Sungai Selangor Water Supply (Phases I & II)

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In October of 1994, Puncak Niaga (M) Sdn, Bhd., a wholly owned subsidiary of Puncak Niaga Holdings of Malaysia, was awarded a 26-year concession contract by Jabatan Bekalan Air Selangor (JBAS) for the takeover, operation and management of 27 existing water treatment plants in Selangor State in the first phase of the two phase Sungai Selangor Water Supply Scheme. The total capacity of the 27 plants was 934.5 million liters per day (934,500 cubic meters per day). The second phase of the project included the construction of a new water treatment plant, the 85 hectare Sungai Selangor Water Supply Scheme Phase II project, which had a capacity of 450,000 cubic meters per day when the first stage was completed in October of 1998 and an additional 475,000 cubic meters per day when the second stage was completed in January of 2001, a year ahead of schedule. The plant was to serve 1.1 million people in Kuala Lumpur. The concession for the existing plants began on December 1, 1994. Puncak Niaga was part of a group of companies controlled by Malaysian tycoon Rozali Ismail. Under a contract signed on May 31, 1995, CGE Utilities, a company owned 55% by Generale des Eaux (later renamed Veolia Environnement) and 45% by Malaysian owned Taliworks Bhd., was sub-contracted to take over the operations and maintenance (O&M) of the plans until December 31, 2020. The cost of the O&M contract was US$50 million. Puncak Niaga (M) was, however, directly involved in rehabilitation and upgrading of the water plants. The Selangor water privatization project was to be undertaken at a total cost of RM2 billion (US$790 million). In the first phase, Puncak Niaga (M) was responsible for investing RM150 million (US$58.6 million) for the upgrading of the water plants over the first three years of the contract. In January 1995, the company secured a syndicated loan for US$45.6 million from Bank Bumiputra, Malaysia Berhad (BBMB), and the remaining US$40 million was to come from its equity. The new water treatment plant, which was to be one of the largest in south-east Asia, was expected to cost RM1.28 billion (US$500 million), about RM700 million for the first stage and RM500 million for the adjacent second stage. In April 1996, Puncak Niaga (M) secured the necessary financing to undertake the construction of the plant. The financing came from DCB Sakura Merchant Bankers Bhd and Arab-Malaysian Merchant Bank Bhd (AMMB) which had arranged finance facilities for the total RM1.28 billion. The facility was the largest banking scheme ever arranged for a locally-owned private entity on a project finance basis in the country. In May of 2000, Puncak Niaga secured an additional RM140 million bridging loan from United Overseas Bank (Malaysia) Bhd, part of Singapore's United Overseas Bank Ltd for the second stage of the new plant. In October of 2000, Puncak Niaga signed two Islamic financing agreements for a total sum of RM1.37 billion to refinance its existing loans. The concession included a take-or-pay arrangement with the Selengor State Government in which the State was to purchase no less than approximately 90% of the capacity from the 27 water treatment plants and the new Sungai plant. In 1997, Puncak Niaga listed on the Main Board of the Kuala Lumpur Stock Exchange. In March of 1998, Puncak Niaga announced that Puncak Niaga (M) would not be the company to take over the distribution of water supply in Selangor for Jabatan Bekalan Air Selangor (later renamed Perbadanan Urus Air Selangor (PUAS)). That contract was ultimately awarded separately to Syarikat Bekalan Air Selangor Sdn. Bhd (Syabas), a company ultimately 70% owned by Puncak Niaga, in September of 2004. In 2003, CGE Utilities, which carried out the operations and maintenance (O&M) work under the subcontract, sued Puncak Niaga for MYR84.4 million, allegedly due to late fee payment, costs and late interest charges. The parties concerned came to an agreement in 2003 to terminate the O&M contract on December 31, 2004, ahead of schedule. Puncak Niaga was to pay CGE about RM59.6 million in fees in three equal annual parts from April 1, 2004. Puncak Niaga (M) reassumed operational control of the treatment plants on January 1, 2005. By 2004, the federal and Selangor state governments owed Puncak Niaga (M) RM1.3 billion in arrears for its water treatment services, largely due to high rates of unaccounted for water (UFW) in the state-managed distribution system. The problem was resolved via the deal for Puncak Niaga's takeover of the PAUS distribution system though Syabas. In December of 2004, the Malaysian government concluded a deal that gave Syabas MYR2.9 billion (US$769 million) in soft loans and grants as part of the water distribution management agreement, including RM1.34 billion to be used to partially settle PUAS' debts to the three private water treatment companies to which it owned money, including Puncak Niaga. None None