An economist who is now with a PKR think-tank has given his thumbs up to the Memorandum of Understanding (MOU) on the Selangor water industry restructuring between the federal and state governments.

In a lengthy analysis written in his personal capacity, economist Azrul Azwar Ahmad Tajuddin said that the MOU “will benefit Selangor residents in the medium- to long-term”.

Azrul ( left ) says: “The MOU will not lead to higher debts or other cost implications to the state government as the takeover transaction was designed specifically to avoid pressure on the state's finances.

“More importantly, the people of Selangor will continue to enjoy quality supply of water at a reasonable price and the continuation of the free water policy...”

Azrul, who is now linked to PKR's Institut Rakyat, added that plans to distribute equity in the water companies to the rakyat will also benefit the people.

“So, I would like to congratulate Selangor Menteri Abdul Khalid Ibrahim. Well done!” the former Bank Islam chief economist said.

His statement comes as Pakatan Rakyat leaders gave their cautious support to the MOU after a briefing from Khalid yesterday.

Analysis based on online copy

While the MOU is to be declassified next week, Azrul based his analysis on a copy that has been circulating online.

Azrul, who was sacked from his Bank Islam post after a presentation in Singapore mulling the possibility of a Pakatan Rakyat takeover in the 13th general election, said the MOU is good because:

The state does not have to fork out a single sen to take over the assets

This is because the state will obtain RM2 billion from the federal government to pay for the equity portion of the takeover, which is worth RM1.972 billion.

The remainder of RM7.68 billion, on the other hand, relates to the water concessionaire's bonds and loans, which will be offset by the value of the assets of the companies Selangor is taking over.

“This means no loans or fundraising needs to be done by the state to pay for the restructuring. In fact, the state also makes a gain of RM28 million from the transaction,” Azrul said.

“I am confident that the takeover cost will not be more than RM9.65 billion as the 12 percent return on equity is far more lucrative, compared with international standards of eight percent.”

Selangor can safeguard against doing what it does not want in relation to the Langat 2 water treatment plant

Even though the MOU purportedly says state approval for the Langat 2 water treatment plant is “irrevocable and binding” a clause states that both parties can take any action relevant to laws to protect their interests.

Azrul said that the cost of the Langat 2 plant can also be policed by forming a bi-government committee.

The state had successfully used Langat 2 as a bargaining chip in the negotiations, seeing that billions of ringgit have already been spent to build portions of the plant that are not in Selangor.

“I am also confident that the state will not be pressured into shouldering part of the cost of the Langat 2,” he said.

'Water tariffs will not rise unreasonably'

The Water Services Industry Agreement 2006 states has the amount paid to federal agency Water Asset Management Company (PAAB) to obtain control of the water assets is to be determined jointly by the state and PAAB.

Azrul said this showed that the state has the power to determine this rate and that PAAB has not imposed high mortgage rates in other states where water companies have been de-privatised.

“Seeing that water tariffs are under the state's jurisdiction, I don't see any room for a pass-through effect as long as Pakatan Rakyat remains in power, even if the mortgage rates are raised.

“I am also confident that water tariffs will not be raised at will when the people of Selangor become equity holders of the water company,

“These are the two main barricades to protect the rights and interests of the people of Selangor,” he said.

However, Azrul noted, he is not personally against a reasonable rise in water tariffs to ensure uninterrupted  quality service.

For now, the main task of the state is to implement the RM900 million mitigation works while waiting for the Langat 2 to be ready and start the Sungai Selangor river augmentation project to raise the supply of potable water.

It must also bring down non-revenue water, that is the amount of water wasted through inefficiencies, which now stands at more than 33 percent in the case of concessionaire Syarikat Bekalan Air Selangor (Syabas).

Azrul said if the state could do all this, then it can prove that Selangor need not purchase water from Pahang, as per the 2007 Pahang-Selangor raw water purchase agreement.

He acknowleges the impact of the agreement on water tariffs is still unclear.

However, Azrul's analysis does not take into account that Langat 2 is designed to process water from Pahang for Selangor's use.