The battle over water
Writer: Gan Pei Ling
Published: Fri, 22 Feb 2013
THE recent Wangsa Maju pump failure which affected thousands of residents has put the spotlight on Selangor’s water industry again.
In fact, it’s been barely six months since consumers here suffered a scare when Selangor’s sole water distributor announced its intention to carry out a water-rationing exercise last July.
News reports and certain parties have been warning the public of a looming water “crisis” but the Selangor government insists there is sufficient water supply in the state.
To understand what’s happening, we need to re-examine the state’s water industry and the power play between the concessionaires, the state and federal governments.
Who are the players in Selangor’s waterindustry?
1st stage: Raw water collected at seven dams managed by State agency Selangor WaterManagement
2nd stage: Raw water treated by three private concessionaires since the 1990s Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (Splash) – majority shareholder Gamuda
- Konsortium Abbas Sdn Bhd (Abass) – majority share holder state investment arm Kumpulan Darul Ehsan Bhd (KDEB)
- Puncak Niaga Sdn Bhd (PNSB) – majority shareholder Puncak Niaga Holdings
- Total production capacity: 4,809 million litres per day [MLD]
3rd stage: Syarikat Bekalan Air Selangor (Syabas) – majority shareholder Puncak Niaga Holdings
- distributes the treated water to consumers Total distributive capacity: 4,371 MLD
4th stage: Total consumption in Selangor, Kuala Lumpur and Putrajaya: 2,944 MLD
- Non-revenue water due to pipe leakages and theft: 1,389 MLD (32%)
Both PNSB and Syabas are controlled by Puncak Niaga Holdings, whose executive chairperson is former Selangor Umno treasurer Tan Sri Rozali Ismail.
Puncak Niaga Holdings recorded a loss after tax of nearly RM84 million in 2011 but still increased the fees it paid to its 10 group directors.
It was reported that its highest paid director received between RM8.35 million to RM8.4 million, higher than the annual fee Air Asia group chief executive officer Tan Sri Tony Fernandez received in 2011.
Selangor plans to slash the RM5.1 million annual salary Rozali receives as Syabas’s executive chairperson if it takes over the company.
Is there a water crisis in Selangor?
Despite what Syabas, Barisan Nasional politicians and the mainstream media would have you believe, there is currently no widespread water shortage in the state.
There have been sporadic water disruptions in some areas in Selangor due to Syabas’s limited distributive capacity but nothing to the scale of the 1999 water crisis.
Rather, the “water crises” is a result of an ongoing tussle between Selangor, the federal government and private concessionaires over the state’s water resources.
Selangor wants to take over the water concessionaires and restructure the state’s water industry but Puncak Niaga Holdings, backed by Putrajaya, has been resistant to the state’s efforts.
Why is the Selangor government adamant in restructuring the water industry?
In the 1980s, before the era of privatisation, state-owned Jabatan Bekalan Air Selangor used to manage the state’s water services and was making annual profits of between RM50 million to RM80 million.
But in 1997, the Barisan Nasional-led state administration decided to split the industry and privatised the profitable water treatment service to three companies.
It wasn’t until 2004 that Syabas took over the loss-making water distribution service and was granted a 30-year concession, allowing them to raise water tariffs every three years from year 2009.
Selangor believes it would be able to keep tariffs at reasonable rates by buying over the four debt-ridden companies and restructuring the fragmented water industry.
What’s the federal government’s role in this?
The Energy, Green Technology and Water Ministry and the National Water Services Commission (SPAN) are supposed to regulate the country’s water sector under the Water Services Industry Act 2006 (WSIA).
Indeed, Section 114(1) of the Act allows the minister to assume complete or partial control of water assets and business “for national interests”, which “shall not be challenged, appealed against, reviewed, quashed or questioned in any court”.
In the spirit of WSIA, the federal government had originally given Selangor’s investment arm Kumpulan Darul Ehsan Bhd the green light to begin the state’s water restructuring exercise before the 2008 general elections.
However, after Pakatan Rakyat took over the Selangor state administration, its efforts to consolidate the water sector for the past five years have not been backed by Putrajaya.
Splash and Abbas accepted one of the state’s offers in June 2009 but Syabas and PNSB have consistently rejected all bids including from the federal government and Splash major shareholder Gamuda in 2010.
Selangor’s subsequent proposal to use an international arbitrator to resolve the deadlock and ensure fair compensation for the concessionaires has also been met with silence.
The special cabinet committee set up last year to resolve the “water crisis” in Selangor, led by Deputy Prime Minister Tan Sri Muhyiddin Yassin, remains non-committal to the state government’s latest attempt to restructure the industry.
Why does the Selangor government want to terminate Syabas’s contract?
Selangor’s water tariffs is already the fourth highest in the country and twice more expensive than Penang’s.
Syabas’s 30-year concession would further allow the company to raise water tariffs starting with 37% in 2009.
Fortunately for consumers, Selangor barred Syabas from raising the tariffs in 2009 as the company failed to reduce the rate of non-revenue water as stipulated in the agreement.
In addition, a 2008 audit report found that Syabas had breached several contract terms, including
• Awarding RM600 million worth of contracts in direct negotiation instead of via open tenders
• Importing pipes from Indonesian company PT Growth, linked to Rozali, for a RM375 million pipe replacement project in the Klang Valley instead of sourcing for local pipes as required
• Over RM325 million in discrepancies between Syabas’s general accounts and the contracts it awarded from 2005 to 2007
• Spending RM51.2 million to renovate its office when only RM23.2 million was approved by the state.
As a result, Selangor froze Syabas’s capital expenditure except for emergency works and wrote to Putrajaya to seek to terminate Syabas’s agreement.
But since 2008, the Ministry of Energy, Green Technology and Water has consistently ignored Selangor’s repeated requests to terminate Syabas’s contract. Selangor cannot cancel Syabas’s concession agreement without Putrajaya’s consent as the federal government is also a party to the contract.
Should Selangor be faulted for Syabas’s failure to maintain its pumps, pipes and other problems?
Syabas and Barisan Nasional politicians have taken the Selangor administration to task for freezing Syabas’s capital expenditure. They have claimed that it is the cause of the recent pump failure at the Wangsa Maju treatment plant and Syabas’s failure to bring down the rate of non-revenue water.
However, one of the members of Selangor Water Review Panel, Tony Pua, had previously pointed out that while Syabas may request for state funding, the state is under no obligation to fund Syabas’s pipe replacement programmes under the concession agreement.
Indeed, as policy adviser and newspaper columnist Tricia Yeoh has highlighted, if a private concession, having received substantial public loans and grants, and yet is unable to deliver its services well, it marks the failure of water privatisation in Selangor.
What’s the deal over the Langat Two project?
Costing an estimated RM9 billion, the mega project includes the construction of a pipeline, a dam and a water treatment plant to transfer water from Pahang to Selangor.
It is the largest water infrastructure project in the country to date.
Barisan Nasional politicians have claimed that the multi-billion project must be completed by next year to avoid a “water crisis” in Selangor.
But the Selangor government thinks it can ensure adequate water supply in the state by upgrading the capacity of existing treatment plants and reducing non-revenue water lost through theft and leaking pipes, which at 32% is higher than the World Bank’s recommendation of less than 25%.
The state believes it should fully explore the potential of its raw water sources and cheaper solutions such as rainwater harvesting and water recycling before embarking on an exorbitant interstate water transfer project.