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MALAYSIA: Nation Tightens Water Concessions


by John BurtonFinancial Times
December 2nd, 2004


Malaysia said yesterday it had imposed tough new conditions on the privatisation of water utility assets as it seeks to make more transparent the sale of state assets to reduce alleged cronyism and corruption.

The move comes as the country is preparing to award its biggest privatisation contract since Abdullah Badawi became prime minister a year ago with a vow to curb graft.

The government plans to grant a 30-year concession for water services in the densely populated Klang Valley area, which includes the capital Kuala Lumpur, to a group led by Puncak Niaga Holdings.

The multimillion-dollar deal is part of a M$50bn (US$13bn, ⒬10bn, £7bn) government programme to improve water and sewage services in one of the country's biggest infrastructure projects.

The water privatisation programme, however, was criticised for awarding contracts without open bids and giving generous terms to the new concession operators when it was conducted under the previous government of Mahathir Mohamad.

Lim Keng Yaik, the energy, water and communications minister, said water utility operators would have to meet strict performance criteria before receiving any price rises instead of enjoying an automatic increase in water tariffs.

The Klang Valley concession is seen as a test of the new government's ability to introduce more competition in the awarding of contracts.

Puncak initially received the concession last year without open bidding, but it was then made subject to a public tender process with several competing bids after Mr Abdullah took office.

Mr Lim said the Puncak consortium would have to conduct competitive bidding for any big contracts and justify any capital spending to the government.

The terms of the Puncak deal are expected to serve as the model for future water concession awards as the government seeks to end its reliance on state-run water operators, which have run up huge debts.

Puas, the state utility unit, which formerly managed the Klang Valley concession, is struggling to meet about M$2.3bn in debts owed to suppliers of treated water.

Puncak will assume the Puas debts, but the government has agreed to provide M$500m in soft loans and grants to replace old pipes.




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