- A timely reminder. The local press recently reported that Energy, Green Technology and Water Minister Datuk Seri Dr Maximus Ongkili has reaffirmed the Federal Government’s target to reach a definitive agreement with the Selangor government on the restructuring of the state’s water services industry by December.

This comes amid the shutdown of water treatment plants last Friday morning after diesel from a factory in Rawang had spilled into Sungai Selangor’s tributary.

One million consumers in seven Selangor districts were affected following the temporary closure of the Sg. Selangor Phases 1, 2 and 3 as well as Rantau Panjang that draw water from Sg. Selangor. The plants have resumed operations since 3.a.m. last Saturday, with water supply expected to fully normalise within a weeks’ time.

The four plants produce c. 2.7 bil litres of water daily, accounting for 57% of the water demand in the Klang Valley.

Currently, most of the water treatment plants (WTP) in the Klang Valley have almost reached their design capacities.

- Progress on Langat 2 moving again in tandem with water restructuring talks. This recent episode comes amid renewed optimism that the Langat 2 project would be revived, as construction works at the Pahang portion of this water transfer scheme is set to be completed by mid-2014.

The Selangor government has maintained its stand that it is keen to consolidate the various segments of the state’s water industry under one roof, including Langat 2. The state government may finally give its blessings for the project at the right price.

We acknowledge that several infrastructure projects may either be scrapped or rescheduled to accommodate the federal government’s fiscal consolidation measures (more details to be unveiled in the upcoming Budget 2014 announcement next month). Nevertheless, we expect to finally see the long-awaited rollout of Langat 2, likely by yearend – given its strategic importance in meeting the future water requirements in the Klang Valley.

- Who are the frontrunners? Our channel checks indicate that five parties were shortlisted to construct the first package of the Langat 2 project – a 1,130 million litres/day (mld) WTP worth c.RM1.2bil. They are IJM Corp; Gamuda; UEM Construction Sdn Bhd; a JV between Salcon, MMC Corp and Ahmad Zaki Resources Bhd (AZRB); and Asia Baru Construction Sdn Bhd.

We also learn that the piping package (plus other ancillary works such as reservoirs) could be worth as much as RM800mil. We see JAKS Resources as a frontrunner, given that it is the country’s only integrated water engineering specialist capable of delivering large transmission line pipes on a supply-and-lay basis.

However, how the capex works would be apportioned remains uncertain at this juncture. The Star had reported last July that the Selangor government wants the rights to develop, operate and maintain the Langat 2 WTP, including a role in the development of its main package.

Furthermore, we understand that state-backed Kumpulan Darul Ehsan Bhd (KDEB) had on 16 January 2008, received cabinet approval to be appointed as the ‘operating and maintenance’ company when Langat 2 is complete. importance in meeting the future water requirements in the Klang Valley.

- Maintain OVERWEIGHT. While 3Q may be quiet, we expect newsflow momentum on the construction sector to reaccelerate after Budget 2014 next month. Apart from Langat 2, we expect more details to be unveiled on select infrastructure projects such as the Klang Valley MRT 2, West Coast Expressway and basic infrastructure packages for RAPID. In addition, building/infrastructure opportunities remain bright for Malaysian contractors, given the strong development momentum pervading within the SCORE and Iskandar Malaysia growth corridors.

Source: AmeSecurities