- The Edge Financial Daily reported today that the Selangor state government is unlikely to grant a third extension to the master agreement signed last Sept to restructure the state’s water supply industry.

- Note that the second extension lapses today.

- The report quoted sources as saying that the Selangor government had rejected the Federal’s request for another extension until 31 March. This is because the state is unwilling to accommodate changes to the master agreement, which will allow the Federal to acquire all land utilised for water assets for free.

- Selangor Menteri Besar Mohamed Azmin Ali said these terms were never agreed upon in the master agreement. He is expected to issue a press statement today.

- The delay in completing the water deal is due to dispute on the ownership of certain assets between the two governments.

- Energy, Green Technology and Water Minister Datuk Seri Dr Maximus Ongkili said last month that assets in Semeyih and Bukit Nenas were originally known as state assets, but claims that they belong to the Federal government upon closer scrutiny. He noted that the land belongs to the Federal government while the infrastructure belongs to the state.

- Note that the completion of Puncak Niaga Holdings Bhd’s water deal hinges on an agreement between the two governments in order to meet conditions precedent.

- A collapse in water talks between the two governments will surely become a setback, and delay the restructuring of the water industry in the state.

- On a more positive note, it is understood that the state will still agree to the original master agreement even if the offer lapses, as long as no new terms are demanded.

- Also, Phase 1 of the Langat 2 will still carry on as approvals had been granted earlier.

- In our view, we believe that a collapse of talks will see both governments return to the negotiation table and delay the completion of the restructuring exercise. Nevertheless, we remain hopeful that dispute can be resolved soon. We maintain HOLD on the sector.

Source: AmeSecurities