by : Ng Kar Yean
Kumpulan perangsang Selangor Bhd's (KPS) parent company Kumpulan Darul Ehsan Bhd (KDEB) has received the mandate from the federal government to lead the consolidation of water assets in Selangor, Kuala Lumpur and Putrajaya.
KDEB president Datuk Abd Karim Munisar says the federal government informed KDEB of the decision in a letter dated Feb 5, 2008. Besides the mandate, KDEB has been awarded the contract to build the Langat 2 water scheme and the operation and maintenance contract for the project.
This effectively means that the much speculated takeover of Puncak Niaga Bhd by entities linked to the state government is getting closer to reality. Puncak Niaga is one of the many owners of water assets in Selangor. More importantly, it is seen as the water player with the best connections in the state.
Abd Karim says discussions with the asset owners have commenced at official level.
"As a state-owned company, KPS is in the best position to lead the consolidation of water assets. As water is a public utility, I believe a GLC (government-linked corporation) will be able to balance social and commercial responsibilities," he tells The Edge.
In tangible terms, the consolidation is to ensure affordable water tariff for end-users and at the same time, fair returns for KPS, says Abd Karim. KPS is KDEB's listing vehicle for its water asset business. In turn, KDEB is the investment arm of the Selangor government. Although the mandate has been given to KDEB, KPS is expected to execute it.
Currently, ownership of water assets in the state is fragmented (see chart).
The limelight obviously falls on Tan Sri Rozali Ismail, who controls Puncak Niaga Holdings Bhd, because it has the most water-related assets in the state. Puncak Niaga's 70 % subsidiary, Syarikat Bekalan Air Selangor Bhd (Syabas). has the concession to distribute water in Selangor and also owns 29 water treatment plants that supply water to Syabas.
There are two other water concessionaires in Selangor. Konsortium Abass Sdn Bhd has the concession to operate and maintain the Sungai Semenyih Water Supply Scheme. KPS has a 55% stake in Abass. Syarikat Pengeluar Air Selangor Holdings Bhd (SPLASH)
is the concessionaire of the Sungai Selangor Water Supply Scheme Phase 1 and Sungai Selangor Water
Supply Scheme Phase 3. KPS has a 30 % stake in SPLASH.
With the go-ahead from the federal government, Abd Karim says KPS will lead the negotiation process with the water asset owners.
Pengurusan Aset Air Bhd (Wamco) , wholly owned by the Minister of Finance Inc, will be the new owner of the assets. A special purpose vehicle (SPV) controlled by KPS will operate and maintain the assets for Wamco. For its efforts, the SPV has the right to charge the end-users tariffs. In return for the rights, the SPV has to pay Wamco a leasing fee.
The consolidation offers the owners an opportunity to relinquish their stakes at a fair value. On how the fair value will be derived, Abd Karim says independent advisers will be appointed for this purpose.
"KPS and the asset owners will have a say in the choice of independent advisers," he adds.
Some of the parameters of the negotiations KPS hopes to establish are a range of transaction prices and a firm date to conclude the discussion, he says.
"These parameters are to ensure the migration process can be executed quickly. We hope to be able to get a clear indication from the owners in six months," he says. He refused to give an indication of the cost to acquire all the assets.
The owners will have a choice to be paid in cash or equity in the SPV, or a combination of both.
"We are giving the owners the opportunity to exit at a fair price," says Abd Karim.
Owners of the assets will have no choice but to sell as things are. Hence, the haggling will be mostly over the price.
It is also worth noting that Energy, Water and Communications Minister Datuk Seri Dr Lim Keng Yaik, who spearheaded the consolidation process, retired from the post after Parliament was dissolved last week for the 12th general election.
Without him to push things along, all eyes will be on how the consolidation pans out.
