The serious impact of PUAS privatization

After more than a year of uncertainty, the Government finally gave the green light to Syarikat Bekalan Air Selangor Sdn Bhd (Syabas), a subsidiary of Puncak Niaga Holdings Bhd to proceed with the privatization of Perbadanan Urus Air Selangor Bhd (PUAS).

The announcement by Puncak Niaga (StarBiz Dec 9) has several important impacts and consequences to 6.8 million consumers in Selangor, Kuala Lumpur and Putrajaya. It puts:

  • An abrupt end to the plans and initiatives of Datuk Seri Dr. Lim Keng Yaik, the Minister of Energy, Water and Communications to revamp the management of water supplies in Selangor, Kuala Lumpur and Putrajaya;
  • A pitiful end to the recommendations of the Ministry's consultant KPMG, to go for the better formula of Public-Private Participation (PPP) instead of privatization to improve water supply management;
  • An immediate end to Selangor Government's subsidy (likely as from January 2005 after privatization) on water supply, which means that consumers will have to pay the real cost of water from now onwards. New tariffs may be doubled or even tripled; and
  • A tremendous pressure on the successor company to PUAS to come up with a magic formula to balance revenue and expenditure, apparently without any immediate water tariff increase, which is almost an impossible task unless the white knight has very deep pockets.

The Economic Planning Unit, which has spearheaded the PUAS privatization process over a period of 8 years, does not seem to realize the seriousness of the above-mentioned impacts of its decision. Surely it is aware of the mess it has helped to create in due course!

Many have expressed constructive views on the subject. Financial analysts have often expressed their reservations on the viability of privatizating PUAS. Even the PUAS Employees Union has cautioned against privatization of PUAS in haste citing that PUAS may end up as another Indah Water Consortium (IWK) or MAS which required the government to bail them out after they incurred huge losses.

The IWK's fiasco should be a lesson to all decision makers responsible for public services.

But Malaysian authorities have short memories. Despite the lessons that can be learnt from many botched privatisation deals, the Government still wants to have another go at it and this time, passing the huge water supply "hot potatoes" of PUAS to a private sector company to create a bigger problem later on. Perhaps then, after a widespread public hue and cry, the Government would once again "de-privatise" Syabas for a price of a big bail out.

The public has waited eight years for the company to finalise this deal with the Government. It can wait for a few more months for Dr. Lim's ministry to come out with proper guidelines and benchmarks on privatization.

And already the process of reorganising the water supply management is in motion and the legal papers will be tabled at a special sitting of Parliament in January near year (The Star, Dec 10).

So, why the big hurry to privatize PUAS?


An edited version of the above was published in The Star on 13 Dec 04.

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4. Clean slate for water privatization 2007