Water Sector - Selangor seeks to take over SYABAS NEUTRAL

- The Edge FinancialDaily reported that the Selangor government is mulling over plans to take over the operations of state water distributor, Syarikat Bekalan Air Selangor Sdn Bhd (SYABAS).

- Selangor Menteri Besar Tan Sri Khalid Ibrahim said  in a statement that the Selangor government may invoke Clause 32 of the concession agreement (CA).

- We gather that the state government has already sent a notice to the federal government, whereby federal approval may be required to assume control of SYABAS.

- Khalid was also quoted as saying that it would seek legal redress if the federal government refuses to pay heed to the state’s plan to step into SYABAS’ operations and resolve the deadlock over water supply.

- The latest development comes on the back of SYABAS’ recent moves to implement water rationing in parts of the Klang Valley – following  a presentation to the National Water Services Commission (SPAN).

- Just over a week ago, SYABAS had highlighted in a statement that the clean water supply reserve in Selangor, Kuala Lumpur and Putrajaya has fallen to a critical level of 1.06%. SYABAS added that the average demand for water was  at the highest level during that period at 4,324 million litres/day (mld).

- On the other hand, Bernama reported that the production of clean water by water treatment plants managed by Puncak Niaga (M) Sdn bhd, Syarikat Pengeluaran Air Sg. Selangor Sdn Bhd (SPLASH) and Konsortium ABASS was still at the maximum level of 4,371 mld. 

- SYABAS is currently 70%-controlled by Puncak Niaga  Holdings, while the Selangor government holds the balance 30%. 

- We are unsure if the Selangor state government’s latest move would break the longstanding impasse over the control over SYABAS. The  exact wording of Clause 32 is uncertain at this juncture, though The Edge report quoted industry sources as indicating that Clause 32 may likely relate to non-revenue water (NRA).

- We maintain our NEUTRAL rating on the water sector. Apart from SYABAS, there continues to be lingering uncertainties over the status of the Langat 2 project. Neither has there been any solid breakthrough on negotiations to restructure the fragmented water industry within Selangor before the 13^th  General Election. 

- As such, we maintain our HOLD calls on both Puncak  Niaga Holdings and Kumpulan Perangsang Selangor (KPS)

Source: AmeSecurities