Syabas Plans to spent $10.7b?

SYABAS (Syarikat Bekalan Air Selangor Sdn Bhd) plans to spend close to RM110 billion throughout its 30-year water concession for Kuala Lumpur, Selangor and Putrajaya.

Of that amount, RM10.7 billion will be allocated for capital expenditure (capex), executive chairman Tan Sri Dr Rozali Ismail told Business Times.

$110 billion was planned to be spent within 30 years???

On a linear scale, Syabas will be spending about $4 billion a year.

That means, their revenue must exceed $6 billion a year in order to be able to recover their capital investments and to pay bank interest.

Is it possible or viable? It is far-fetch?

It would mean that the consumer must be able to pay $6 billion a year. And based on the current tariff, Syabas is only able to collect less than $2 billion a year. Unless the tariff is adjusted by 30-40% higher this year, and further adjusted over the next 30 years by some 300%, it is almost impossible to get the $6 billion yearly, just to recover their capital investment. What about the need for profits? Bank won't lent money if that business is unprofitable. Will it be another failure?

Syabas was awarded a 30-year concession to provide treated water to Kuala Lumpur, Selangor and Putrajaya effective January 1 last year.

Rozali added that to meet its obligations and performance targets set out in the privatisation agreement, Syabas' operations are partially funded by equity and external borrowings of RM6.94 billion.

Major shareholder Puncak Niaga Holdings Bhd, which holds 70 per cent equity in Syabas, has arranged for a capital injection of RM1.04 billion and bank borrowings in the form of Islamic bonds worth RM3 billion.

The Federal Government is giving Syabas a RM250 million grant to part- finance NRW reduction works and another RM655 million in the form of government redeemable preference shares to part- finance capex works.

Syabas also has credit facilities to pay off outstanding debts to the water treatment operators (RM1.34 billion), for NRW works (RM250 million) and capex (RM410 million).

The rest of the funding will come from internally- generated funds, which have been projected based on a carefully structured tariff adjustment over the concession period in conjunction with the expected improvement and upgrading of water supply services.

Executive chairman Tan Sri Dr Rozali Ismail said Syabas has also relieved the state government of substantial financial commitments and liabilities which include RM98.9 billion in operating expenditure, outstanding debts to water treatment operators of RM2.37 billion, and RM772.5 million in debts owed to the Federal Government. Other payments included an annual concession fee of RM30 million, RM24 million for the purchase of movable asset and RM750 million for raw water royalty over the concession period.

"The water privatisation in Selangor has allowed the State Government to channel all the savings to equally important areas of concern, which include education, new infrastructure and facilities, and social issues," Rozali said.

Since it was awarded the concession, Syabas has also paid over RM47 million for liabilities incurred by PUAS Bhd prior to the privatisation, such as for maintenance, unpaid utility bills and land acquired for projects under PUAS.