Wednesday, September 21, 2011

Puncak ... Sep11

A proposal is in the works for IWK to be taken over and managed by 1MDB with Puncak Niaga as its partner. These entities will then jointly run the loss making IWK, which is tasked with managing the public sewerage systems for most of Malaysia, excluding Kelantan, Sabah, Sarawak and JB.

Puncak’s executive chairman Tan Sri Rozali Ismail has clarified that the company is in talks with 1MDB on the possible takeover of IWK. However, it will not be taking a majority stake. It will only provide the technical expertises and the systems.

1MDB which is wholly owned by the government had confirmed that it was assessing a partial privatization of IWK in which the government would retain control.

At this juncture, it is uncertain what shape and structure the takeover of IWK will take but it is learnt that its assets and liabilities will be sold for rm1. More crucially, the water and sewerage bills will be consolidated to improve the collection of IWK charges.

Also the takeover of IWK jointly by 1MDB and Puncak Niaga may involve a
commitment by the government to provide up to rm2 billion over the next few years to upgrade and build new sewerage facilities.

IWK’s problem has always been the collection of sewerage bills and this is often cited as one of the reasons the company has been loss making.

It forms part of the government’s attempt to clean up IWK, which will then be followed by a crackdown on the industries that discharge water into the river. IWK will also monitor the levels of wastewater effluence in the rivers.

Sources also says that Puncak Niaga’s 70% subsidiary SYABAS which is responsible for water supply and distribution in Selangor, the Klang Valley and Putrajaya, will eventually run the show at IWK.

The deal is set to happen very soon, with some expecting the issue to be settled before the year end 2011.

There is no question that with two water concessions already under its belt, a wastewater management concession would help strengthen its position as a water player in Selangor. More importantly, the consolidation of the water and waste management bills will finally get rid of a persistent problem for IWK.

What is the rationale behind for taking over IWK? There is value to be had in IWK in spite of its poor financial showing. Sources say the company spent around rm600 million t o rm700 million alone in 2010 on top of the rm540 million opex. These are contracts that will be divided out to subcon as it would prove difficult for IWK to handle every aspect of its business. Thus although the business is loss making, its capex and opex are enough for any operator in the water industry to give it a second look.

And if the injection of funds of up to rm2 billion into IWK to upgrade and build new facilities happens, the company would be an attraction to anybody. The returns from capex works would serve as a sweetener to any company.

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