Malaysia is facing one of its worst droughts in decades, with cloud seeding becoming necessary to ensure there is rain for people and crops. The drought has focused attention on longstanding problems, both economic and political, with water management in the country’s industrial heartland.
Selangor is Malaysia’s richest state, accounting for 20% of the country’s economy, yet it suffers periodic water shortages. Controlled by the opposition Pakatan Rakyat (PKR), the state also supplies water to the administrative capital Putrajaya and the capital city Kuala Lumpur.
It has been six years since the Water Services Industry Act, which pushed for the restructuring of the water sector, came into effect. As part of the process, the federal government set up Pengurusan Aset Air Bhd (PAAB) to oversee ownership of water assets and plan future development to ensure adequate supply. Many states have handed over their water assets to PAAB but they remain in charge of water distribution.
However, Selangor has been a major stumbling block. Several deals were put on the table for water business operators in the state but they rejected them.
But now Putrajaya and Selangor have signed a landmark deal to resolve the water issue. Selangor Chief Minister Khalid Ibrahim has shown some courage in moving to break the deadlock in the face of criticism from his own party members.
Some believe the water deal is the start of a political offensive by the opposition party to remove Khalid. All signs point to him being replaced by de facto opposition leader Anwar Ibrahim.
The Pakatan Rakyat assemblyman for Kajang has resigned his seat so that Anwar can run in a March 23 byelection, which he is seen as likely to win. The prospect of his victory and assumption of the top job in Selangor is already rattling Prime Minister Najib Razak’s embattled administration.
The federal government does not want to go back to the drawing board on restructuring the water industry in Selangor should there be a change in the state leadership. But the more pressing issue is really the financial obligations of the water businesses themselves.
Opposition politicians in the state have long felt that it had the right to manage and distribute water even though the Water Services Industry Act empowers the Energy, Green Technology and Water Minister to step in and take over the concessions.
There are four concessionaires in the state — Puncak Niaga Sdn Bhd, Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (Splash), Syarikat Bekalan Air Selangor Sdn Bhd (Syabas), and Konsortium ABASS Sdn Bhd. Puncak Niaga is the biggest and also owns 70% of Syabas. It is the biggest objector as it believes the value of its assets is much higher than what the government would offer.
The consolidation exercise in Selangor has gone nowhere since 2008. But Putrajaya got itself tangled in the deadlock when it took 5.8 billion ringgit worth of debt off the companies’ books in 2011.Then PAAB bought the paper to avoid a default that would have triggered a cross-default and allowed the state to take over the companies.
The debts are now coming due. Syabas has a 400-million-ringgit debenture due next month while Splash has already postponed some of its bond obligations to this year. The concessionaires are likely to get an extension to the bond obligations, just as they did in the past.
But a solution is needed as Splash has not been able to service its debt because Syabas has been paying less than 50% of what had been agreed on over the last few years.
So in the end it was financial urgency that drove the talks that ended in the signing of a memorandum of understanding on Feb 26. Of course, the Kajang byelection helped hasten the whole process.
Under the MoU, Selangor will take over the operations of the four water concessionaires for RM9.65 billion, and will place them under the state-owned Kumpulan Darul Ehsan Sdn Bhd (KDEB). The water management companies have until today to accept KDEB’s offer.
Also in jeopardy was the building of the Langat 2 water treatment plant. The state refused to approve the development permit because of the stalemate in the water talks. But on the same day of the signing, the state issued six development permits to PAAB to proceed with the Langat plant.
Langat 2 is part of a bigger Pahang-Selangor water transfer project. It involves both states because raw water from Pahang would be treated and supplied to the state, Putrajaya and Kuala Lumpur. The water is needed as Selangor is expected to face water shortages from 2016 if new sources are not found.
The portion of the project in Pahang is almost completed with some funding from Japan. But without the work in Selangor, water cannot enter the state.
Now that the development is moving ahead, the question is whether the concessionaries will accept the offer. This time around they appear to have little room to reject the offer, as Putrajaya can exercise its powers under the Water Services Industry Act to nationalise them. That would turn ugly for the concessionaries.
They could seek international arbitration, but some negotiations have already been held and it is more likely that they eventually will agree rather than fight. Until that time, Selangor and Putrajaya will have to wait.