Water deal makes Malaysians RM6.5b poorer | Selangor Times
Issue 118


Water deal makes Malaysians RM6.5b poorer
Writer: Tricia Yeoh
Published: Fri, 10 Jun 2011

A new chapter has unfolded in the long-drawn-out Selangor water saga recently. Acqua SPV, a Special-Purpose Vehicle set up under the gederal government body PAAB (Pengurusan Aset Air Berhad), has announced plans to acquire 100% of Selangor water bonds. The total outstanding bonds come up to RM6.5 billion.

This basically means that the federal government is using taxpayers’ money to settle the debts that water concessionaires owe to their bondholders. 

How did things get so complicated? Well, if readers recall, sometime in November 2010 the Selangor government and its supporters marched under the stark KL heat to present a memorandum to the Agong, which called for the de-privatisation of lucrative water concessions that benefit cronies. Teargas and water cannons were freely used, but this should not come as a surprise. 

As part of a national water restructuring exercise, all states are supposed to sell their water assets back to PAAB temporarily until they are financially secure enough to inject their own capital expenditure. 

Two Acts were passed in this regard: the Water Services Industry Act 2006 (WSIA) and the Water Services Commission Act 2006. This was done on the understanding that the water industry would be eventually re-nationalised, as it was before.

All fine and dandy, except that Selangor has the most complex of situations, having the most number of private companies: Abass, Puncak Niaga, Splash and Syabas, the latter having a monopoly over water distribution. 

Water talks were protracted for more than two years, during which time all offers by Selangor were in one way or other turned down by the companies mainly because they were not considered high enough.
Bondholders storm 
In the midst of all this, another storm was brewing. When the water companies began operations, they sold RM9.02 billion worth of bonds to fund their startup activities under seven different bond programmes. These bonds were purchased by a large number of banks and financial institutions, including the likes of Great Eastern Life Assurance (M) Bhd, CIMB Group Holdings Bhd, and the Employees Provident Fund.

When water negotiations seemed endless with no conclusion in sight, a few things happened: rating agencies downgraded these bonds impacting their values, and the issuing water companies were unable to service the bonds that would be maturing.

The reason for the ill financial health of these companies was simple. Syabas buys treated water from treatment companies Abass and Splash, and in turn sells it to customers: you and me. Syabas was not paying what was fully due to these two companies, thereby affecting their cashflow.

They in turn pointed their fingers at the Selangor government for not allowing them to increase tariff rates that they claim are part of the concession agreement. Selangor disagreed, saying certain conditions were not fulfilled. The case has been brought to court and is ongoing. 

The bondholders, of course, are not necessarily concerned with the minute details. As far as they are concerned, they purchased bonds which they felt were in a secure and stable industry. Nothing is safer than a utilities sector, after all. Or so they thought. 

Buying back bonds
Fast-forward to last month. Because the water restructuring has not yet concluded, the federal government decided that it would soothe the nerves of these bondholders.

It is understandable that they would want commensurate return on their investments, in principle. However, the onus lies equally on the investing partner to investigate the health of the company’s bonds. In this case, clearly the companies were not in the best conditions to begin with. 

The move of the federal government in swooping down to buy over the outstanding bonds essentially means that all responsibility of the companies to their creditors is completely absolved. With their debts resolved absolutely, what incentive have they to proceed with water talks with the Selangor – or any other – government? 

The argument given by the government is that any default of these bonds would result in cross-default in other bonds, leading to a “systemic meltdown of the Malaysian capital markets and erode investors’ confidence locally and internationally”. 

I may not be an investment banker, but is the government not rewarding investors for choosing their portfolios foolishly? Worse, the burden is carried by the taxpayers nationwide, not only in Selangor and Kuala Lumpur.

In fact, it was stated explicitly that a bond default would impact PAAB’s and the federal government’s ability to raise funds for existing and future infrastructure projects at competitive pricing. It is a rather large leap to take here. Think Mega Project 101, and the likes of the MRT. 

Privatising profits, socialising losses
What we are hearing is essentially that the government is willing to sweep under the carpet bad debts for the sake of creating potentially devastating situations in the future, when or if there are further defaults on even larger-scale infrastructure projects under the Economic Transformation Programme. 

This comes at a time when the same minister (of Energy, Green Technology, and Water) just announced an electricity tariff increase which will impact upon all consumers intrinsically. This is an additional burden placed upon Malaysians. In the meantime, our friendly neighbourhood financial institutions recoup their funds easily. This is a classic case of the government privatising profits and socialising losses. 

Finally, this is a sordid state of affairs because not only is this move considered a distinct bailout of the water companies, it does not even resolve the more urgent issue at hand: the water restructuring itself.

The Association of Water and Energy Research Malaysia said in a statement that first, the entire problem is passed straight to the people and businesses to pay off; and second, PAAB is “just saving the bondholders without relinquishing the stakes of affected concession agreement holders”. 

This is a dark day for us in Selangor and beyond, and it is a sign that the federal government is not serious about pushing the private concession companies all the way to comply with the WSIA’s holistic and renationalised model. This is a temporary measure that is clearly biased towards one party – not us taxpayers, for sure.


 Selangor Times



Also by Tricia Yeoh:

Towards a New Malaysia

THE term “think tank” may evoke images of stuffy bespectacled researchers sitting behind desks towering with stacks of paper.

The Personal and The Professional

YET another Malaysian incident has made it into international news. 

The PAS conundrum – or is it really?

At a recent policy dinner at St. Mike’s, a cozy Ipoh restaurant, I spoke of civil society, reform issues and my experience of having worked at the Pakatan Rakyat-led Selangor government. The discussion eventually centred on one subject alone, that being the ‘PAS conundrum’ (titled by me); conundrum being defined as a confusing and difficult problem or question. 

‘Tis the season to be rallying

THE past weekend has been a busy one indeed. Not only was the city’s annual arts festival, Urbanscapes, taking place, but this time Sigur Ros, the atmospheric Icelandic band graced the occasion and performed right in the heart of Petaling Jaya. 

Can overseas Malaysians contribute?

At the Singapore FreedomFilmFest 2012 where the three documentaries were screened (including The Rights of The Dead, on the late Teoh Beng Hock’s story), a sizeable number of Malaysians interspersed the audience. Roughly making up 20% of the crowd size, the question-and-answer session following the screening reminded me of the aspirations Malaysians living overseas continue to have about their country, back home. 

Models for state and city

As part of the Penang launch of my book, "States of Reform", as well as the FreedomFilmFest screenings of my documentary, "The Rights of the Dead" in the same state, I spent several days in Penang recently (a sister state of Selangor, in the sense that both are governed by the Pakatan Rakyat coalition as a result of the March 2008 elections). 

Lessons from Selangor show way forward

It was an entertaining thought that my friend, Keith Leong, would have spent long hours in the very English Cambridge University writing his MPhil thesis on the Selangor experience under Pakatan Rakyat. 

Dark look at the country’s financial situation

In the lead up to the 13th General Election, economic issues will inevitably be hotly debated by all sides of the political divide. It is within this context that a book of great relevance to Malaysian readers and voters has been recently published. 

Walking the narrow path

I had the privilege of speaking to a group of young interns under the Otak-Otak Internship Programme this week.

Decentralisation the way forward?

At the launch of my book, “States of  Reform: Governing Selangor and Penang” last Saturday, three esteemed panelists, YB Liew Chin Tong (member of Parliament, Bukit Bendera), YB Nik Nazmi Nik Ahmad (state assemblypersom, Seri Setia) and Dr Ooi Kee Beng (Deputy Director, Institute of Southeast Asian Studies, Singapore) took on the increasingly popular, but also controversial, subject of decentralisation of government in Malaysia.

Wading through the so-called ‘water crisis’

Election fever is in the air, and the games have begun. Last month, Prime Minister Datuk Seri Najib Razak stated that Selangor was heading towards a water crisis, after the state government blocked the building of the Langat 2 water treatment plant.

That Religious Issue: Faith, Space and Justice

Every now and then arises a hot potato issue that few are inclined to comment upon, namely that of religious sensitivities. This week former Selangor state executive councillor and head of new NGO JATI, Hasan Ali, revealed a video of purported proselytisation of Muslims by a group of Christians.

Four years of PR in Selangor

What the Debate says about the Chinese

The much hyped-up debate between Lim Guan Eng and Datuk Seri Dr Chua Soi Lek last weekend took place with as much drama as there was in the days leading up to it.

Politics vs Policy: How do people really vote?

Malaysian lessons from Bolivia

At the Centre for Independent Journalism’s Human Rights in Outer Space series of events last week, I was asked to speak on a panel analysing the Our Brand is Crisis documentary and draw comparisons between issues arising within it and the Malaysian context.

Sewerage privatisation once again?

Cyberspace was on fire last week after the Auditor-General’s 2010 annual report revealed a host of financial irregularities perpetrated by several government agencies and government-linked companies.

Of schooling and the Budget

In my conversation with Malaysian parents, the topic almost always steers back to the issue of the country’s education system. They are most often in a dilemma about which schools they should place their children in, and which system to opt for.

Setting the tone with Selangorku

Selangor was one of the first governments in Malaysia to have officially celebrated Malaysia Day on Sept 16 in 2009, which was followed thereafter by the federal government in 2010 when it was declared a public holiday.

This year, Selangor launched its version of an agenda in con- junction with Malaysia Day, called "Selangorku", or “My Selangor". The project took about a year to complete, having been initiated when I was then Research Officer at the Selangor Menteri Besar's office. Although I have since moved on, it was indeed a gratifying moment knowing the agenda has finally


Assimilation versus integration

Last weekend, I was invited to speak at a forum organised by the Ministry of Youth and Sports and Institute of Strategic and International Studies (Isis).

Let’s start talking to one another as a nation

It seems to be a worldwide phenomenon that people are driven by insecurity and fear, especially of what they do not understand or know.

The dead have rights, too

Malaysia is in desperate need of a reliable and trustworthy institute to conduct autopsies, especially in relation to deaths in custody. Last week, the body of customs officer Ahmad Sarbani was found on the grounds of the Malaysian Anti-Corruption Commission (MACC) Federal Territory office.











From Windows to a Mac: A guide




In for a sweet treat




A Majestic presence





Copyright © 2018 Selangor Times. All rights reserved. Designed By Senedi