Water treatment companies assessing Federal government review

WATER treatment companies are currentlyassessing the impact of the recent move by the Federal government to review downward the bulk water rates they currently charge torespective water authorities. 

The move will have a significant impact on some of these companies, particularly those supplying bulk water to Selangor and the Federal Territory. 

There are currently four companies supplying treated water in the state. These are Puncak Niaga Holdings Bhd, Syarikat Pengeluar Air Sungai Selangor Sdn Bhd, Konsortium ABBAS Sdn Bhd, and Taliworks Corp Bhd

The companies currently charge bulk rates ranging from 50 sen to RM2 per cu metre, depending on the water source and the ownerships of the water treatment facilities. 

Industry sources said Selangor had one of the highest bulk rates in the country and the situation had resulted in the state government incurring a major deficit in supplying water to the public. “Given the situation, the government is seeking to reduce the bulk water rates by at least 10% or to a level where the current deficit can be normalised,” a source said. 

It is understood the current issue over bulk rates will likely affect the current negotiation between Puncak Niaga and the Federal government on the latter’s proposal to buy 70% in Syarikat Bekalan Air Selangor Sdn Bhd (Syabas) which distributes the waterto the public. 

The deal, announced by Puncak Niaga last year, was expected to turn the company into a full water supply service company – supplying water in bulk and distributing fresh water to the public. 

With water tariff not expected to be reviewed until at least next year, industry sources said the acquisition of Syabas was expected to result in Puncak Niaga inheriting some of the deficit experienced by the state government because of the higher bulk rates. “The deal is good for Puncak Niaga, but it also means that it willhave to assume large losses arising from the higher bulk water rates, a situation which the company wants to avoid,” said an industry player familiar with the deal. 

Puncak Niaga is already saddled by unpaid water bills incurred by the state government in the past. 

Although lower bulk water rates would be positive for Puncak Niaga as Syabas' owner, the review will have an opposite effect on the rest of the bulk water suppliers, that being the main reason for their opposing the moves. 

Analysts said that at the same time, these companies had long-term concessions with the state government and the changes in bulk water rates may affect some of their financial arrangements. 

“A revision of up to 10% will not likelyto have a major financial impact on Splash,” said Rating Agency Malaysia Bhd sectoral analyst Ong Gaik Kim. 

However, she foresees that any review would take into consideration Splash’s current agreement with the state government. 

For some bulk water suppliers, the water concession agreement forms the basis for issuing bonds. 

Splash, for instance, has outstandingRM1.4bil Islamic debt facilities utilisedto build the Sungai Selangor Phase 3(SSP 3) water treatment facilities tosupply treated water to the state government. The debt facilities will mature in about 14 years and the rates would have a bearing on the company. 

Splash executive director Datuk Azmi Mat Nor declined to comment on specific details about the impact to the company. 

To address the outstanding issues, some of the water players are understood to have met the state and federal governments to appeal. They have also proposed to the governments tostagger the reduction in rates over severalyears to lessen the impact. 

“It is a very sensitive issue as the government has given its word to these companies on what rates it wanted to pay them for the treated water, and it is not easy for the government to backtrack from the agreement,” said one industry player. 

He added that at the same time, it was unfair to get Syabas – being the new water supplier for Selangor and the Federal Territory – to pay such high rates while charging the public lower rates. “Such anomaly will have to be corrected to make the industry more sustainable in the future.” 

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