SPLASH splashing in murky waters

PETALING JAYA: As the Selangor water restructuring saga heads towards an amicable solution, analysts are still unclear what is the likely outcome of the re-examination of the bulk water supply payment to Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (Splash).

Splash is the only water concessionaire out of four in the state that has not accepted the offer from Selangor government to take over its equity, assets and liabilities.

Puncak Niaga Holdings Bhd (PNHB), the largest water player in Selangor, recently gave its nod to the takeover of its equity, assets and liabilities in Puncak Niaga (M) Sdn Bhd (PNSB) and Syarikat Bekalan Air Selangor Sdn Bhd (Syabas).

Konsortium Abass Sdn Bhd (Abass) had earlier also agreed to the takeover.

Both Federal and state governments said they would re-examine bulk water supply payment to Splash for a win-win solution.

“The statement on re-examining the payment for Splash’s bulk water supply was quite general.

“Nevertheless, will it be enough for Splash to accept the offer?

“I am still quite unsure as Splash is looking at a fair valuation of RM2.54bil in net book value compared with only RM250mil that is being offered for its equity portion.

“Maybe if the Selangor government agrees to continue using Splash to operate and maintain the water treatment plant, it could encourage Splash to accept the offer.

“But a similar offer in operation and maintenance of water treatment plants must also be extended to the other three water concessionaires, to be fair,” a sector analyst told StarBiz yesterday.

The analyst added that the continuity of operation and maintenance of water treatment plants in the state was not mentioned in the offer as all water assets would be parked under the Selangor government, via its wholly-owned subsidiary, Kumpulan Darul Ehsan Bhd, post takeover.

The operation and maintenance option also echoed by Deutsche Bank Markets Research that said a similar method was used in Johor’s water privatisation.

“While the Energy, Green Technology and Water Ministry as well as the Economic Council are still working out an amicable solution for Splash, we like to draw reference to Pengurusan Aset Air Bhd (PAAB ) previous privatisation exercise in Johor where PAAB took over SAJ Holdings’ water assets and corresponding liabilities at book value (paying the net surplus of asset minus liabilities).

“In return, PAAB granted SAJH the right to use over all the water assets and new water assets owned by PAAB in the state,” it said in report.

Under that arrangement, the report said SAJH terminated the concession agreement and migrated to the licensing regime where SAJH carried out the water supply business under an “asset-light” model and was allowed to earn a reasonable return as approved by the government.

“We believe such a proven model, if adopted, can help solve Splash’s water deadlock,” it said.

Splash has been offered RM250mil for its water assets, or 10% of the book value of its assets, but Splash claimed that the other players had been offered 4.2 times the book value of their assets.

Splash, a water treatment company, sells bulk or treated water to Syabas that is unable to provide full payment to the water concessionaire due to the delay in water tariff hike that should be implemented gradually since the privatisation of the water sector services.

As of end-May 2014, Syabas owed Splash RM2.3bil.

In fact, Syabas has not been able to fulfill its full payment to all three water treatment companies due to its inability to upgrade its infrastructure due to the delay in water tariff hike and its high bond repayment obligations.

The analyst was also confident that the Federal Government would try its best not to invoke Section 114 of Water Services Industry Act 2006 (WSIA) that would result in a “forced” takeover.

All related parties involved in negotiation could not be reached for comment at press time.

The Selangor government is expected to be firmly in control of all aspects of the water industry in the state by year’s end, closing the six-year chapter on Selangor’s water sector restructuring.

Last month, both Selangor Mentri Besar Tan Sri Khalid Ibrahim and Energy, Green Technology and Water Minister Datuk Seri Dr Maximus J. Ongkili in a joint statement agreed not to invoke the Section 114 of WSIA following the decision by PNHB to accept the state’s offer. PNHB holds total control of PNSB and 70% of Syabas.

The price tags for PNSB and Syabas are RM2.47bil and RM3.11bil respectively, while Abass’ offer stands at RM990mil.

Splash is a 40%-owned associate of Gamuda Bhd.

The rest of its equity is evenly split between Kumpulan Perangsang Selangor Bhd and The Sweet Water Alliance Sdn Bhd, a private company held by Tan Sri Wan Azmi Wan Hamzah, who is also the chairman of the company.

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