- The Edge Financial Daily reported today that the Federal and state governments are disagreeable on certain terms in the draft of the Heads of Agreement (HoA).

- According to sources quoted in the story, one of the key issues that both governments cannot agree on is the operation & maintenance (O&M) concession for the water treatment plants (WTPs).

- It is understood that there has been “strong lobbying” for the O&M concessions to be granted to the existing concessionaires, namely Puncak Niaga Sdn Bhd and SPLASH. However, the state government is also eyeing the O&M concessions to be held via its investment arm, Kumpulan Darul Ehsan Sdn Bhd (KDEB).

- According to the report, the deadlock could result in the state government freezing the remaining development orders for the Langat 2 WTP. Nevertheless, works had started for Langat 2 last week with 16 development orders approved.

- Recall that a consortium comprising Salcon Bhd, MMC Corp Bhd and Ahmad Zaki Resources Bhd was awarded a RM993.8mil contract last month to build the Langat 2 WTP and water reticulation system phase 1.

- There is a possibility of the current concessionaires being awarded the O&M licences. Under the Water Services Industry Act 2006 (WASIA), the Federal government has the right to appoint the O&M concessionaire.

- Note that following the water restructuring exercise in Johor, SAJ Holdings (a private entity) continues to manage the water distribution in Johor and is leasing the water assets from Pengurusan Aset Air Bhd (PAAB) for O&M.

- We also understand that a form of water tariff hike is also one of the key issues that are being discussed in the protracted negotiations between the two governments.

- According to the report, there are another 70-80 development orders to be approved for the Langat 2 project. The HoA is expected to be signed in the near term and will outline more details on the Selangor’s water restructuring plans. Maintain NEUTRAL. 

Source: AmeSecurities