THE federal and Selangor governments are at loggerheads over the state’s water asset consolidation exercise again. Perhaps this isn’t a surprise to many considering the state had appointed a new menteri besar just seven months ago.

In a nutshell, the state government is demanding a higher price tag for the water assets that it would sell to the federal government. The state would flip the water assets to Pengurusan Aset Air Bhd (PAAB), a unit of the federal government, for RM14.9 billion after it has acquired assets from the concessionaires and consolidated them.

Last week, Selangor Menteri Besar Azmin Ali said that the RM14.9 billion valuation does not take into account the land upon which water assets such as pipes — some 26,000km of them — are located.

And the federal government needs to pay for the usage of the land. “The federal government wants the land for free. Only the upgraded portion of the concession companies’ water assets (CCWA) will be transferred to PAAB, and the valuation of the land was never discussed. The concessionaires do not have the land rights,” he told the media in the lobby of Parliament.

However, Minister of Energy, Green Technology and Water Datuk Seri Dr Maximus Ongkili says the question of a land grab by the federal government does not arise. He assures that the assets, including the land, would be returned to the state after the original 45-year lease arrangement under the master agreement (MA) ends.

To make matters more complicated, the federal government earlier promised to transfer RM2 billion to facilitate the state’s water asset acquisition from concessionaires. For the RM2 billion transferred, the federal government requested for collateral in the form of RM2 billion worth of assets.

The Bukit Nenas and Semenyih water treatment plants are being used as collateral by the state. However, there is a dispute over the ownership of the plants, which were listed among the assets to be transferred back to PAAB.

The federal government claims ownership of the two plants, which have been valued at RM500 million by the state government. “The Federal Lands Commissioner did a follow-up and determined that these two assets belonged to the [federal] government,” Ongkili clarifies.

Hence, the minister argues that the water plants should not be used as collateral.

However, Azmin defended his position, “These two assets were clearly specified in the appendix of the MA. The federal government saw it before and there was no objection (until now).”

The above is just one thorny issue. The state government has yet to complete its acquisition of Syarikat Pengeluar Air Selangor Sdn Bhd’s (SPLASH) water treatment asset.

SPLASH, in which the Selangor government holds a 30% stake, has rejected the state’s offer to buy its water treatment plant for RM250.6 million, saying that the offer price does not take into account revenue that the concessionaire would have to forgo.

The MA signed by the state and federal governments last year lapsed on March 9. Selangor declines to give a third extension. Some quarters see this as an indicator that the state wants a fresh agreement. Indeed, Azmin has acknowleged that.

However, Ongkili has indicated the federal government’s preference to stick to the original agreement.

“Yes, the MA has lapsed. But the memorandum of understanding and heads of agreement still remain. If we cannot rescue this deal, there will be litigation because the MoU and HoA are irrevocable. Nobody will benefit,” Ongkili told the media last Tuesday.

Yes, the prolongued water impasse will benefit no one.

It has huge ramifications. Without the consolidation exercise, the state cannot proceed with the much-needed programme of replacing its leaking pipeline network.

Without the repairs, the state’s non-revenue water (NRW) caused by leakages will stay at a worrying 36%.

The increasing demand for water due to population growth necessitates the need for more treated water in Selangor and the Federal Territory. This is where the Langat 2 water treatment plant comes in, as the state’s 34 treatment plants are all operating at full capacity (see sidebar).

According to the Ministry of Energy, Green Technology and Water, Selangor’s treated water reserve margin will drop to –0.5% this year. If Langat 2 does not become operational by 2017, the deficit will drop to -2% in the same year.

By going back to the drawing board, the state may be seeking a higher valuation for its assets if its land is factored into the equation. This suggests that the federal government would have to fork out more to complete the consolidation exercise.

At the same time, this also raises the question whether the state is willing to revise its offer to SPLASH. Despite the more complicated twists to the water issue, one saving grace is that both sides have indicated their willingness to talk. In a statement last Friday, the Ministry of Energy, Green Technology and Water reiterated that it was engaging with the state government and that it wanted to have a face-to-face meeting as soon as possible to resolve the issue.

“If the federal government has a new suggestion, the state is prepared to discuss [it], but we will have to include the valuation of the land,” says Azmin.

As the existing water supply in the Klang Valley can only satisfy the demand for another two years, it is important for both sides to work out their differences as soon as possible. The ultimate losers will be the consumers, who fear that there will be more water cuts in the immediate future.

This article first appeared in The Edge Malaysia Weekly, on March 16 - 22, 2015.

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