No-Go To Privatize Puas Now

The announcement by Energy, Water and Communications Minister Datuk Seri Dr Lim Keng Yaik that the privatization of PUAS would be carried out soon (StarBiz, 26/10) came not only as a surprise but also a disappointment to many water consumers in the Klang Valley.

He had earlier given all consumers a ray of hope when he announced a number of initiatives to revamp the water supply sector in this country. Among them are the deferment of water supply privatization until after the setting up of the National Water Services Commission (NWSC) and the establishment of benchmarks for water supply services.

Dr Lim's sudden about-turn decision is based on PUAS's current financial situation, which, according to him, has become critical. He also contended that early privatization would enable PUAS to raise funds to meet its capital expansion, improve its services and reduce non-revenue water.

Let's first take a look at PUAS's financial performance all these years. The Malaysia Water Industry Guides 2003 and 2004, which give financial performance of all water supply entities in Malaysia for year 2001 and 2002, show that, before and after corporatisaton of PUAS, the Selangor water supply entity incurred heavy losses. In year 2001, Jabatan Bekalan Air Selangor's (JBAS) revenue was RM734 million against an expenditure of RM1,465 million and after Puas' incorporation in 2002, its revenue was RM861 million against an expenditure of RM1,310 million.

It is also reported that to date PUAS now owes the three water treatment plant concessionaires a total of RM2.3 billion. This shows that JBAS/PUAS has been making heavy losses in its operation since 2001. So, if PUAS is losing money for so long, why can't Dr Lim wait for a few more months for the NWSC to be established first?

Presently PUAS may be technically insolvent or bankrupt. But to privatize it to the water treatment plant concessionaires is no solution to its present predicament unless either the concessionaires are prepared to bear all losses in the operation and maintenance of water supply distribution or the water tariffs would have to be significantly raised.

With PUAS's financial situation in such a bad shape, one wonders how, after privatization, the concessionaire is going to raise funds from commercial banks to cater for its capital expansion, improve its services and reduce non-revenue water.

The only solution is to let Khazanah Nasional bail out PUAS as it has done to many financially troubled companies in this country. After taking over, Khazanah Nasional will have to determine all bloated water treatment concession contracts, restructure PUAS and if necessary, employ local and/or foreign water experts to operate it professionally. The action looks drastic but unfortunately this is Hobson's choice.

Having taken all these actions, Dr Lim can then holistically privatize PUAS later after he has revamped all water supply services in this country as he has earlier promised.

But to go ahead now to privatize PUAS, Dr Lim has only given false hopes to consumers and thereby loses his credibility but also he has got his priorities all wrong. What is now really urgent is the implementation of the long-delayed interstate raw water transfer from Pahang to overcome inescapable water shortages in Selangor, Kuala Lumpur and Putrajaya after year 2007.

Related articles:
1. Award only one single contract for water supply services. (The Star, 27/9/04)
2. Clean slate for water privatization. (The Star, 10/9/04)
3. Get water supply priorities right. (The Edge, Issue510 9/8/04)
4. A Herculean task to resolve water woes. (The Star, 26/5/04)
5. Setting up of National Water Council - a laudable move. (The Star, 28/4/04) 2007