- The Star reported that the Cabinet Committee tasked with looking into Selangor's water issue is pushing for the construction of the Langat 2 water treatment plant (WTP) to avert an expected water crisis in the Klang Valley by 2014.

- Deputy Prime Minister Tan Sri Muhyiddin Yassin said the committee would propose for the tenders to be issued by next month. Ideally, the government is hoping for the project to be start this year so that it can be completed by 2015 ' whereby construction works are tipped to take at least three-and-a-half years.

- Recall, the Langat 2 water supply scheme forms part of the Pahang-Selangor interstate-raw water transfer project worth close to RM9bil. The WTP is supposed to provide an initial 1,130 million litres/day (mld) of water to Selangor, Putrajaya and Kuala Lumpur.

- Muhyiddin acknowledged that the federal government would still need the consent of the Selangor government to proceed with the plant. The Attorney General would be tasked with looking at legal avenues to press ahead with the project. 

- In a related development, the committee has rejected the Selangor government's proposed takeover of Syarikat Bekalan Air Selangor Sdn Bhd (SYABAS) on grounds that the latter did not comply with the water concession agreement, including the scheduled water tariff hike and management of non-revenue water (NRW).  

- The committee has also tasked SYABAS with coming up with a contingency plan to deal with possible water shortages in the future, although it believes SYABAS' proposed water rationing in the Klang Valley was not necessary at this juncture although several areas may be facing some water problems. 

- In response, the Selangor government is reportedly looking at using its own money to upgrade the existing Sg.Selangor Phase 1 and 3 plants to boost water supply in the state ' if its request for funds is turned down. It believes that both plants are operating below their maximum capacity due to a lack of sufficient lines to channel out the additional treated water. In addition, there are also plans to fork out an additional RM200mil to RM300mil to upgrade the technology to supply treated water.

- On SYABAS, the state government may resort to holding a referendum to gauge whether the public is supportive of a state-led takeover of the concessionaire.

- Without the state government's approval, we are unsure how the federal government would proceed with the construction of Langat 2 as the spectre of the 13^th General Election looms ahead. The project has previously attracted interest from a multitude of Malaysian contractors with a track record in water works. These include Gamuda, IJM, WCT, JAKS Resources and privately-held Loh& Loh.

- Given the continued uncertainties, we maintain our NEUTRAL rating on the water sector. Puncak Niaga Holdings and Kumpulan Perangsang Selangor (KPS) remain as HOLDs.

Source: AmeSecurities