This text is YAB Dato’ Menteri Besar’s explanation on the SPLASH acquisition issue, in reply to YB Bukit Gasing in the State Assembly Session on March 30, 2017.
The water supply services industry restructuring in Selangor aims to take over all water concessionaires in Selangor and restructure the water industry towards a holistic service under one operator fully owned by the State and regulated under the National Water Services Industry Act (WSIA) for a more efficient, effective, competitive and sustainable water service.
On 12 September 2014, the Master Agreement (Perjanjian Utama) was signed between the Federal Government, State Government, the Selangor Water Management Sdn Bhd (Air Selangor) and Water Asset Management Company (PAAB).
The Master Agreement provides the terms for the implementation of the water supply industry restructuring in Selangor.
On July 15, 2015, aSupplementary Agreement to the Master Agreement has also been signed to resolve the land issue relating to the Sungai Semenyih Water Treatment Plant, Bukit Nanas Water Treatment Plant and water concessionaires assets (Concession Company Water Assets (CCWA)) to implement the Master Agreement. Following the Supplementary Agreement, the takeover of SYABAS and PNSB was finalised on October 15, 2015 while ABASS on 31 December 2015.
A series of talks were held between the State Government, the Air Selangor and SPLASH in relation to the reasonable acquisition value as SPLASH had received a written offer from the State Government on June 25, 2009 valued at RM 2.975 billion.
SPLASH accepted the offer in writing by a letter dated July 20, 2009 and informed KeTTHA by a letter dated October 15, 2009 . The offer made by the State Government at that time and agreed to by SPLASH was RM 2.975 billion, with the following breakdown:
Equity Value to be paid by the State to SPLASH: RM 1.749 billion
Total liabilities to be assumed by the State Government: RM 1.266 billion
Assets include liabilities (assets and liabilities, including bonds that are used specifically for water services only)
to be taken over by the State: RM 2.975 billion
However, the Selangor State Government after September 23, 2014, is of the opinion that the determination of SPLASH acquisition value must be made transparently including obtaining views from an Independent Evaluator to safeguard the interests of Selangor citizens.
Accordingly, the State Government has appointed an independent evaluator. The findings of the evaluation has been submitted to the Ministry of Energy, Green Technology and Water (KeTTHA) on June 30, 2016.
In order to finalise the acquisition of SPLASH, the parties to the Agreement have signed a second additional agreement to the Master Agreement to establish the terms, including the method of financing the acquisition of SPLASH.
However, before the second supplementary agreement is finalized, the State Government was informed by KeTTHA by a letter dated October 17, 2016 regarding the Cabinet’s decision on October 5, 2016 to appoint an independent international appraiser to evaluate and recommend the acquisition value of SPLASH on behalf of the Federal Government.
In the same letter, KeTTHA proposed the deadline for Air Selangor to takeover the SPLASH equity to be extended for another six (6) months, up to April 6, 2017.
As of today, the Selangor State Government has not been informed in writing in relation to the Cabinet’s stand on the findings made by the Independent Evaluator appointed by the Federal Government.
The State Government was shocked to receive a letter from KeTTHA dated March 6, 2017 which asked the State Government to submit its stand on the method of financing the acquisition of the SPLASH, whereby 60% to be funded by the Federal Government through the PAAB and 40% to be funded by the State Government. KeTTHA ‘s decision is premature given that the State has not received the official stand of the Cabinet of the findings by theIndependent Evaluator appointed by the Federal Government. The State Government has replied to the letter on March 17, 2017 and reiterated the stance of the State, namely:
- DISAGREE with KeTTHA’s proposal to set a funding ratio of 60:40 in which the Federal Government will fund 60%, while the State Government was requested to fund 40%. This stance was presented by the YAB Dato’ Menteri Besar to YB Ministers at a meeting on September 27, 201627 September 2016; and
- The Selangor State Government agrees to bring the matter back for consideration by the State Executive Council (EXCO) after the results of independent evaluation commissioned by the Federal Government are first presented to the Cabinet and any decision must be notified in writing to the Selangor State Government .
The Selangor State Government is still waiting for the Cabinet’s feedback on the acquisition value of SPLASH made by the Independent Evaluator appointed by the Government.
In a recent update, KeTTHA by a letter dated March 14, 2017 had ordered that the parties to the Agreement to extend all estimates in the agreement relating to the Restructuring of the Selangor Water Supply Services Industry for the Territories of Kuala Lumpur and Putrajaya to a period of six months until October 5, 2017.
Based on the earlier explanation, it is obvious that the delay in finalising the acquisition of SPLASH is not the fault of the State, but is due to the extended period proposed by the Federal Government to enable the Cabinet to get an independent view from the International Evaluator.
What are the total costs incurred due to the delay in finalizing the State Government takeover of the assets and water management?
The answer is there is no cost on the part of the State Government. However, it will give financial pressure on Air Selangor as operating costs such as the cost of bulk water (Bulk Supply Rate (BSR), Fixed Monthly Charges (Fixed Monthly Payment (FMP)) will continue to be charged by SPLASH. This amount will increase each month. As of December 31, 2016, the outstanding amount of the BSR and FMP has increased to RM3.7 billion. However, Air Selangor will make sure that financial pressures will be managed responsibly to protect the interests of users and not to burden the rakyat.
For those reasons, the State Government has always insisted on the Federal Government that the acquisition of SPLASH should be finalised soon through upholding the principle of transparency and openness.
What is the impact of water concessionaires acquisition on the rakyat? The goal of securing the water supply industry is to take over the treatment operations and the distribution of water supply from the water concessionaires companies and manage them holistically. Air Selangor is a wholly-owned subsidiary of the State, will be controlled and supervised by the State to:
- Ensure a more efficient and effective provision of water supply services to consumers in Selangor, Kuala Lumpur and Putrajaya.
- Deliver more systematic and effective services, particularly in terms of service quality, economic, technical, social and consumer rights protection monitored by the National Water Services Commission (SPAN) as the water regulatory body. This comprehensive system will create a more efficient and transparent governance in which the people of Selangor and consumers will enjoy the benefits.
iii. Offer tariffs that are not burdensome to the consumers subject to the approval of SPAN.
The previous concession agreement specified that tariffs will increase every three years. Through restructuring, the State Government has taken preventive action to the increase in water tariff concessions, namely by preventing the concessionaire party from implementing the tariff rate hike since 2008. Water tariff was last reviewed and increased in 2006. Since then, there has been no tariff increase for 11 years. If restructuring is not implemented, the tariff would have increased 3 times, namely in 2009, 2012 and 2015, an increase of 105% to RM2.86 per cubic meter, compared with the present RM1.39.
What is the cost of compensation payable by the State to terminate the SPLASH concession using the Expropriation Cause?
Compared to the cost of SPLASH equity acquisition, the cost of compensation through the Expropriation Clause would be higher. Through the method of expropriation, the payment of the outstanding BSR and FMP would still have to be made by the State Government to SPLASH apart from the asset value and paid-up capital SPLASH as already stated in the Concession Agreement. Overall, the cost of compensation up until 31 March 2015 by means of expropriation is estimated at RM4.9 billion.
Therefore, the State does not intend to use this method because it would burden the rakyat. In the method that is currently being negotiated between the Federal Government and the State Government through the SPLASH equity acquisition method, the Federal Government has agreed to fund the SPLASH acquisition process.