Puncak Niaga Holdings Bhd has been awarded the contract to operate the water supply system for Selangor and the Federal Territory in the first privatisation project of its kind in the country.
The contract is estimated to be worth RM1bil annually to Puncak Niaga, based on the revenue figures of Perbadanan Urus Air Selangor Bhd (PUAS), which currently manages the system.
The project, which will include the supply and replacement of water pipes, will be undertaken by Syarikat Bekalan Air Selangor Sdn Bhd (Syabas), which is controlled by Puncak Niaga executive chairman Tan Sri Rozali Ismail and his brother Mat Hairi through their respective companies, Central Plus (M) Sdn Bhd and Corporate Line (M) Sdn Bhd. Central Plus owns 69.9% and Corporate Line 30% of Syabas.
For the purpose of the water supply privatisation scheme, Syabas will be injected into Puncak Niaga. This will be effected through the acquisition by Puncak Niaga of 700,000 shares of RM1 each in Syabas from Central Plus for RM38mil.
The shares represent 70% of the equity interest in Syabas. The balance 30% will be purchased by the Selangor government, while the federal government will hold one Golden share in Syabas, according to a Puncak Niaga statement to the KLSE yesterday.
As part of the privatisation scheme, the federal government will also provide financial assistance of RM2.9bil to Syabas. The money will go towards meeting Syabas working capital requirements, repayment of trade receivables owed by the Selangor government to three water treatment companies, and financing capital works.
In addition, the state government will negotiate with the three water treatment operators a reduction of 10% in the existing bulk supply rate.
The Selangor government will continue to own the water distribution facilities after privatisation, but with Syabas given the rights to use it.
Under the terms of the contract, Syabas will also be allowed to review the water tariff once every five years, but it would have to pay an annual royalty to the Selangor government for the abstraction of raw water.
Analysts and industry players were not surprised by the award of the water supply privatisation project to Syabas.
It will at least solve the problem with the water receivables which have dogged the water treatment operators which supplied water in bulk to the Selangor government, said an official at Taliworks (M) Bhd, one of the three operators.
The Selangor government currently owes Taliworks, Puncak Niaga and Syarikat Pengeluar Air Sungei Selangor Sdn Bhd (SPLASH) more than RM1bil in outstanding water bills.
However, analysts were somewhat surprised at the rate of discount the water treatment operators would be asked to give.
The discount shows that the government could have been paying a much higher price for bulk water supply earlier, which could have contributed to the unpaid water bills in the state, said an industry analyst with a local brokerage.
He said that despite the 10% discount being requested for future water supply, the three water treatment operators would likely benefit in terms of easier cash flow and better turnaround of receivables.
The discount shows that water treatment operators can still make a profit even at the reduced rate, the analyst said. More important, he added, it would address the imbalance between water revenue and operating costs, which currently showed a deficit of RM100mil to RM200mil annually.
Effectively, the discount was expected to cost Taliworks about RM6mil and Puncak Niaga RM28mil annually in the coming years, he said.