Is WSIA fair or vulgar?

By Khairul Khalid

The long battle of wills between the Selangor state and its water concessionaires has boiled down to the federal government’s explicit use of a four-letter word – WSIA.

______________________________________________________________________

WSIA stands for the Water Services Industry Act 2006 and section 114 of the legislation allows the federal government to take over water assets in extraordinary circumstances of national interest.

One may say that Selangor’s current water situation is indeed an extraordinary circumstance.

After a standoff between state and concessionaires that have lasted more than five years, culminating in the worst water crisis in the Klang Valley since 1998, the federal government has finally decided to step in and approve the enforcement of WSIA.

Although it has been an option all along, the federal government has been reluctant to play the WSIA card and insisted on a “willing buyer, willing seller” solution as federal intervention via WSIA could send the wrong signals to the free-market.

So is WSIA good or vulgar?

It would very much depend which side of the fence you’re on.

Political chicanery?

Some of the concessionaires are already up in arms over the impending enforcement of WSIA. Wan Azmi Wan Hamzah, the chairman of Splash (Syarikat Pengeluar Air Selangor) has not minced his words over his displeasure of the WSIA decision.

“It’s an asset grab and they (the state government) desperately want it on the cheap. I think it’s all very sneaky and smacks of political chicanery,” said Wan Azmi in an interview with BFM radio.

The Splash chairman contends that the state and federal governments should terminate the concessionaires’ agreement outright instead of using WSIA.

He had stated that he accepts the state’s decision to consolidate but the its previous offer of RM250 million based on a 12% annual returns on earnings is way below the company’s NAV (net asset value) of RM2.3 billion.

“They (the state and federal governments) should take heed from the Nike tagline – just do it. The agreement is very clear. I can confirm that such a formula (the 12% returns) exists but only if and when the government wants to officially terminate our contracts and expropriate our assets. They should do this instead of going through all this charade of declaring WSIA,” said Wan Azmi.

Different interpretations

Clearly there are differences of interpretation in the water agreements between the negotiating parties. However, the water agreements are protected under the Official Secrets Act (OSA) and it is difficult for the public to verify these clauses.

There has been a clamour to make the current water agreement, which is also planned to be under OSA, to be made public.

Nevertheless, the provisions under section 114 of WSIA are quite clear in giving the federal government expropriating powers in national interest.

Among others, section 114 of WSIA states that the “the minister may, if he thinks it necessary for national interest…direct the commission to assume control of the whole property, business and affairs of a licensee’s business and affairs.”

Nevertheless, Petaling Jaya Utara MP (member of parliament) Tony Pua has refuted Wan Azmi’s claims of unfairness in both the state’s takeover offer and the federal use of WSIA.

“The offer made to Splash was exceptionally good. For Wan Azmi to only look at equity values is extremely unfair. The total offer made to them was RM1.8 billion. Out of that RM1.6 billion was for all the loans undertaken by Splash,” said Pua.

 He explains that there are two ways where the agreements with the water concessionaires can be cancelled. It can either be terminated by the government due to a default or by expropriation.

“Actually, by going in accordance to the concession contract they (the concessionaires) will get less money than what is being offered by the state or even the figure bandied about under WSIA,” says Pua who is a member of the Selangor water committee.

Sanctity of contracts

There are also parties who have sounded the alarm over federal interference of water business via WSIA as a bad precedent in the business community.

Lin Yung Ling, group managing director of Gamuda that owns 40% of Splash has voiced his concerns about the “sanctity of contracts.”

Pua asserts that there has been no violation of contracts and everything is being done according to the concessionaire agreement.

“The only investors affected in this case are the shareholders in the companies. They have taken RM665 million in dividends. By and large Malaysians will be happy to see this deal concluded. It is important for the federal and state governments not to overpay these concessionaires,” says Pua.

There has also been some confusion as to who will ultimately gain control of Selangor’s water assets after WSIA is enforced. According to Selangor Menteri Besar (MB) Khalid Ibrahim the state will have control.

However, minister of energy, green technology and water (Kettha) Maximus Ongkili has been adamant that the federal government will be in control, at least until the state buys out the concessionaires or Langat 2 is completed in approximately three years time.

“Section 114 of WSIA does not bestow us the right to take over the assets as our role is to facilitate as per the content of the Mou,” Ongkili said.

These conflicting messages by the federal and state governments have led to confusion over the exact mechanism of operating the water assets post-WSIA.

Pua disputes this. “Theres nothing in sec 114 (of WSIA) that says anything about management control. It just says federal takeover of the concessions,” said Pua.

Many thought that the invoking of WSIA would lead to a rapid federal takeover of the concessionaires. The Selangor state would then eventually assume control of the water assets, as stated in the MoU (memorandum of understanding) and in return the state would fast track the controversial Langat 2 water treatment plant.

However, that has not been the case so far with the process taking longer than many thought it would. The critical issue of timelines has not been broached and neither the federal or state government has been forthcoming with any deadlines to implement WSIA.

No transparency

There is no transparency in the implementation of WSIA, claims Dzulkefly Ahmad, another member of Selangor’s water committee, to KiniBiz.

“Both parties (state and federal) have always sidestepped the critical questions of timeline. The conflicting back and forth statements have to end now,” said Dzulkefly.

Others lament that WSIA is just a political ploy to buy time and the state has surrendered its Langat 2 bargaining chip to the federal government.

“The state doesn’t have much leverage anymore. The whole WSIA thing is being used to buy time. Even if it used, it will be in a limited way. For what reasons? I am not sure why,” said Charles Santiago, Klang MP, to KiniBiz.

Either through WSIA or other means, Selangor’s water restructuring has to proceed. The water crisis has rumbled on without a definitive short-term solution. It has been reported that up to RM10 billion in investments could be lost if the water crisis is prolonged.

Langat 2 is said to be the answer but that is at least three years away from completion. Although some of the contracts of Phase 1 of Langat 2 have been awarded, it would look like it could still encounter stiff opposition from the Selangor state.

Last week, the state assembly passed a motion to stop Langat 2 until the water restructuring is completed.

Both federal and state governments are exploring other alternatives including groundwater, intensifying cloud seeding as well as diverting Langat 2 tunnel to existing water plants and also Sungai Selangor.

“We have to continue water rationing. Otherwise, at current rate there will only be 29 days of water left for Selangor,” said Khalid ominously in a statement.

Tomorrow: Some answers?

Yesterday: More drama ahead for Selangor water