Penang retains power over water tariffs

By Clara Chooi
The Malaysian Insider
Jun 01, 2011

KUALA LUMPUR, June 1 — Penang will sign a water restructuring deal with Putrajaya tomorrow that will see the state relieved of its financial burden in developing water assets while at the same time, retaining control over water tariffs.

Chief Minister Lim Guan Eng announced the agreement terms in a statement today, adding that the deal demonstrates the Penang Pakatan Rakyat (PR) government’s willingness to foster a mature working relationship with the Barisan Nasional (BN) federal government.

Lim said under the deal, Penang would agree to the migration of its core assets in Perbadanan Bekalan Air Pulau Pinang (PBAPP), in exchange for a complete restructuring exercise of the outstanding federal loans owed by the state.

The terms of the agreement are as follows:

•Penang’s outstanding loan of RM655.24 million to the federal government will be interest-free and further rationalised;

•Penang will be given a grant allocation of RM1.2 billion for the expansion project of Mengkuang Dam;

•The federal government will be fully responsible for the source work of water supply projects;

•The state government will be relieved of the financial burden to develop and upgrade water supply assets;

•PBAPP can focus solely on providing water treatment and distribution services and concentrate on achieving operational efficiencies, good quality water and services;

•PBAPP can work towards full cost recovery and financial independence in the long term;

•Any revision or variation in water tariffs must obtain the approval and consent of the Penang state government.

Lim explained that under Penang’s previous agreement with Putrajaya, the state’s outstanding loan of RM665.24 million was to be charged at a three per cent interest rate.

“At the same time, the loan will be rationalised by alienating state land-related water assets to the Finance Ministry’s Pengurusan Aset Air Berhad (PAAB) for a period 45 years and PAAB will then lease back the water assets to PBAPP for 45 years.

“PBAPP shall pay PAAB a yearly lease rental of RM14.56 million and upon settlement of the lease at the end of 45 years, the state land will automatically revert back to the state,” he explained.

On the project to expand the Mengkuang dam, Lim said the dam’s capacity of 23 million cubic meters would be increased to 78 million cubic meters and will help the state meet its water needs by 2020.

Lim said that with the agreement, the state would be relying heavily on Putrajaya’s pledge that both the state government at PBAPP would not have to depend on funding or loans from financial institutions to develop water assets in the near future.

  1. #1 by Winston on Thursday, 2 June 2011 - 9:26 am

    Uncle Lim, sounds too good to be true!
    Sure no rats anywhere?

  2. #2 by Bigjoe on Thursday, 2 June 2011 - 9:43 am

    What is the state’s recourse if the Federal Govt ignore the state govt for approval? Did they force international arbirtration or independent judicial oversight? What does a Federal Petronas agreement means absolutely nothing..

  3. #3 by sheriff singh on Thursday, 2 June 2011 - 10:00 am

    Is it ‘water-tight’?

  4. #4 by eusoon on Saturday, 4 June 2011 - 9:28 am

    The water deal between Penang Water Supply Corporation (PBAPP) and Pengurusan Aset Air Berhad (PAAB) will have far-reaching implications for water in Penang. The deal obligates PBAPP to migrate its core asset to PAAB in exchange for a complete restructuring exercise of the outstanding federal loans owed by the state. By signing the deal, Lim Guan Eng not only give away the prime assets of PBAPP to PAAB, he also virtually surrender the state rights to develop water supply resources to the Federal Government.

    The deal is negotiated in total secrecy without refering to the state legislation for any debate or collaboration. When Lim Guan Eng was asked about the rational of signing the deal, Lim as usual blame the previous state government for agreeing to the deal. Lim said the Penang state government was initially reluctant to accede to the migration of the state’s water assets to the PAAB under the federal government.

    “However as chairman of Perbadanan Bekalan Air Pulau Pinang, I had no
    choice but to find a solution as the previous state government had agreed to
    surrender the state’s water assets to the federal government under the Water
    Services Industry Act 2006″ said Lim.

    The previous state government may have agree to surrender the state water assets to the Federal Government, but the decision of the previous state government has no legal binding as no agreement was signed. Now Lim Guan Eng claimed that the signing of the agreement is his alternative solution when he actually happily give in to the request of the Federal Government without serious consideration of the far reaching implication. Why should Penangites voted for change or alternative state government, if the Penang Chief Minister has no say in the decision of the previous state government?

    While borrowing through the federal government and surrendering our rights to develop water resources certainly guarantees access by the state governments to long-term finance, past experience suggests that the allocation of credit through this manner especially may eventually get embroiled in a political process. Under such conditions, capital does not necessarily flow to the most productive, but those who are politically the most astute, with the result that government borrowing is inefficient and subsequent investments are unproductive.

    The restructuring of the federal loan at zero interest is not tantamount to loan payment exemption. To secure the RM1.2 billion loan for Mengkuang dam expansion, Lim Guan Eng has willingly give away the prime assets of PBAPP and our rights to develop water resources and denied Penang the future earning on water resources projects. All Lim Guan Eng want is money and development but is it beneficial to Penangites?

    The increasing federalisation of state resources will deny the opposition held states the opportunity to have fair and equal development . This concentration of power is worrisome, especially because there is at present no coherent policy about which how development funds should be allocated back to the the various state governments. With the water resources assets under the control of PBAPP, the state government has more influence in formulating and implementing policies; a great deal of discretion in decision making and more relevant to diverse interests in society.

    Why such an important issue is not refer to the state legislature for debate? Did Lim Guan Eng ever consult with his PR counter parts or Anwar Ibrahim on the water deal ? Will Selangor state government follow the same foot path or go the other way? When Teng Hock Nam revealed the deal before the formal announcement in order to give credit to BN for allocating developemnt fund for Mengkuang Dam expansion, Lim was furious and reprimanded Teng for revealing state’s secret. When did a water deal become a national secret?

    Why Lim Guan Eng choose to make executive decision without refering to public opinion on the issue. This is the most egregious examples of a disturbing trend – bypassing the people on important decision making in the name of competency, accountability and transparency.

    Why should we surrender the state’s rights to develop water resources and the state’s water assets to PAAB? The PBAPP is one of the highly reputatable public entity in Malaysia in term of efficiency and management. PBAPP is not a money losing entity, it’s ability to perform is beyond question. If we can’t trust PBAPP on the development of the state water’s utilities, who should we trust? Decisions about public expenditure that are made by PBAPP will be closer and more responsive to a local constituency and are more likely to reflect the demand for local services than decisions made by PAAB . By depriving PBAPP the involvement in decision making process for the delivery of water resources services, how is Lim Guan Eng going to ensure that the federal government will not discriminate against Penang after assuming control over the water resources development.
    Should we just say no to change and vote for BN since Lim Guan Eng like to choose the easiest path and refuse to face challenges in governing the state?

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