Selangor water deal stalls

By Khairul Khalid

Puncak Niaga has requested the removal of the arbitration clauses before it can accept the Selangor state government’s latest offer to take over its water concessionaires. Today is the deadline for the concessionaires to accept the state’s latest offer signed in the recent MoU (Memorandum of Understanding) with the federal government.

“Further agreement must also be sought from Kumpulan Darul Ehsan Bhd (KDEB) to remove the arbitration clause as it violates the spirit of laissez faire, more so only the rate of return can be arbitrated while other valuation methodologies are not within the scope of arbitration. Such a clause on arbitration is unfair to the shareholders of Puncak including the minority shareholders,” said Puncak Niaga in a statement to the Bursa.

Last month, the Selangor and federal government agreed to break to five year deadlock in negotiations to restructure Selangor’s water industry by signing an MOU that facilitates the RM9.65 billion take over of the state’s water concessionaires and the approval of the Langat 2 water treatment project.

The statement by Puncak Niaga also adds that Syabas (Syarikat Bekalan Air Selangor) had previously received written instruction from the federal government (which holds one golden share) that the negotiations must be done on a willing buyer-willing seller basis.

Puncak Niaga owns two water concessions in Selangor including a 70% stake in Syabas, the sole water distributor of water in the state. Puncak Niaga major shareholder is founder and executive chairman Rozali Ismail with a 40% shareholding who was notably absent from Puncak Niaga’s board meeting today to discuss the offer.

The only difference between the current offers and the previous offers on 21 November 2013 is the inclusion the clauses on international arbitration under the Rules of London Court of International Arbitration and another clause that the agreement arising from the acceptance of the offers shall be governed by the laws of Malaysia,” Puncak said.

In the statement, Puncak Niaga’s board of directors also seeks clarification on the following before it is can consider the latest offers by KDEB:

1. That the total equity contribution to be paid to Puncak Niaga shall include a compounded return of 15% per annum taken as compensation to Puncak for the loss of future income as a result of its water concession business to the Selangor state government.
2. The receivables due and outstanding from Syabas to PNSB at the effective date of the sale shall be paid to Puncak as these amounts are in relation to the supply of water to Syabas, of which services had already been rendered;
3. Any and all residual cash in PNSB (inclusive of (ii) above) and Syabas shall be paid to puncak as this represents the profits attributable to Puncak.
4. Removal for the requirement of due diligence post acceptance of the offers.
5. Waiver of the requirement for the acquisition of the water assets by PAAB (P concurrently with the acquisition of the equity by KDEB. As KDEB is acquiring the equity of the water concession companies, the concession holders should be paid first on the agreed price by KDEB, and KDEB can then separately settle its arrangement with PAAB for PAAB to take over the water assets.

“Only after KDEB has reverted to Puncak on the clarifications and confirmations sought above will Puncak be able to table the KDEB offer to the company’s shareholders for consideration. It is ultimately for all shareholders of the company, not the board of Puncak, to decide on the KDEB offer,” said Puncak Niaga’s statement.

Out of the four concessionaires, only Kumpulan Abass (a subsidiary of the Selangor state) has accepted the offer. The other concessionaire holding out on the deal is Syarikat Pengeluar Air Selangor (Splash) that is 30% owned by state-owned Kumpulan Perangsang Selangor (KPS), 40% owned by construction company Gamuda and 30% owned by The Sweet Water Alliance that is linked to businessman Wan Azmi Wan Hamzah.

Although KPS has accepted the offer, Gamuda has rejected the new offer outright citing that it “is not reasonable for acceptance due to the adverse consequences on the company.”  The Sweet Water Alliance has also rejected the new offer.

Last week, Selangor MB announced the signing of another water agreement this week with Putrajaya to which will contain more specific details of the water agreement.