Economist tells why Puncak shouldnt get water deal

by Yoon Szu-Mae     Published 2 Jul 2004     Source : Malaysiakini

Puncak Niaga's latest appeal to the federal government for RM1.14 billion was a measure to battle rapidly falling ratings and stock prices, and is one good reason why private companies should not be managing our water resources, an economist said today.

"Most of these companies depend on capital gain as opposed to revenue, in order to survive. Which is why private companies cannot be entrusted to run public utilities. They are not beholden to the public but the stock market and its shareholders," said Charles Santiago, director of Monitoring Sustainability of Globalisation.

Santiago said the latest round of public statements from Puncak Niaga - including the recent optimism expressed by its senior officers - strongly suggests that the company is feeling the pinch from the stock market fallout.

Energy, Water and Communications Minister Lim Keng Yaik announced in April that all water projects would be suspended pending a federal government review of water management, given that federal authorities are expected to take over water from state jurisdiction with the creation of the National Water Council.

Soon after however, Prime Minister Abdullah Ahmad Badawi said the government would honour the contract given to Puncak's subsidiary Syarikat Bekalan Air Selangor (Syabas) to take over water supply management from state-owned Perbekalan Urus Air Selangor (Puas).

In any case, analysts took both statements as indication that Puncak's role in the state water privatisation may be scaled down, and moved to downgrade its stock from a 'buy' to an 'avoid'.
 
Lobbying hard?

"I believe Puncak Niaga would be lobbying hard for the government to change its mind. But to protect its share value, it has also come out very rigorously to say that they are convinced the privatisation deal would go through," Santiago noted.

But he also pointed out the fact that Puncak was, prior to Lim's announcement, planning to increase water tariffs by 40 percent.

This, he said, quashes the assumption that privatisation would automatically result in lower costs - a strong reason why the government should not go ahead with the deal.

"Also, the Federation of Malaysian Manufacturers noted last year that following privatisation in Johor, tariffs jumped by 82 percent between 1991 and 2003. Broken down, the hike was 40 percent in 2001, and 30 percent in 2003 - contrary to state regulations which says that you can only hike tariffs by as much as 30 percent every three years."

Alarmed by a possible federal government review of water privatisation projects, Puncak Niaga on Tuesday pointed out that the Selangor government still owes the company RM1.14 billion for water supplied from its treatment plants.
 

Due to the outstanding debt, Puncak Niaga said it could no longer carry out scheduled maintenance and asset replacements at its plants, The Edge Daily reported.
It also said that it had invested in 122 staff to plan the takeover of state-owned water supplier Perbadanan Urus Air Selangor Bhd (Puas), and RM9 million to manage a customer call centre for Puas starting this year, on the understanding that the water supply privatisation plan was on.

In response, Selangor Menteri Besar Dr Mohd Khir Toyo reportedly pacified Puncak Niaga, saying that "we expect the government to make a decision in a week or two on whether water would be privatised."

The privatisation project was approved in principle last September by the government of then-premier Dr Mahathir Mohamad.