Lumpur was to be increased by 31% by January this year but the hike has been deferred to March 31 to allow the state government to restructure the water industry in Selangor.

Shaziman said the 30-year concession agreement (from Jan 1, 2005 to Dec 31, 2034) could be revoked and the water tariff could be restructured after the assets had been handed over to Pengurusan Aset Air Bhd (PAAB) which is under the Finance Ministry.

Selangor, however, wants PAAB to allow the state to manage its own resources to ensure consumers pay a fair price without having to put up with scheduled hikes as per the agreement.

Under the agreement, consumers face more water tariff hikes until 2034. The next hike of 25% is scheduled for 2012, followed by a 20% hike in 2015, a 10% hike in 2019 and a 5% hike on 2021, 2024, 2027 and 2030.

Negotiations between Puncak Niaga and the Selangor government are still under way with the state looking for a deal which will benefit the public in the long run whereas Puncak Niaga as a public-listed company is looking for the best value for its shareholders.

Speculation is that the concessionaire is looking at beyond RM6 billion, based on capital expenditure and exit value. The matter will also be discussed at the Selangor state economic council (MTES) meeting today.