Selangor needs federal funding to acquire Splash?

(The Star) – The Selangor government plans to strike a deal with the stakeholders of Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (Splash), the last holdout from the state’s water asset consolidation exercise.

However, negotiations would be tricky as Splash has asked for RM2.8bil to exit its investment, while the state’s water assets management company currently had only RM450mil in ready cash.

While various alternatives could be considered in addressing the shortfall in valuation, the state government may have to seek funding from the Federal Government to pay for Splash, similar to the arrangement that saw the takeover of Puncak Niaga Sdn Bhd (PNSB) and Syarikat Bekalan Air Selangor Sdn Bhd (Syabas) on Oct 15.

Given an expenditure-heavy budget this year, any move by the state administration to tap into the state’s cash reserves of RM3.7bil will be met with political opposition.

Pengurusan Air Selangor Sdn Bhd (Air Selangor), the state’s water assets management arm, is tasked with consolidating the four concessionaires in the state – PNSB, Syabas, Splash, and Konsortium ABASS Sdn Bhd.

When contacted by StarBiz, Air Selangor chief executive officer Suhaimi Kamaralzaman acknowledged the limited funds relating to the acquisition of Splash, but he did not rule out the possibility of future cash injections.

“We will continue to operate within the current parameters, in which the budget ceiling (for the consolidation exercise) is RM2bil. Since the master agreement was inked in September, our target is to acquire Splash within 12 months,” he said.

Under the master agreement signed between the state and federal governments, RM2bil was allocated for the acquisition of all water concessionaire companies in Selangor.

The RM2bil cash was secured via the pledging of an equivalent worth of assets held by Air Selangor as collateral. The bulk of the funds, or some RM1.55bil, went towards acquiring PNSB and Syabas.

This leaves Air Selangor with RM450mil to fund the acquisition of Splash.

Konsortium Abass, a unit of state-owned Kumpulan Perangsang Selangor Bhd (KPS), is in the process of being transferred to Air Selangor after KPS agreed to sell its equity stake for RM78mil to state investment firm Kumpulan Darul Ehsan Bhd (KDEB). The cost of this related-party transaction is not part of the RM2bil budget ceiling currently imposed on Air Selangor.

As for Splash, KDEB holds 30%, while Gamuda Bhd and Sweetwater Alliance Sdn Bhd hold the remaining 30% and 40% stakes respectively.

The state government had previously offered RM1.83bil to acquire the equity and liability portions held by Splash.

However, after netting off loans of RM1.56bil, the offer would only bring in net cash proceeds of RM250.6mil to its shareholders, the company said in a statement earlier this year. The book value of Splash after netting off loans should be RM2.8bil, it added.

In the meantime, a major concern is the security of the state’s water supply. Due to leakages, non-revenue water (NRW) is costing the state some RM400mil a year. Selangor’s NRW, or the proportion of treated water that is lost before reaching the consumer, stands at 36%.

In an Oct 22 statement, Energy, Green Technology and Water Minister Datuk Seri Maximus Ongkili lauded the completion of the transfer of PNSB and Syabas to Air Selangor, while noting that more work lay ahead for Air Selangor.

“I am confident that Air Selangor has taken steps to ensure steady supply of water to the consumers during this transition period. The next phase is for Air Selangor to consolidate the remaining concessionaires, Konsortium Abass and Splash,” he said.

When asked whether prolonged negotiations with Splash would impede its reparation efforts for Selangor’s ailing water infrastructure, Suhaimi said this would not be the case.

“The National Water Services Commission (SPAN) has issued to Air Selangor an operating licence which starts at end-February next year. However, over the next four months there should not be any disruptions as the existing concessionaires continue to operate under their existing licences. Approval for reparation works is strictly under the purview of SPAN.”

According to Suhaimi, Air Selangor’s objective will be to consolidate the concessionaires into one enlarged entity, thus maximising efficiency and preventing duplication of resources.

“When the restructuring is completed, we will be a holistic provider in water treatment and distribution. We are submitting a business plan to SPAN to show the viability of this (consolidated entity),” said Suhaimi.