Penang water assets transferred to federal hands


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
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Lina Soo

When Sabah was UMNO-nised, many of its state powers were federalised. Islam is now (effectively) the state religion, electricity has been federalised, in immigation Sabah have no idea who is coming in who is going out, etc etc. We in Sarawakians are doing our best not to allow UMNO to come in so we can resist federalisation of our state powers. But penang seems to be jumping for joy at this increasing centralisation of federal powers as seen in this power thingy.


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.


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’?


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.


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… Read more »


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… Read more »

Ong Eu Soon

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… Read more »



RM1.2 billion is no small money for Penang.

It is more that twice the state annual budget.

Ong Eu Soon

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… Read more »

Gerakan out of BN?

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 !

DAP joining BN?

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?


Why not?


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.

DAP joining BN?

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… Read more »


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…


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


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.


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… Read more »


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… Read more »


The question is, will it eventually be transfered to a crony who will use it to squeeze water out of stone like the IPGs?


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… Read more »


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… Read more »

DAP joining BN?

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?


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.

Core Competency

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.… Read more »


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.


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… Read more »

DAP joining BN?

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.


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…


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,… Read more »


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 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… Read more »

tan, tanjung bungah

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!


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.

Gerakan K

Anil, bangun lah. Masih mimpi ke ??? Penang sudah kosong, tak ada $$$. Sekarang 1Malaysia PM hulur tangan bagi membantu semua warga Pulau Pinang.

Sudah lah. Juara pembangkang pun sudah diam. Kenang budi saja lah. Jangan lupa undi dacing.

DAP joining BN?

We Penangites do not need Najib’s help.

We already kick all his Gerakan (people) out of office.

Fellow Malaysian

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.


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.



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.