PRESS RELEASE
DATE: 10th SEPTEMBER 2012 (MONDAY)

KeTTHA OFFICERS 'BLINDFOLDED' MINISTER AND CABINET ON WATER SERVICES INDUSTRY RESTRUCTURING

Association of Water and Energy Research Malaysia (AWER) has published a report entitled 'National Water Services Industry Restructuring - The Truth' early year 2011 and has been carrying out more studies and researches to break the deadlock between Federal Government and Selangor State Government as well as few other flawed implementations by Ministry of Energy, Green Technology and Water (KeTTHA). These flaws are jeopardising a more transparent, vibrant and responsible water services industry with affordable and equitable tariff in Malaysia which was promised in 9th Malaysia Plan via introduction of Water Services Industry Act 2006 (WSIA) and National Water Services Commission (Suruhanjaya Perkhidmatan Air Negara - SPAN) Act 2006.

The Water Services Sector's Senior Undersecretary of KeTTHA must be held fully responsible for the derailment in implementation of National Water Services Industry Restructuring. Together with him, the Deputy Secretary General (Green Technology and Water), Undersecretaries of Water Services Sector and Principle Assistant Secretaries must be severely punished for all of the wrong implementations in Water Services Industry Restructuring and interfering in functions and operations of SPAN.

1) SELANGOR WATER BOND BAILOUT

The Selangor water bond bailout ORCHESTRATED by KeTTHA officers and Pengurusan Aset Air Berhad (PAAB) should not have been done. On 31st May 2011, a special purpose vehicle (SPV) was set up for this purpose and has successfully acquired 99.6% of Selangor water bonds amounting to RM5.8 billion. However, this move is not in line with WSIA and this wrong implementation has let Concession Agreement holders run scot-free.

First of all, PAAB should not have set up SPV because PAAB is given license and regulated by SPAN to manage financial resources for infrastructure development of water services industry under WSIA model. Setting up a SPV to carry out the water bond bailout only will increase the operational cost of PAAB where such cost eventually will be passed back to the people via tariff. PAAB’s officers are paid to do their job, NOT OUTSOURCING their jobs.

In addition to that, AWER would like to cite the General Motor and Chrysler bailout by United States Treasury (US Treasury) in year 2009 as an example. The US Treasury and few others took control of the stakes in these companies in the bailout process. The move was to ensure these companies do not collapse and prevent loss of livelihood of many. While the move by KeTTHA and PAAB was seen as a step to prevent deterioration of financial market confidence towards Malaysia, the implemented solution by KeTTHA and PAAB is total opposite. Now, many with vested interests would challenge AWER that it is a US solution and not a good reference for Malaysia.

Ironically, Malaysia has a clear cut example of such a situation for a company that is also under water services industry. Indah Water Konsortium (IWK), a private company has signed concession agreement with Federal Government on 9 December 1993 to manage the 'connected' sewerage services. However, this private company was incapable of managing the debts and needed a bailout by year 1999. The Federal Government did bailout IWK and took over the entire company. This is a correct bailout process which is commonly practiced worldwide. While questions might still arise for the value of the bailout and debt by IWK, the Federal Government did take over IWK during the bailout process and prevented it from collapsing.

Unfortunately, in Selangor water bond bailout, Federal Government did not take over any stake from concession agreement holders that are equivalent to the bailout amount (RM 5.8 billion). If Federal Government has taken over the stakes that are equal to the bond bailout value, it will be easier for Federal Government to break the deadlock with Selangor State Government to restructure Selangor water services industry. At this point, KeTTHA and PAAB may argue that it is a refinancing process and not a bailout. However, KeTTHA and PAAB cannot refinance any water services industry debts if the company has not restructured under WSIA model. Therefore, it is clear that it is a bailout and KeTTHA and PAAB have done a blunder in this water bond bailout.

Besides these, when a citizen of Malaysia purchases a house and does not have enough cash flow to service his or her loan, the house will be auctioned by the bank. Once the new owner bought over, we never hear that the new owner allows the previous owner to own the house. Therefore, how is it possible for KeTTHA officers to allow the Selangor concession agreement holders (whom incapable to pay their debts) to continue to own the business after the bailout? Who are they suppose to protect? The people or the concession agreement holders? If KeTTHA officers dare to say it is the right thing to do, then why should Malaysians work hard to pay their debts? All of us can tell Federal Government that we cannot afford to pay our debts and needed a bailout. Furthermore, a businessman should equate political risk as a business risk and any bailout must not be done at citizens’ expense.

2) SELANGOR WATER SERVICES RESTRUCTURING SOLUTION

Section 191(4) and 191(5) of WSIA outlined the renegotiation needs and the power for the KeTTHA Minister to utilise 'National Interest' in the restructuring process. There was no 'willing buyer willing seller' term mentioned in WSIA at all. Based on the Dewan Rakyat's hansard (Penyata Rasmi) DR.4.9.2006, the Federal Government did explain the reasons of IWK take over and this can be a good basis to define 'National Interest'. This is further explained by Section 114 of WSIA. Once the minister has made up his mind on 'national interest', he needs to submit to the Federal Government (the Cabinet) for approval as mentioned under Section 114 (3) of WSIA.

To make things more concrete, AWER would like to suggest the Federal Government to weigh the following formula to determine the degree of national interest in restructuring Selangor water services industry via WSIA model and undo the wrong implementation in Selangor water bond bailout.

Suggested formula by AWER:

A = Greater KL (in terms of economic value)
B = Social impact (to citizens of Selangor, Kuala Lumpur and Putrajaya)
C = Other economic activities in Selangor, Kuala Lumpur and Putrajaya
D =Social and economic impact of a Water Crisis
E = Cost of delay in water services infrastructure development (future cost)

If the final result is more than 1, then the minister can determine that the concessionaires' level of interest is high. However, the final result definitely will never be 1 or higher. The main reason WSIA was formulated is to improve water services to Malaysians and businesses. Therefore, KeTTHA minister must order his officers to complete the restructuring via CORRECT WSIA model immediately.

3) KETTHA OFFICERS DENY PUBLIC'S RIGHT FOR TRANSPARENT TARIFF SETTING PROCESS

Implementation of WSIA is inclusive of a detailed and transparent tariff setting mechanism. For example, this tariff setting mechanism limits staffing cost that will be passed to tariff via benchmarking. A consultant team was appointed to prepare the mechanism and SPAN has forwarded it to KeTTHA minister for action. There should not be any more tariff increase without this promised mechanism. Equitable and affordable tariff is the promise that Federal Government must deliver under WSIA.

Unfortunately, during the last tariff setting processes between year 2009 and 2010, the same official from KeTTHA whom is the Senior Undersecretary of Water Services Sector, has also interfered in SPAN's functions and prevented the public consultation for tariff setting. He DID NOT ALLOW SPAN to carry out the transparent tariff setting outlined in the restructuring process. The reason given by him was that ‘The Cabinet’ must approve it first. However, ‘The Cabinet’ is always briefed without the details of arguments and eventually has to bear the entire burden based on ‘advices’ provided by INCOMPETENT OFFICERS such as this.

SPAN was set up to implement transparent tariff setting mechnism; there should not be any arguments and ‘The Cabinet’ need not to be burdened with this process. Are the Water Services Sector officers so powerful that they can deny public's rights, interfere in SPAN's functions and 'blindfold' The Cabinet?

4) PEOPLE ARE NOT HAPPY, PRIME MINISTER MUST TAKE ACTION

The WSIA model was approved first by Conference of Rulers (Majlis Raja-Raja). Then, the Parliament and Senate approved WSIA Act 2006 and SPAN Act 2006 before both acts are endorsed by DYMM Yang Dipertuan Agong. As of today, National Water Services Industry Restructuring is delayed by 1 year 8 months and 10 days. While the delay is ongoing, the KeTTHA officers are still paid full salary and continue to jeopardise the actual 'National Interest' in water services industry restructuring including all the wrong implementations that we have mentioned above.

Last Monday, YAB Prime Minister has requested government officers to make Malaysians happy. However, the wrong doings by these KeTTHA officers are making people UNHAPPY and SUFFER.

The delay in Selangor water services industry restructuring and overall water services industry restructuring does give direct impacts to public and erode investor's confidence as well as affecting plans outlined in Economic Transformation Programme by YAB Prime Minister to lead Malaysia to be a developed and high income nation by year 2020. AWER has written numerous emails and letters to KeTTHA related to issues surrounding water services industry restructuring. Unfortunately, all of our concerns had fallen to deaf ears. For example, the Water Services Sector officers in KeTTHA have interfered in Non-Revenue Water (NRW) reduction implementations by SPAN and this has caused Malaysia to lose more than a Billion Ringgit annually and continuously.

AWER urges YAB Prime Minister to revamp the Water Services Sector in KeTTHA and remove incompetent officers [Deputy Secretary General (Green Technology and Water), Senior Undersecretary, Undersecretaries and Principal Assistant Secretaries] IMMEDIATELY. There should be a clear line of duty between policy makers and regulator (SPAN) as well. Any interference in SPAN’s functions must be 'crushed'. Malaysia could not afford derailment of National Water Services Industry Restructuring and the KeTTHA officers are 'forcing' Cabinet to make decisions that head towards a total disaster in water services industry.

In addition to that, we urge Selangor, Terengganu, Pahang, Kelantan and Kedah state governments as well as Labuan to complete the transfer to WSIA model by end of this year. Sabah and Sarawak must also consider joining this model as it will benefit both states in long-term. However, the restructuring must be done based on actual WSIA model and not individual state government's requests. The state governments must have clear understanding of liabilities, assets and WSIA model. WSIA model is not designed to benefit water industries but to ensure equitable tariff and substantial water services infrastructures are put in place for the benefit of the people and country’s growth.

The more the state governments delay water services industry restructuring, the higher the burden to the public via tariff. It is as simple as that. Without WSIA model, state governments will not be able to improve water services infrastructures and service quality effectively.

Water is basic need and a basic human right! Water is Life.

Piarapakaran  S.
President
Association of Water and Energy Research Malaysia (AWER)