In a move that reflects increasing centralisation of federal powers, RM655.2m worth of Penang’s water-related assets will be transferred to the federally managed Pengurusan Aset Air Bhd (PAAB) in exchange for the federal government financing the Mengkuang Dam expansion.
Penang water infrastructure - Source: PBAPP Annual Report 2009
The basic terms of the transfer of assets agreement:
- The Penang state government will be relieved of repaying an outstanding RM655m water supply loan due to the federal government.
- However, the state water authority, PBAPP, will have to pay PAAB an annual lease rental of RM14.56mil over 45 years for those assets (total works out to RM655m). (For the 2009 financial year, PBAPP incurred RM7.6m in “dam and mains lease charges”.)(RM600m of assets will remain under PBAPP).
- Upon expiry of the lease, the state land will automatically go back to the state. In effect, this means the state government/PBAPP won’t have to pay interest on its current outstanding loan while the debt burden will now be repaid by PBAPP through annual lease charges over a longer period. (The lease rentals will be tax deductible.)
- The Penang state government will be given a grant allocation (instead of an interest-free loan) of RM1.2bn for the expansion of Mengkuang Dam in mainland Penang. (Current capacity 23 million cubic meters; expanded capacity 78 million cubic meters.)
- The federal government will be fully responsible for handling water supply upgrading projects.
- The financing for future upgrading may come from a) future grants from the federal government, if given b) PBAPP asking for financing from PAAB, or c) PBAPP seeking its own external financing. (But who financed the original Mengkuang Dam and other dams in the state? Was it the state or the federal government? How did Penang manage that without transferring ownership of assets to KL? Shouldn’t this be covered by the taxes we pay to the federal government?)
- PBAPP will focus on providing water treatment and distribution services and improving efficiency (but surely much depends on the quality of the infrastructure?);
- The people of Penang will retain control of water tariff rates, which currently are the lowest in the country.
The big issue here is not whether it was proper for Teng Hock Nan to announce the deal but the whole rationale for transferring the assets to KL.
As I see it, the federal government now gets to control the handling of the RM1.2bn expansion of Mengkuang Dam and all other water upgrading projects in the future. Big money at stake there – which is probably the rationale for the new federal water laws that provide for the transfer of water assets to KL.
The question remains, how were the original Mengkuang Dam, the Teluk Bahang Dam and other dams financed in the past without ceding control of water assets to KL?
Bear in mind, we will lose control of about 50 per cent of the state’s water-related assets to PAAB and upgrading work will be handled by KL (like the upgrading work on Penang Hill Railway, which was handled by KL).
We might save on interest and lower lease rentals over a longer period (than the original loan repayments) – but will lease rentals imposed on PBAPP be increased after future infrastructure upgrading is completed?
This continues a trend of major infrastructure projects coming under federal control: think Penang port, Penang airport, hill railway ‘upgrading’, Penang Bridge 1 and 2, RapidPenang.
Not a step in the right direction. In fact, it is a bad move and detrimental to the interests of the people of Penang.
If ever Pakatan takes over Putrajaya, we should insist that all these infrastructure projects (including any upgrading work process) be returned to the respective states and decision-making on the upgrading of infrastructure decentralised.
Source: PBAPP Annual Report 2009
anil,
agree with you that responsibility should revert you state but the usual constraint is the availability of funding. the funding is controlled by the Federal Government and you know how BN uses that to arm twist the states under opposition control. If PR ever comes to power, its first step is to ensure more equitable methodology in funding for each state and hence less federal-centric. Decentralisation should be the key to allow each state to develop at optimum level.
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We Penangites do not need Najib’s help.
We already kick all his Gerakan (people) out of office.
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Kalau semua orang pikir macam kamu… Habislah Malaysia. Karam sampai saki baki pun tak tinggal. Cuba bayangkan bumi mana yang tidak ditimpa hujan. Rome was not built in one day my fellow Malaysian. Jika kerajaan yang terdahulu paham unsur-unsur asas pentadbiran negeri, maka pihak PBAPP tidak perlu melalui rintangan sekarang. It’s a domino effect.
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No money is better than no dignity. UMNO Najib has promises to the Kg Melayu flat (the water pump if i am not mistaken) and they are still waiting. LGE promise the KBPala and they are ready to move into their brand new 750,000 house by this June minus the 9.
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When country such as USA start utilities deregulation, introduce more competition into the market, Malaysia AKA the Bolehland did the otherwise.
Again, Bolehland government use the absurd “natural monopoly” as excuses, but I am quite disappointed when LGE say this is decision made by previous Penang administration, he failed to carry out any talk on free market, deregulation,etc.
Besides showing Texas electricity deregulation as a proper executed free market that bring down the overall price, USA also show an bad deregulation that similar to Malaysia TNB+IPP style in California electricity crisis.
Centralised always bad for market. Today, except crooks economist, worldwide economist shy away old idea of “natural monopoly” .
There is no solid proof that competition in so called “capital intensive utilities” , will hurt the market and drive the price up. This is something that Malaysia federal government frequently used to fool typical Malaysian.
Take automobile industry as example. The industry capital investment is way HUGE than many country utilities. We did see some manufacturer being drive out of market, HOWEVER, the world car price did come down, even after many manufacture bite the dust, being take over by merging and acquisition process.
Are water utilities “capital intensive”? Think twice. This is not 1970 world. Today, there is no such bull… as capital intensive when come to open market. If carefully selling the water business to few investor, enact proper deregulation rules, it still allow market profitable and compete to bring price down.
Malaysia is a country that INFESTED by inefficiency. Compare to public owned utilities, private company are more innovative to improved efficiency. Indeed, in open market, private company that enter any business, will research ways to improve efficiency than lobbying handout. The messed up IPP show how political concession and subsidies hand out killed efficiency and innovation. And don’t get me start on the Proton messed up, after 20 years of protection and handout to secure the business.
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But then again, PBAPP, which is government/publicly owned, is widely regarded as one of the most efficient water utility companies in the country.
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Anil, there is nothing much to cheer about PBAPP “above average” performance. A Kampung Jaguh mean little to open world.
Digging Penang non-revenue water NRW wastage, I come along with this article
http://www.waterwatchpenang.org/letter-to-chief-minister-on.html
Penang 21% NRW definitely better than the nation average 38% , but Penang average population water usage volume also above the country average.
Since water usage style are highly dependence on the usage, deregulate water and conservation policies will give significant impact , on price , efficiency and usage.
Reduce 21% NRW to 10% is something impossible without private initiative. Innovation only possible when there is profit and competition pressure. Innovation never happens to people that drawing secure salary. A “competent” corporate staff/government staff may not be good enough for share holder, entrepreneur.
Let me elaborate some innovative from the financial angle. i. Can PBAPP cut the electricity cost further? By predicting the usage pattern? I think they can.
ii. Can PBAPP selling bulks in discount rates so they predict the usage and take early payment? The answer is NO since PBAPP are heavily regulated.
iii. Can PBAPP increase more than 10 tiers of tariff, to shape the usage? Again, the answer is no, tariff regulation prevent this. This is funny because it does not introduce any difficulties since the calculation already computerised.
iv. If PBAPP treat more water , it will be more profitable? Ironically, the answer is NO. Water works are NOT telephone line. More water treatment, more maintenance works, more cost incurred. And there is sweet point that you don’t earn much after you cross over point. Real private player may think of outsourcing or involve in water recycling plan, e.g. reuse rain water, etc.
As above multiple tiers tariffs, it can reduce water usage dramatically, or even introduce innovative business to the water utility company.
v. When selling bulks and get payment earlier, it will increase water utility liquidity. This will save them millions, perhaps tens of million on loan interest.
vi. PBAPP cannot issues bond to the public. Now they borrow money from federal government. This is absurd. In addition, PBAPP cannot roll out innovative idea to finance their improvement, why can’t water utility company issue “prepaid water”?
v. Why can’t the utility company outsource the bill taking work to one entities? Isn’t it redundant when TNB and water works get separate person go to same home to take reading?
vi. From water bills reading and each area water gauge reading, how difficult it can be to isolate source of NRW? Even without individual water gauge reading, a database “mining” method will reveal every area usage pattern and statistic can help isolate possible leakage and reduce NRW. Did “efficient” PBAPP ever think of using the “data mining” technique?
v. After shaping the usage, do you think PBAPP really need to spend hundred millions for huge expansion that deems wasteful (similar to Malaysia that enact IPP with bogus forecast) ?
The list will go on. Do you think PBAPP capable to execute all these innovation, under controlled market mindset and regulation?
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Hi moo-t,
We should study the terms that the previous BN Pg State Govt, led by the political eunuch, (allegedly) signed with the BN Federal Govt. Were the terms inked by the previous state govt such that the subsequent state administration(s) have no choice but to follow through, except in this case it seems that the present PR State Govt renegotiated for better terms for the state.
It would be telling if we can compare the renegotiated terms with the terms committed by the political eunuch KTK!
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After 20 years of protection and handout to secure the ballyhooed business, the Apanama doctor of sickly Proton handouts is still in denial of what ailments befell fragile still-growing baby Proton – acronym for Problems By The Tons.
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Our federation system is totally failed… And there is no rational in any decision by our government… The only rational is whether there will be money for cronies…
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Hi Anil,
My response to your observations are as follows:
1. The current deal done by the Png state govt with the Fed Govt is clearly in the best interest of Penangites. Eg. the restructing of the outstanding loan of RM655m alone will give a savings of RM547m. The other positive aspects of the deal are already stated in your article.
2. Thus, the current team has earned their credibility that they will act in the best interest of the State. For all the “future” questions that you have posed above, I am certain, once again they will be handled in the best interest of the State as when it arises.
For anyone who doubts, all i can say is time will tell and lets see. As always, I welcome Anil’s constant watchful eye.
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How can you say “clearly in the best interest of the Penangites” when the LGE administration never even bother to hold any consultation with the same Penangites who voted them in?
Your blind support for LGE is as bad as the blind support of some of those Perkasa members towards Ibrahim Ali.
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Big money at stake here – yes, I agree.
And I fear for the consequence of the ceding of control of the assets to the federal govt. Sweetheart deals favouring cronys will push up future infrastructure costs, which in turn will impact on leasing charges that the state has to pay to the federal govt. The state may be responsible for determining the water rates, yes, but as these rates are also affected by the infrastructure costs/leasing charges, then Penang residents will suffer in future, as the state govt will not be able to continue maintaining its competitive rates.
The only reason that Penang water rates has been the most competitive all this while was because the water assets was under the control of the state. That the water rates in Selangor has been so much more expensive was due to contracts given to cronies.
This is definitely a step in the WRONG direction, for Penang state. LGE – I am not wrong to say that many of us have a really bad feeling about this – will have to explain this decision. Or be deemed to have sold out on Penang voters.
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The state will need the money to add to the present Mengkuang dam (& other reservoirs) capacity to take us beyond 2020. It is difficult for the state to come out with RM1.2 billion from its existing revenue collection to foot the total bill independently unless its residents/customers are immediately willing to pay a lot more for their water.
So don’t blame the state government for agreeing to this.
After all, Penangites pay one of the highest income taxes to the federal coffers. It is right that we should claim some of those benefits back from Putra Jaya in the form of infrastructure improvements.
If the problems of rent seeking, corruption and cronyism are with Putra Jaya, then we should galvanise the nation and sack the present government there in the next General Election.
Please direct punishment at the appropriate party.
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I fully concur with your views.
With no more supervision right towards the water infrastructures within the state of Penang for the next 45 years, – and _anything_ can happen within the 45 years – the Fed can pile up Billions and Billions of debt on the People of Penang.
Why is there NO CONSULTATION with the People of Penang before the deal was signed?
Aren’t the Penang State Government a government of the people?
Why don’t the Penang State Government respect the People of Penang’s right to know?
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No, I disagree.
The Federal Government cannot pile up billions and billions of debt only directed at the people of Penang unless that money is taken as a loan by the state from the federal treasury.
I see no such arrangement in the water asset transfer deal.
Whatever debt the Fed incurs, like the RM1.2 billion grant to Penang for the expansion of the Mengkuang dam, the whole nation must bear.
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Is this the first day you are in Malaysia or what?
Don’t you know how UMNO operate?
If they want to do something, what is there to stop them from doing it, especially NOW that they legally own the water infrastructure that supplies water to the Penangites.
What if they decide to lay pipes – lets say, made of MOON ROCK, that cost BILLIONS – and then charge the Penangites for it?
Can we say, no way, you ain’t gonna lay those moon-rock-pipes in Penang?
Nope.
You see, LGE already signed away OUR RIGHT of saying “NO” in this matter.
For the next 45 years the FED will have the final say as to how they want the water infrastructure in the state of Penang.
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Look at the terms of the agreement.
They consist of a lease with a fixed amount periodic payment and a grant.
How on earth can they charge anything more to the people of Penang even if they lay gold plated pipes?
If they spend more money that planned, the whole country pays unless there is another agreement.
For that, all of us have to make sure Gerakan doesn’t return to surrender to UMNO.
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The question is, will it eventually be transfered to a crony who will use it to squeeze water out of stone like the IPGs?
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Anil, the Penang state annual budget is barely 1/2 billion ringgit. This is an anomaly of the federal constitution where individual states have limited avenues for revenue collection and no jurisdiction over all functions of governing except land, water and municipal functions. Even now water is to be surrendered to federal authority.
Thus, it is appropriate that more power and jurisdiction should be retained at the state level rather than have them yielded to federal control. If not, why then have an election for a state government?
When the combined opposition win control of Putra Jaya, they should consider amending the federal constitution to return more power to individual states.
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soon,
end of the day, the federal government will enforce the act to takeover the water assets. again, its a centralisation policy of the current federal government and reduce the state to just a pure rubber stamp. after the water assets, they will train their eyes on solid waste and will take full control as provided in the current legislation. again, the federal government will parcel the sweetheart deals to their cronies while the state government looks on helplessly.
the state government can oppose but for how long? the federal government will just have to tighten the noose round the neck financially and the state government, be it PR or BN led will have to play to their tune or at best negotiate for the best deal as it is. You can bet the last dollar the construction of the Mengkuang dam will (probably) be inflated and given to a crony. Thats a given. Look at MCA initiated funicular train upgrade. Budget was RM40m but end up costing RM80m and it stops working after a week.
In short, centralisation of key assets at the hands of the federal government is for dual purpose. To reduce the powers of the states and facilitate the parcelling of sweet-heart deals to the cronies.Only way out is to vote out this federal government and cancel the sweetheart deals and return whats due to the states, be it PR or BN controlled.
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I think even LGE agree with you if he could avoid it. The fact of the matter is states don’t have the finance to develop future water resources without Federal Govt. The cost is simply too big. It could only have been avoided if the they had been more careful in managing our rivers and development not to have to do these big projects so quickly. Its ridiculous the amount of water Penang uses and have to reach so far away for Penang to get its water.
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In this world nothing is static. Let us wake up tomorrow and see PR takes over the Federal Government!!! Then let them pressure the new Federal Governemnt to distribute allocation in a fair way
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Looks like the rumor that DAP may end up joining BN is valid.
Before the transferring the assets of PBAPP to the fed, did the DAP-led government in Penang ever consult with the voters of Penang who voted them in?
No?
Why not?
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I don’t know about DAP joining the BN.
But yes, there certainly should have been more public consultation and engagement on this issue.
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Anil,
Don’t you realise that this contract was inched by the previous Gerakan government which the current LGE govt was unable to avoid but instead negotiate for a better deal. They have already negotiated for a better deal for the people of Penang just like the KB Pala issue.
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If the contract was already inked, can the terms now be changed?
Or was it just a verbal agreement or an agreement in principle?
This is why we need more transparency and public participation/consultation on such a major decision.
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Are you sure that the contract was previously inked by the Koh Tsu Koon?
Or are you just saying that because Lim Guan Eng says so?
If the contract – and I mean, the contract to hand over the asset of PBAPP to the fed was inked by Koh Tsu Koon, why can’t Lim Guan Eng show us the proof?
I do not believe in neither Koh Tsu Koon nor Lim Guan Eng.
I will only believe what I see – and they better show us, the Penang Voters, the proof, or else everything is nothing but a big lie !
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This reminds me of the other surprise LGE sprung on Penangites, the channel-tunnel thing. No consultation whatsoever, billion-dollar thing, so people are bound to wonder…
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aiyah, LGE or KTK is irrelevant !
People or Rakyat is the Master.
So if rakyat don’t care then BN or Pakatan simply do as they like.
Simple as that !
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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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PBAPP’s net profit is RM11,035,000 for the 1st quarter of FY (3-31-2011). There is no reason why it need a loan restructuring now. If Pakatan is so confident of winning Putrajaya, why need to surrender the water asset in exchange for Mengkuang dam expansion? The Mengkuang dam expansion will not take place in the next two year, but the next GE might take place any time. Once winning Putrajaya, where is the problem of getting development fund for Mengkuang dam expansion? Lim Guan Eng has once again betrayed us by selling the state’s rights to BN for a small token sum of money. RM1.2 billion is not worth for the state to surrender it’s rights to develop future water resources projects.
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Ong,
RM1.2 billion is no small money for Penang.
It is more that twice the state annual budget.
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wira, mme, bigjoe, yang -
The state govt should never forget that CONTROL is the name of the game. That their hands were tied and they were forced to agree to giving up control of the state water assets – their job is then to disclose this to the voters at large. They should not cede control without giving us the chance to voice our displeasure. The federal govt should be made to realise that Penang voters will not gladly suffer their inteference.
The state govt might have been able to further leverage on our disapproval – and obtain the necessary financing from the feds, while STILL RETAIN CONTROL of the assets. The finance is our dues, from taxes we have been paying – we do not have to beg – it is our RIGHT. There was no good reason to give up our state assets.
The voters, whether state or nation, do not have to suffer as a result of sweetheart deals made by the federal govt.
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Soon,
I see no merit in the state incurring debts and servicing a huge loan just to keep control of the assets. The federal government cannot strip the state of those assets. They have to be used in Penang for Penangites.
As long as the state retains control over the operation and have the final say over the state of management and finance of the water authority, I would rather have the federal government taking over the assets and leasing them back to the state at favourable terms in interest free loans and grants to bring our total water requirement to beyond 2020.
After all, all assets on state land after the expiration of the land lease revert back to state control. This deal looks even better than the MAS deal.
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Anil,
Why dont you initiate a Citizen Discussion Group or something similar, so that we can meet and discuss among us. Clearly, some of the views expressed has merits and some have not taken the trouble to read whats available to the public before expressing their view. Like minded people who are concerned will come togather.
Im game to meet.
Cheers
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Off topic: could we be about to see a biogas ‘Fukushima’ – did you spot the suggestion that the deadly E-coli outbreak in N.Germany could have been caused by a ‘biogas plant’?
http://www.themalaysianinsider.com/world/article/german-hospitals-swamped-with-e.coli-victims/
http://www.smh.com.au/world/bean-sprouts-the-source-of-deadly-e-coli-outbreak-20110606-1fnva.html
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m with you on this in particular the return of powers to the state. and that can only be done if BN is kicked out.
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