This article first appeared in The Edge Financial Daily on August 28, 2018

KUALA LUMPUR: The long-drawn saga of Selangor’s water restructuring over is nearing an end, after both Gamuda Bhd and Taliworks Corp Bhd accepted the offer from Pengurusan Air Selangor Sdn Bhd (Air Selangor) as part of the latter’s acquisition of Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (Splash).

In a filing with Bursa Malaysia, Gamuda said the board of directors of its 80%-owned subsidiary Gamuda Water Sdn Bhd and Splash yesterday accepted the offer from Air Selangor to acquire its 40%-owned associate Splash.

“Gamuda will make the necessary announcement to Bursa Securities upon the finalisation and execution of the termination and settlement agreement and the new operations and maintenance agreement (OMA) of Sungai Selangor Water Treatment Plant Phase 3 (SSP3) which, inter alia, are subject to and are conditional upon the completion of the share purchase agreement to be entered into between Splash Holdings Bhd and Air Selangor,” it added.

Gamuda has until Sept 3 to revert to Air Selangor’s offer for Splash.

Splash is a wholly-owned subsidiary of Splash Holdings, in which Gamuda owns a 40% stake, while Kumpulan Perangsang Selangor Bhd owns 30%. The remaining 30% is held by Sweet Water SPV Sdn Bhd, a private investment vehicle of businessman Tan Sri Wan Azmi Wan Hamzah.

Air Selangor is offering RM2.55 billion cash to take over Splash, which is the concession holder of SSP1 and SSP3, which controls about 45% of the treated water supply in Selangor, Kuala Lumpur and Putrajaya.

On Aug 21, Gamuda Water received a letter of offer from Air Selangor setting out the termination of the existing OMA of SSP3 with Splash, which includes the settlement of outstanding Gamuda Water’s receivables from Splash and execution of a new SSP3 OMA with Air Selangor which will commence on the operational date until Dec 31, 2029.

Under the new OMA, the bulk water supply rate (BSR) will be reduced by two sen per cubic metre (cu m) to 44 sen per cu m from the operational date to Dec 31, 2018; 46 sen per cu m from Jan 1, 2019 to Dec 31, 2022; 47 sen per cu m from Jan 1, 2023 to Dec 31, 2023; and 53 sen per cu m from Jan 1, 2024 to Dec 31, 2029.

In a separate filing, Taliworks said its wholly-owned subsidiary Sungai Harmoni Sdn Bhd has resolved to accept the offer from Air Selangor.

“Sungai Harmoni expects to commence negotiations with Air Selangor to finalise the terms and conditions of the termination and settlement agreement and the new OMA to be executed by the parties.

“An appropriate announcement will be released in due course upon the execution of the agreements,” it added.

On Aug 21, Sungai Harmoni received a letter of offer from Air Selangor, where the former was required to revert with the acceptance of the offer by yesterday.

The offer sets out the key terms of settlement between Air Selangor, Splash and Sungai Harmoni relating to Sungai Harmoni’s outstanding receivables arising from its existing operations and maintenance of SSP1, as well as the key terms in respect of the new OMA between Air Selangor and Sungai Harmoni.

To facilitate the conclusion of the water restructuring exercise, Sungai Harmoni is requested to enter into a termination and settlement agreement with Air Selangor and Splash in respect of its existing OMA for SSP1 and enter into a new one. It is also required to terminate all other existing agreements relating to the SSP1 OMA.

Under the termination and settlement agreement, subject to completion of the Splash share purchase agreement, Splash will pay to Sungai Harmoni — as full and final settlement of all amounts owing by Splash to Sungai Harmoni under the SSP1 OMA — an amount equal to 90% of the outstanding fee payable under the SSP1 OMA, at a date to be mutually agreed by all parties.

Meanwhile, the BSR under the new OMA will be at a rate equal to a five sen per cu m reduction in the existing BSR under the SSP1 OMA from the operational date to Dec 31, 2029, the expiry date of the existing SSP1 OMA.

For the seven-year extension from Jan 1, 2030 to Dec 31, 2036, the BSR rate will be 52.5 sen per cu m for the operations and maintenance of SSP1 by Sungai Harmoni.

The water restructuring deal was supposed to return the rights of managing water to the state instead of the four concessionaires, namely Syarikat Bekalan Air Selangor Sdn Bhd, Puncak Niaga Sdn Bhd, Konsortium Abbas Sdn Bhd and Splash.

The concessionaires had agreed to the Selangor government’s takeover of their water assets in the state, except for Splash due to disagreement over pricing.