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Categories
| Puncak Niaga in a quandary |
| Features | |||
| Written by Jose Barrock | |||
| Monday, 01 June 2009 00:00 | |||
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For the first three months of the year, Puncak posted a paltry net profit of RM498,000 on the back of RM350 million in revenue. For the corresponding period a year ago, net profit was RM3.5 million while revenue was RM346.9 million. Puncak’s earnings per share was at a measly 12 sen during the three months in review, down from 86 sen a year ago. The company’s net profits have seen steady decline as a result of high capital expenditure, largely related to the need to change ageing pipes. Puncak’s net cash from operating activities entered positive territory at RM60.9 million as at end-March this year, from a negative RM93.5 million last year. This, however, is due to Puncak reducing its payments to water treatment operators from RM196.6 million a year ago to RM109.5 million in the first three months of this year. Puncak wholly owns water treatment company Puncak Niaga (M) Sdn Bhd and 70% of Syarikat Bekalan Air Selangor Sdn Bhd (Syabas), which has the concession to supply water to Kuala Lumpur, Selangor and the federal capital of Putrajaya. Syabas purchases treated water from Puncak Niaga (M), Syarikat Pengeluar Air Selangor Holdings Bhd (SPLASH) and Konsortium Abass Sdn Bhd. Non-revenue water (NRW) in Selangor, analysts say, stands at about 30%. NRW is water that has been treated but does not reach consumers, either through theft, burst pipes or other related problems. NRW has eaten into Puncak’s and Syabas’ margins. An analyst with CIMB Research says, “Puncak’s tariff hike needs to be dealt with. The numbers were low… weaker industrial demand for water and tax treatment also added to the issues,” he says. Addressing the problems According to Puncak’s notes which accompany its financials, the company has submitted its request for a 37% water tariff hike for Syabas. The hike, which is part of the concession agreement, was supposed to take effect early this year, and Puncak had submitted a claim for compensation for the delay in April. The compensation, totalling some RM30 million, is payable by end-June. CIMB, in a research report, said the Ministry of Energy, Green Technology and Water has set June 2009 as the deadline for talks to begin between Selangor and local water operators on how they plan to consolidate the water industry. This seems to be an obvious reference to the fact that Puncak needs to be compensated at the same time. But it is a tall order. After so many false starts, many in the industry doubt anything will happen by end-June as there is so much to be done. Consolidation or not, the question is, will Puncak get its compensation by end-June in lieu of the delay in tariff hike? Judging by previous records and the fact that the state government is controlled by Pakatan Rakyat, there could be delays. The state government has attempted to revoke Puncak’s concessions, stating that the company has not met with the terms of the concession agreement inked in 2005. It was reported that Selangor Menteri Besar Tan Sri Abdul Khalid Ibrahim had written to the Energy, Water and Communications Ministry (then under Datuk Shaziman Abu Mansor) in December last year, seeking to terminate the lucrative water concession agreement on grounds that several terms have been breached. Among the key terms that Puncak had infringed, according to the state, is that capital expenditure (capex) and operating expenditure were beyond the approved ceiling as well as the failure to implement open tenders in capex works. Other terms that Puncak allegedly contravened include the appointment of companies related to its major shareholder to undertake project management and technical works. Puncak was supposed to reduce NRW to 28% by end-2008, but has only brought it down to 30%. This itself should not qualify the company for the 37% tariff hike, the Selanor state government had said. It has threatened legal action if Puncak’s concessions are not revoked. With these issues looming, it is unclear if Syabas or its parent Puncak will succeed in getting compensation. The analysts also say the state government will end up paying the compensation to Syabas and Puncak as they are the ones who are opposed to the tariff hike. A new deal in the offing? There has also been considerable bickering between the state government and Tan Sri Rozali Ismail, Syabas executive chairman, who is known to be a close associate of some of Umno’s top leaders. Part of an earlier plan was for the water assets in Selangor to be consolidated under the state government, but after a glitch it has been revived. To recap, negotiations stalled after the four water concessionaires — Puncak Niaga (M), Syabas, SPLASH and Konsortium Abbas — scoffed at a RM5.7 billion offer made by the Selangor government for their water assets and concessions. Selangor was looking to buy up the assets and flip them to Pengurusan Aset Air Bhd (PAAB), which would enable it to negotiate operations and maintenance contracts, nudging Rozali out of the picture. The state could also have made a hefty gain from a marked-up price. There are about 110,000km of water pipes in Malaysia and close to six million connections. News reports have said that some RM52 billion worth of pipe works will have to be carried out from 2000 to 2050 to meet the increased demand for water. Puncak was offered RM3.1 billion for its two units, while the controlling shareholders of SPLASH received an offer of RM2.1 billion. Titisan Modal (M) Sdn Bhd, the parent company of Konsortium Abbas, was offered RM525.7 million for the latter. After the state’s offer, PAAB had jumped into the fray and suggested that it would make an offer of more than RM5 billion, suggesting that the state’s offer was too low. But nothing has come out of it. Since then, Prime Minister Datuk Seri Najib Tun Razak’s stance is that the consolidation be market-driven by the concessionaires themselves. This could be taken to mean that the state will be nudged to offer more, while the concessionaires will be pushed to accept the better offer. Speculation is rife of a higher offer, but till this happens, Puncak’s fortunes remain uncertain. Puncak closed at RM2.98 last Friday, inching up six sen. This article appeared in the Corporate page of The Edge Malaysia, Issue 757, June 1-7, 2009.
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