Thursday, January 26, 2012

An Analysis of "Negotiation Skills" in Water Industry Restructuring: Tale of the Proofy AhBeng

It took the Government 88 days to respond on the "Highest Debt Reduction Effort in the History Of Malaysia" by none other than Mr Lim Guan Beng

PETALING JAYA: The DAP-run Penang Government was only able to record a positive budget because it shifted its RM630mil debt to the Federal Government, said the Finance Ministry. Deputy Minister Datuk Donald Lim, who disclosed this, said it was wrong for Chief Minister Lim Guan Eng to mislead the public into thinking that the state had settled the loan on its own. The deputy minister explained that the state debt was actually transferred to the Federal Government following a water restructuring agreement that was initiated even before Pakatan Rakyat came to power in Penang.
Under the rationalisation scheme, the state must pay interest-free rental of RM14.6mil annually for a period of 45 years, he said. Lim said this in response to Guan Eng's claim that the Penang government had successfully reduced its debt by 95% from RM630mil in March 2008 to RM30mil in Oct last year through prudent and transparent financial management. here
88 days.

Monkey took 24 Hours after the Ahbeng tried to kencing go here in case lu masuk hutan baru keluar semalam.

Let us go back to the basic on this issue to understand what exactly is being negotiated and what is the framework of negotiation

In early 2003, the Federal Government stepped up efforts to reform the industry for the benefit of all stakeholders including the Federal Government, consumers and the State Government. It is an extensive process which included amendments to the Constitution and passing of new legislations to enable the Government to mobilize the reform.

In January 2005, Parliament approved the amendments to the Ninth and Tenth Schedules of the Federal Constitution. The amendment to the Ninth Schedule involves the transfer of water supplies and services from the State List to the Concurrent List. In other words, the water supplies and services is now a shared responsibility between the State and the Federal Government. It is a pertinent move which gives the Federal Government authority over the water services in the States. The Tenth Schedule was also amended and as a result, the revenue from water supplies & services (previously assigned to the States) is now assigned to the Federal Government.

Consequently, with effect from 21 March 2005: - The Federal Government will regulate the water supply & services industry but ownership and control of rivers, canals & water catchment remains with the State. The State also retains power to declare & regulate water catchment areas, water sources and river basins. In July 2006, further to the amendments to the Constitution, Parliament passed two new legislations namely the Suruhanjaya Perkhidmatan Air Negara Act 2006 and Water Services Industry Act 2006 (WSIA). The former provides for the establishment of Suruhanjaya Perkhidmatan Air Negara (SPAN) or National Water Services Commission as the technical and economic regulator and set out the function and powers of SPAN. WSIA, on the other hand, provides the legal framework required for the regulation of the water and sewerage service industry. The Acts were enforced on February 1, 2007 and 1 January 2008 respectively.

Separation of responsibilities: towards better efficiency The legislative process was only the tip of the iceberg. Given that the current business model adopted by most State water operators does not promote sustainability of the water services industry, the Federal Government had to reinvent the wheel. A new model was developed, targeting to resolve the financial woes of the water services industry, promote financial sustainability in the State water operators, and alleviate the Federal Government/taxpayers’ financial burden. In the long run, the Federal Government wants the state operators to achieve full cost recovery and attain financial independence. These efforts will ultimately lead to improvement in the quality of water supply and the efficiency of the industry’s services.

Under the new model, there will be a separation of responsibilities between water asset owners and operators. State water operators will no longer be responsible for developing water infrastructure and its funding so that they can concentrate solely on providing water services to consumer and improving their operational efficiency. The responsibilities of developing water infrastructure and sourcing for its funding will be transferred to Pengurusan Aset Air Berhad (PAAB).

How it works: Under this arrangement, PAAB will first take over the existing water assets in the States to transform the state water operators into asset-light entities. PAAB, on the other hand, will become water assets owners after buying the water infrastructure from the states. In exchange for the assets, PAAB will assume the States’ outstanding Federal water supply loans of an equivalent sum. (However, for some states where the value of the water assets is more than the outstanding loan amount, the surplus value will be taken into consideration and the settlement terms will be negotiated.) By transferring the loans to PAAB, the State Governments will be immediately relieved of the heavy burden of settling the Federal water supply loans. The Federal Government, on the other hand, will own the States’ water infrastructures via PAAB, enabling it to have better control over the water industry. After the transfer of assets, the State Governments will continue to be responsible for providing water supply services in the states. However, instead of owning the water assets, the State water operators (Service License) will lease these assets back from PAAB (Facilities Licensee) for operation and maintenance.With the lease income, PAAB will repay the Federal Government loan (which it will take over from States) over time.

Financial benefits: Apart from the improvement in efficiency operation wise, the nation will also benefit from the better efficiency in funding. In the past, funding for water assets development were either in the form of Federal Government loans and allocations or private debts (e.g. bonds, commercial loans) for the private concessionaires. These two modes were not very effective because the Federal Government loans were often insufficient, while the latter were usually obtained at an expensive rate. To overcome these shortcomings, PAAB was established to source for funding for water infrastructure development. As a Government-owned company, PAAB is eligible for more favourable financing rates as compared to the concessionaires that raise funds as a private company and unlike in the past, funds will be raised to meet the demand for the water infrastructure development. The financial benefits arising from this structure will be shared with the consumers through lower tariff rates. here

What we know so far from the framework is that

  1. State will no longer be responsible to develop water infrastructure
  2. PAAB will assume all outstanding State Water Debts owed to the Federal Government
  3. PAAB will take over water asset from State and lease them to the State Water Operators, State water operators will pay the lease over a period of time to PAAB and PAAB will pay Federal Government to state debts they took, (Government will own indirectly the state water assets via PAAB)
  4. State Government will continue to be RESPONSIBLE for providing water supply services in the states
  5. Federal Government objective is to target for lower tariffs for customers

Now today Guan Beng responded in his usual proofy style

GEORGE TOWN: Hard bargaining by the Penang Government with the Federal Government is the reason for the state’s success in reducing its debt reduction. Chief Minister Lim Guan Eng said the hard bargain had resulted in the Federal Government taking over the state government’s RM630mil in water supply loans. “These water debts were not incurred by us, but we managed to strike a hard bargain with the Federal Government to take these over when we signed over the state’s water-related assets.

“We refused to sign the water deal (with the Federal Government’s Pengurusan Aset Air Bhd) until they agreed to our conditions. “At the end of the day, no one can dispute that our debts have been greatly reduced and future generations of Penangites will not be saddled with this burden,” Guan Eng said yesterday. He said that in addition to the water debt being solved, the water deal also ensured that the expansion of the Mengkuang Dam in Bukit Merta­jam would be borne by the Federal Government while the dam’s ownership was retained by the state. On Monday, Deputy Finance Minister Datuk Donald Lim was reported as chiding Guan Eng for allegedly misleading the public into thinking that the state had settled the loan on its own. Guan Eng had claimed that the Penang government had successfully reduced its debt from RM630mil in March 2008 to RM30mil in October last year through prudent and transparent financial management. here

What are Guan Beng's conditions that could be different from the framework of PAAB?

Refer below his HARD BARGAIN

THE 95.29% reduction of the Penang Government’s debt from about RM630mil to RM29mil was a result of hard bargaining, said Chief Minister Lim Guan Eng. He said the state had set two conditions on the Federal Govern-ment before water-related assets were transferred to its Pengurusan Aset Air Bhd (PAAB).

We insisted that if you (Federal Government) want to take over our water assets operations, you must take over the water loans so that it is no longer borne by the state government.You (The Federal Government) must also allocate a grant to expand the Mengkuang Dam,” Lim told a press conference at the State Assembly building in Light Street. He was responding to Opposi-tion leader Datuk Azhar Ibrahim’s (BN-Penaga) barb for misleading the people into thinking that the state government’s debt had gone down because of its own efforts. here

Do you think that these are Hard Bargains in comparison to the Framework of Negotiation by PAAB on behalf of the Government?

So veli  the hard to bilive la Beng.....giler babeng punye bingai....YOU MUST YOU MUST...'s a standard plan la belader

Let us now travel to Perak

Tuesday November 22, 2011 Opposition questions water deal

THE Perak government’s move to migrate assets belonging to the Perak Water Board (LAP) to Syarikat Pengurusan Aset Air Bhd (PAAB) shows that it is desperate, says Opposition.

Datuk Ngeh Koo Ham (DAP-Sitiawan) said the exercise was a desperate move by the state to lower its debts owed to the Federal Government. ”According to law, water is under the jurisdiction of the state. ”I’m afraid Perakians will have to pay an exorbitant rate similar to that in Kuala Lumpur once LAP has been sold,” Ngeh claimed. Earlier when tabling the state’s Budget 2012, Mentri Besar Datuk Seri Dr Zambry Abdul Kadir (BN-Pangkor) had announced that the migration of LAP’s assets to PAAB would enable the state to cut down its owings to the Federal Government from RM970.59mil to RM78.66mil.

Brushing off the Opposition’s claims as baseless, Dr Zambry told reporters at a separate press conference that the Penang government had also signed a similar deal. ”The Penang government had signed such a deal and announced that they are debt-free but when we do the same thing, they feel threatened and start questioning us. ”They should question their own DAP colleagues in Penang,” he said, adding that the deal was still in process and that the state was discussing for a good deal. here

Now check out Zambry's Negotiation skills.....
Monday December 19, 2011 Request for assets to remain in the state 

NEGOTIATIONS between the Perak government and Pengurusan Aset Air Bhd (PAAB) are at the tail end with both parties expected to reach an agreement on a proposed water-assets transfer early next year. Mentri Besar Datuk Seri Dr Zambry Abdul Kadir said unlike other states, which had agreed to allow the migration of their water assets to PAAB, Perak is requesting for its assets of over RM200mil to remain with the state. “As far as the state is concerned, we want to keep our assets and PAAB has agreed to our request,” he told reporters after chairing the state executive council meeting in Ipoh recently.

During the recent state assembly sitting, Dr Zambry had told the House that the state’s RM970.59mil water supply debt to the Federal Government would be reduced to RM78.66mil with the settlement of the water assets migration between the Perak Water Board (LAP) and PAAB. Dr Zambry had reportedly said LAP would literally start on a clean slate next year following the asset migration. He had also assured the public that water tariffs in Perak would not be increased following the conclusion of the migration exercise. here

In simple mathematics of Debts Reduction, Guan Beng "reduced" 655.2Million and Zambry "reduced" 891.93Million by transferring state water assets to PAAB

Both will have control over tariffs but I believe this would need consent from the Minister in charge via advice from SPAN (refer here)

Future water infrastructure developments will be borne by the Federal Government indirectly via PAAB.

Actually there are already a couple of few deals being concluded

Tuesday August 3, 2010 MOF unit signs water accord with Perlis govt

 Pengurusan Aset Air to take over RM203mil worth of assets PUTRAJAYA: Pengurusan Aset Air Bhd (PAAB), a wholly owned unit of Minister of Finance Inc, has sealed a deal with the Perlis government, its fourth in its quest to consolidate the country’s water sector. Under the agreement, PAAB will take over RM203mil worth of water-related assets including three treatment plants, 12 reservoirs, 10 water tanks and piping network. Under the deal sealed yesterday, RM85mil of the RM203mil assets will be transferred to PAAB while the remainder will be novated to it separately upon completion of ongoing water projects in Perlis. To pay for the assets, PAAB will assume the state’s related liabilities. The deal is done at one time book value. Perlis is the fourth after Negri Sembilan, Malacca and Johor to have its assets and liabilities acquired. With the latest acquisition, PAAB now has RM6.3bil worth of water assets. here
The benefits of the restructuring is slowly showing

Currently, five out of 12 states in the Peninsula – Johor, Malacca, Negri Sembilan, Penang and Perlis – have restructured their water services industry. After three years, the reform has led to improved performance especially for the states that have restructured their water services industry. For example, the rate of NRW for Malacca was reduced to 26% in 2010 compared to 30.1% in 2008. In addition, Syarikat Air Negri Sembilan Sdn Bhd has recorded an increase in its average monthly revenue from RM10.3mil in 2009 to RM12.9mil in

Do we hear any other kepochi Big Ministers from other states "claiming" MASSIVE DEBT REDUCTION efforts?

Do we hear other Big Ministers kerek lebih for being able to KEEP THEIR WATER ASSETS IN THE STATES INSTEAD OF TRANSFERRING THEM TO THE FEDERAL? (I'm still not clear how Zambry gets to keep 200Million of Assets)


PS: I think You (Guan Beng) must wear that adult pampers loh, we cannot tahan your kencin anymore ma...
Minds are like parachutes; they work best when open. -Lord Thomas Dewer