Water Sector - Post-Selangor Water Forum: still a stalemate NEUTRAL

- Based on various reports on the recently-held Selangor Water Forum 2012, we surmise that the ongoing restructuring of Selangor’s water industry still appears not to have gained much headway. From our ground checks, the Selangor government will continue its push to restructure the water services industry despite objections from both the Federal Government and some of the water entities along the state’s water supply chain.

- Meanwhile, Selangor Menteri Besar Tan Sri Khalid was quoted in The Malay Mail as saying that the Selangor government is currently exploring ground water as an alternative to the Langat 2 project in addressing any potential water shortage issues – although it can only provide up to 20% of overall raw water supply.

- The Federal government had previously claimed that the current water reserve margin in Selangor was only between 2% and 3% against the recommended 20% - and this will likely trigger a water shortage by 2014 if left unchecked. The government had in March – revealed that it was planning to roll-out Phase 2 of its water mitigation program – estimated at RM331mil - to supply an additional 481 million litres/day (MLD) to meet demand until 2017. Phase 1 – which is already in progress - would add 215 MLD to meet demand until 2014.

- On the other hand,  the Coalition for Sustainable Water Management told the forum that it believes the projected water demand per capita as per the National Water Resources Studies (NRWS) 2011 are somewhat inflated. The forum participant claimed that actual demand is actually flattening at ~4,000MLD since 2010 - as compared with a projected increase to 4,963MLD by 2020 – based on the NWRS.

- Meanwhile, Bernama again quoted Khalid as saying that the Selangor government would consult its legal advisors and the state exco before deciding on whether to resolve the state’s protracted water impasse through international arbitration.

- This comes after the Selangor government was reported last month to be considering whether to file a judicial review against Green Technology, Energy and Water Minister Datuk Seri Peter Chin Fah Kui for failing to use the ministerial powers vested on him to take-over water assets from the state government under the Water Services Industry Act (WSIA).

- Khalid had then quoted Section 114(1) of the WSIA that permits the minister to assume complete or partial control of water assets and business ‘for national interests’ and ‘shall not be challenged, appealed against, reviewed, quashed or questioned in any court.’ In his reply, Chin had explained that his ministerial powers do not permit him to terminate the water concessionaire’s contracts. 

- Last but not least, we have learnt that the Selangor government has appointed three consultants – - i.e. Wessex Water, Halcrow Group and Suez - to audit the operations of SYABAS. This follows local press reports last April saying that the Selangor government had threatened to take the water distributor to court for an alleged failure of its contractual duties. Interestingly, SYABAS has also just made an amended legal claim of ~RM1bil against the state government for water tariff compensation as agreed in its concession agreement (from 1 January 2009 until March 31 2011).

Source: AmeSecurities