Selangor water saga continues ...

government can regulate the tariff without owning the assets

• SELANGOR'S water saga is expected to continue as the takeover price offered by the state government is still below the expectations of the concession holders.
• Gamuda Bhd, which owns 40 per cent of Syarikat Pengeluaran Air Sungai Selangor Sdn Bhd (Splash) - one of the four concession holders in the state, said the best way to ensure competitiveness, transparency and affordable tariff in the water industry is to leave it to the private companies.
• "Are you sure that the only way to regulate water tariff is by owning the assets? I am sure the government can regulate the tariff without owning the assets," said Gamuda managing director Datuk Lin Yun Ling after the company's annual general meeting, here, yesterday.
• He said the government can call for tenders to ensure an affordable and competitive tariff and award the bid to players who offer the highest value and the lowest tariff.
• Lin added that even if the Selangor government succeeded in taking over the four water concessionaires, it would still have to take up borrowings to finance the new Langat 2 plant and reduce the non-revenue water (NRW).
• The current NRW stands at 33 per cent and the government will need over RM1 billion to reduce it to 20 per cent, he said.
• The Selangor government, via investment arm Kumpulan Darul Ehsan Bhd (KDEB), has offered RM9.65 billion for four water concessionaires in the state.
• The concessionaires are Splash, Puncak Niaga (M) Sdn Bhd, Syarikat Bekalan Air Selangor and Konsortium Abass Sdn Bhd.
• The takeover plan has hit roadblocks again as Gamuda on Wednesday rejected the offer price while Puncak Niaga Holdings Bhd accepted it with conditions.
• Gamuda had said it was unable to consider the offer for a 100 per cent equity in Splash at an estimated value of RM1.8 billion.
• "The ball is in their (state government) court. If they want to buy over and own it ... and the price is right for our shareholders, we won't stand in the way," he said.
• He also said three years ago, Gamuda had offered to acquire the water concessionaires for RM10.7 billion and the offer still stands.
• Meanwhile, analysts agreed that the water saga will continue as the takeover offer has not been accepted mutually by all parties.
• MIDF Research Sdn Bhd said the offer price is far below the estimated proceeds of more than RM2.2 billion that Gamuda should receive after taking into account the surplus book value of assets over liabilities as well as discounted return on the remaining tenure of Splash's concession.
• "We estimate Splash's net book value at about RM2.9 billion and RM3.3 billion in financial year 2013 and 2014, respectively. The discounted equity cash flow of the remaining tenure could fetch a total amount of RM321 million, which implies a 15.22 per cent yield return.
• "Hence, the recent offer by KDEB was inadequate to compensate for the loss of future earnings," MIDF Research said in its report. It maintained a "buy" call on Gamuda with an unchanged target price of RM5.24.
• Public Investment Bank Bhd, meanwhile, said Gamuda should wait for the right price before disposing of its water assets.