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Saturday January 24, 2009

Selangor aims to take over water assets in March

SELANGOR plans to complete taking over the assets and operation of water companies, including Puncak Niaga Holdings Bhd, in March in a bid to revamp the industry and prevent water shortages within five years.

The country’s richest state, through its Kumpulan Darul Ehsan Bhd unit, will buy all the region’s water assets, including Syarikat Bekalan Air Selangor Sdn Bhd (Syabas), partly owned by Gamuda Bhd, says Mentri Besar Tan Sri Abdul Khalid Ibrahim in an interview at his office in Shah Alam.

Selangor, one of five states ruled by the opposition, may face water shortages by 2014 unless it restructured the “inefficient, fragmented” industry, Khalid says.

Once the acquisitions are completed, Kumpulan Darul Ehsan will transfer the assets to the Federal Government at a price that should cover the cost of taking over the water concessions, he says.

Tan Sri Abdul Khalid Ibrahim

He did not say whether the companies will stay listed or continue to operate afterwards.

Under a national reorganisation plan, the Government plans to buy all the water assets in Peninsular Malaysia.

It bought water assets in Malacca for RM889mil in December, and agreed to buy water assets in Negri Sembilan for RM1.21bil earlier this month.

Pengurusan Aset Air Bhd, the government-owned company being used to hold those assets, plans to sell bonds to fund the programme.

“There should be one operator that manages the water operation, so we have to take back the concession” from the operators before April, Khalid says.

Under the existing agreements, water operators are allowed to raise rates periodically; the percentage increase scheduled for April is around 37%, he says.

The Government will be able to avoid increasing water prices by taking over the concession and restructuring the tariff formula, says Khalid.

He says once the reorganisation is completed, he hopes to upgrade the system and replace the ageing water pipes to reduce the leakage from 30% to 15%.

Puncak Niaga Holdings, which sells water to Selangor and Kuala Lumpur residents as the country’s biggest supplier, has outstanding debt of RM4.02bil, almost three times the company’s common equity, according to data compiled by Bloomberg.

Puncak Niaga Holdings’ purchase of a 17.5% stake in Puncak Niaga (M) Sdn Bhd for RM320mil, as well as Kumpulan Perangsang Selangor Bhd’s acquisition of 15% of Syabas, implied a value of RM6.70 a share for Puncak Niaga Holdings, Kim Eng Securities says in a report.

Khalid says he expects to start negotiations with the water companies next month, and aims to conclude the agreement before the end of March.

Selangor’s water assets are worth 10 to 15 times the RM1.21bil the Federal Government will spend to take over operations in Negeri Sembilan, he says.

Puncak Niaga owns 70% of Syabas, which holds a 30-year concession to provide water services in Selangor and Kuala Lumpur. Kumpulan Darul Ehsan controls the remainder.

The State Government’s valuation reflects how much will be needed to compensate operators for the early termination of their contracts, taking into account the value of the assets, the debt, and how much has been invested, Khalid says, declining to disclose the figure.

“The price has to be reasonable for consumers who are going to pay” for the water, he says. Water “is a public utility. The more you give to the concessionaires, the more you charge your customers.” — Bloomberg

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