AmWatch - Water Sector : Fed and state sign HoA, 4 Aug 2014

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Water Sector : Fed and state sign HoA                   Buy

Last Friday, the Federal and state governments signed the Heads of Agreement (HoA) to finalise the restructuring exercise in Selangor. The HoA is an extension of the MoU that was signed in Feb between the two parties. The HoA covers both the proposed RM9.65bil takeover of assets belonging to the four water concessionaires in the state as well as the implementation of the Langat 2 water treatment plant (WTP) and its distribution system.

Key points on the water restructuring exercise: (i) The state will transfer RM2bil worth of assets not linked to the four concessionaires to PAAB. The proceeds from this will then be used to acquire the equities of the water assets; (ii) The water operators will be consolidated under a special purpose vehicle (SPV) wholly-owned by the Selangor government; and (iii) The SPV will operate via an asset light model by leasing the water assets from PAAB.

Key points on the Langat 2 project: (i) Commitment by two parties to ensure the completion of Langat 2 by mid-2017; (ii) State to issue all approvals; and (iii) A special implementation committee and two working committees have been established.

Following the signing of the HoA, Khalid said that there will be no water tariff hike in the Klang Valley for the next three to four years. SPLASH is the only concessionaire left to accept the offer. The Federal government noted that it is committed to ensure negotiations continue between the state and SPLASH. We understand that a revision in bulk water supply rates could result in SPLASH’s acceptance to an offer.

We are not surprised with the signing of the HoA as it would mitigate any uncertainties following calls for Datuk Seri Dr Wan Azizah Wan Ismail to take over as Mentri Besar of the state. Puncak Niaga Holdings Bhd is expected to sign a definitive agreement on the water restructuring exercise within the next two months. Maintain NEUTRAL.

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