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Thursday, May 8, 2014

Smokescreening won't work this time

Published: Tuesday May 6, 2014 MYT 12:00:00 AM 
Updated: Tuesday May 6, 2014 MYT 11:30:31 AM

Instead of masking its missteps, Pakatan Rakyat should take some responsibility for the water debacle in Selangor.

MY article published in The Star on April 29 sought to provide clarity over what has proved to be a national embarrassment – that it is 2014 and the richest state in this federation cannot supply water adequately to its people.

I did so, not for some cheap political point scoring but because of Pakatan Rakyat’s continued attempts to blame the Federal Government when the facts really point to the state government’s actions leading us to this unfortunate juncture. And more to the point, in an issue concerning something as basic as water, the people deserve to know how we found ourselves in this mess and how we get out of it.

The article was premised upon two very simple facts. First, the Selangor government’s refusal to allow for tariff increase as provided for in the concession agreements – alongside its failed attempts to purchase water assets – has led to the water companies, especially Syabas, failing to spend adequately to maintain the distribution system and reduce leakages or non-revenue water (NRW).

Second, its refusal to approve the construction of the Langat 2 water treatment plant since 2009 deprived the state of clean water supply it would have otherwise received. (If you remember nothing else from this article, remember that).

True to form, the Pakatan PR machinery moved into overdrive and within a day, we saw two responses – from Damansara Utama assemblyman Yeo Bee Yin and a former staffer to the Mentri Besar, Nathaniel Tan.

YB Yeo’s first accusation: the current water shortage is due to the change in rain pattern as a result of climate change. She believes that the water crisis is not due to demand growth as projected, implying that the Federal Government shouldn’t try to take credit for forecasting this exact problem years ago.

I’m not certain what her point is. Obviously, when forecasting supply and demand, one tries to take into account all factors and contingencies. Demand has been steadily increasing since 1998 at around 4% per annum and to suddenly blame climate change is a cop out.

The fact of the matter is – we forecasted the current water shortage in 2009 and advised them to relook their populist, cheap water policy. We even offered them an exit: Langat 2. What we got in return were statements like those of state exco YB Elizabeth Wong rubbishing the warnings back in 2011.

There is a related argument that points to other states having water supply issues, such as Johor and Negeri Sembilan – as if to suggest we should cut Selangor some slack. Two quick points: first, any disruption in supply in Johor and Negeri Sembilan have not been anywhere as severe and protracted as Selangor’s. Second, while we can link Johor’s water concerns directly to the drought due to the river’s proximity to the sea (meaning that a drop in water levels can lead to salt water going upstream), in Selangor, we saw dam levels drop since May 2013, way before any dry season. The point stands: there were warning signs for Selangor and there was a way out but they just didn’t want to take it.

YB Yeo’s second accusation: The water tariff in Selangor is already the second highest in the country and Syabas’ inability to reduce NRW is because it has been “misusing public money” – implying that tariff increases will be uncalled for.

It is true that the tariff is the second highest after Johor, even without tariff increases. But what Pakatan doesn’t want you to consider is that the piping network in Selangor accounts for 20% of the entire national network, what with it being the most populous and industrialised state with the largest economy. Never mind the fact that tariff increases are embedded in the concession agreements – as a regulating mechanism – clearly, the Selangor tariffs would be higher than Perak, Perlis or even Penang, which has been getting loans from the federal government (something they also don’t want you to consider).

What they further fail to mention is that NRW had fallen from 37.8% in 2005 to 33.1% in 2012 despite the natural deterioration (that is, NRW increases if no efforts are done) of 1.8% per annum. Curiously enough, YB Yeo acknowledged that Selangor needs RM540mil to reduce the NRW to the 15% target. Where does she or Nathaniel think the money is supposed to come from if it isn’t from the tariff increases?

YB Yeo’s third accusation: Langat 2 would only come on stream in 2015 and hence, would not solve the current problem.

Simple fact: had the state government not dragged its feet on awarding the Development Order since 2009, Langat 2 would have been operational now, providing an extra 1,130mil litres daily and avoiding the crisis today.

YB Yeo’s fourth accusation: despite the Federal Government taking over the bonds at RM6.2bil and injecting RM400mil for operations, Syabas has not reduced NRW sufficiently.

The RM6.2bil was to take over the bonds of the four water operators to avoid an adverse impact on the capital market and the RM400mil was for operational improvements, specifically to pay for the treated water it obtained from the three water operators since the state government rejected their application for a tariff increase. They had absolutely nothing to do with NRW reduction.

Now, it is true that we cannot keep throwing government money at problems. But there are times where the Government needs to spend to avoid a total collapse of an industry, such as would have been the case without the RM6.2bil injection to service bondholders.

Nathaniel claims the term “bailout” is more appropriate than “cash injection”, which I had initially used. I guess he is half-right – we did bail out the state government, which, in its politicking, was prepared to see precisely the water industry collapse we wanted to avoid.

YB Yeo’s fifth accusation: The Federal Government should not claim credit for agreeing to provide RM9.65bil to acquire the water companies but release assets to the state government.

First off, isn’t it telling that – just as its first accusation about water shortage forecast – Pakatan is clearly less concerned about how to move forward than it is with making sure it gains maximum political dividend? Isn’t it telling that even when the Federal Government agrees to set aside RM9.65bil to, again, bail out the state government and help it fulfil its election promises, they still find ways to blame us for it?

Bandying around terms like “unbridled greed of BN-linked corporate players” and “decades of corruption and cronyism”, they engineer smokescreens to hide a simple business fact in any modern economy: that a purchase arrangement needs to be on a willing buyer, willing seller basis. If they need any further evidence of that, they needn’t look very far as it is found in their repeated and futile attempts to acquire water assets below fair value since taking over in 2008.

Whether it is issues like tariffs or something altogether different like GST, the standard line of “BN corrupt” just doesn’t cut it any more when the facts don’t stack up and the numbers don’t add up.

In this unfortunate Selangor case, taking some responsibility is the first step to ensuring the crisis ends – because guess what? Pakatan could still drag its feet on Langat 2 and despite the recent end to water rationing, we might be back here in six months.

> Khairy Jamaluddin is the Youth and Sports Minister as well as the Barisan Nasional Youth Chairman. Contrary to popular belief, his house was also affected by water cuts.

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