The MoU that wasn’t – KiniBiz.
Let me make myself clear. When i was giving this interview, I meant to put the Federal Govt to task, as to why they are trying to shortchange the rakyat of Selangor. Inevitably, while not trying to berate the MB, he suffers the collateral damage of allowing such an MoU to be signed. I do it again, without fear or favour, and with no malice against any one, much less against the MB. On the contrary, it was solely for the interest of the rakyat of Selangor i particular and the nation at large. If you have problem with that..be it!
In the first part of our series on the Selangor water deal we look at the issues thrown up by the memorandum of understanding (MoU) between the Selangor state government and the federal government. This MoU may well be an agreement judging by the finality of some clauses.
The surprise signing of the memorandum of understanding (MoU) between the state and federal governments was announced by Selangor MB (Menteri Besar) Khalid Ibrahim last week. It was immediately hailed in the mainstream media as a landmark deal that would end the Selangor water crisis.
However, the secretive nature of the deal and details of the MoU that has been construed to be lopsided in favour of the federal government has drawn suspicion and fierce criticism from many including members of Khalid’s own PKR (Parti Keadilan Rakyat) and others from Pakatan Rakyat’s component parties.
Essentially, the gist of the MoU facilitates the consolidation of the Selangor water concessionaires with a RM9.65 billion takeover and also allows the controversial Langat 2 water treatment plant to be constructed after a long delay.
The federal government has also promised to inject RM2 billion to facilitate the take over of the concessionaires, although it is not clear how this amount will be injected.
Murky and messy history
Selangor’s water industry became murky and messy after a privatisation exercise that began in 1994. The water industry was broken up to water supplier (the state government), water production (water treatment companies Puncak Niaga, Abbas and Splash) and water distribution (Syabas) (see chart).
Puncak Niaga has two concessions – one to treat water held under wholly-owned Puncak Niaga (M) Sdn Bhd (PNSB) and another to distribute treated water held by its 70% unit, Syarikat Bekalan Air Selangor Sdn Bhd (Syabas).
Splash is 40% owned by Gamuda, 30% by Kumpulan Perangsang Selangor (a unit of KDEB) and 30% by The Sweetwater Alliance a company linked to businessman Wan Azmi Wan Hamzah. Abbas is almost wholly owned by the state.
The three treatment companies PNSB, Splash and Konsortium Abass sell treated water to Syabas for distribution. However, without the two tariff hikes (37% in 2009 and 25% in 2012) Syabas has been unable to pay the treatment companies.
Clearly, Pakatan Rakyat’s win in Selangor in 2008 threw a big spanner in the privatisation of water works.
Tariff hikes and Langat 2
The Selangor state government had refused the tariff hikes based on the grounds that Syabas had not complied with the terms of its concession agreement, especially with regards to reducing NRW (non-revenue water). NRW is basically treated water that is lost in transport from the plant to consumers, either through theft or leaking pipes.
Selangor’s last offer of RM9.65 billion to buy-out the four concessionaires was rejected last year by Syabas.
On the other hand, the Langat 2 water treatment project has also been in cold storage for the past five years pending the Selangor water negotiations. The project will channel raw water (up to 1.89 billion litres daily) from Sungai Semantan, Pahang to a treatment plant in Sungai Langat that has a capacity of treating 1.13 billion litres of water daily.
“We believe the construction of Sungai Langat 2 project would burden the people with higher water tariffs as the costlier the project, the more water tariff the people will have to pay,” Khalid reportedly told the press after a state executive council meeting in 2012.
The Langat 2 project was deemed by the Selangor government as too expensive and unnecessary.
Suddenly with the new MoU, Khalid has allowed the swift resumption of a controversial project that the state government had previously opposed.
There are two key components to the whole Langat 2 project that is estimated to cost up to RM9 billion – the water tunnel from Pahang and the water treatment plant in Selangor.
According to Energy, Green Technology and Water Minister Dr Maximus Ongkili, the 44.6 km long Langat 2 tunnel is already 95% complete. The only delay has been the water treatment plant that has been held up when Pakatan Rakyat took over the Selangor state in 2008.
With the new MoU, the water treatment plant has been fast-tracked by the federal government and is expected to complete in 39 months.
The state government has committed to green light development orders and other required approvals for Langat 2 by March 25, 2014 (just two days after the Kajang by-elections). The water concessionaires have been given up to 10 March 2014 to accept the new offer (which is basically the same as the previous RM9.65 billion offer last year).
Is the MoU binding?
The crux of the matter now seems to be – is the MoU legally binding? Basically, it’s the details that are covered in a traditional commercial agreement – who owes what, when and how. Is this MoU equivalent to a binding agreement? And if either party (the state or federal government) default or renege on the MoU, will there be legal repercussions?
Traditionally, MoUs are not perceived legally binding simply because it is seen as part of a negotiation stage. It is more of a framework for the negotiating parties to move forward with the intention of working together.
Nevertheless, some legal experts do see the possibility of a MoU being legally binding.
“They can be binding. It’s the substance that matters, not so much the title. It depends on the entirety of the content. Traditionally, MoUs per se were not binding but merely reflected a commitment to do something,” said a legal adviser.
But that begs the vital question – in such a protracted issue with huge national interests at stake (economically, Selangor contributes to 20% of Malaysia’s Gross Domestic Product), why did Khalid and the federal government opt for a loosely constructed MoU instead of an airtight and unequivocally binding agreement?
Regardless, PKR’s Director of Strategy and Pandan MP Rafizi Ramli fears that the MoU is very lopsided and has expressed strong doubts over its legality.
“None are explicitly binding and irrevocable except clause 5B that refers to Langat 2 approval. The state government is being made to give an on-the-spot approval for Langat 2,” said Rafizi. Rafizi had made the MoU public despite Khalid’s refusal to do so citing various confidentiality clauses.
“At the same time, the responsibilities of the federal government in all the other articles and clauses are not legally binding at all. In fact, the “binding and irrevocable” terms are only found in clause 5 and isn’t found in the preamble for the whole MoU. If you’re familiar with commercial agreements, the legally binding statement is usually found in the preamble before being inserted into a subset clause. Therefore, in this MoU, the only legally binding term only refers to Article 5 that gives approval to Langat 2,” explained Rafizi.
Below is a rough translation of clause 5 in the MoU that Rafizi is referring to:-
“In exchange and in order to implement the Sale and Purchase Agreement of Raw Water between the Pahang and Selangor state governments, the Selangor state will have to.:-
(a) ensure that all permits and approvals relating to LRAL2 (Langat 2), including facilities related to the distribution of treated water, has to be given by the Selangor state government or related authorities. Permits and approvals include, but is not limited to the acquisition and registration of land, permits for the use of reserve land to be processed and approved within 30 days from the date of the Memorandum of Understanding…
(b) Ensure that all approvals and permits related to the development of LRAL2 from the state government of Selangor or related authorities has to be binding and irrevocable and fully enforceable immediately in whatever circumstances, and cannot be retracted, cancelled, suspended or amended unless there is a specific request by the federal government…
Rafizi also doubts the legality of the MoU due to the failure of Khalid to table it at the state assembly for approval.
No explicit assurance
Another point of contention in the MoU is the RM9.65 billion takeover of the water concessionaires by the Selangor state government.
Dzulkefly Ahmad executive director of PAS (Parti Islam SeMalaysia) Research Centre and a member of the Selangor water panel a few years ago says that upon further scrutiny, the framing and narrative of the MoU is unjust and unfair.
“The state government has not received any explicit assurance (from the federal government) that they will be able to purchase the water concessionaires for RM9.65 billion. Should this fail, the negotiating parties are given the option of solving it via arbitration. It would seem that the federal government is anticipating this outcome, thus the allocation of a RM2 billion grant for KDEB (Kumpulan Darul Ehsan Sdn Bhd) to complete the concession take over. There is a high likelihood that the price tag will be higher than RM9.65 billion. A higher price would probably lead to higher water tariff,” Dzulkefly told KiniBiz.
Dzulkefly also says that the MoU has not indicated a firm commitment on the federal government’s part to ensure the RM9.65 billion buyout.
“The federal government could have used its power to ensure the RM9.65 billion state take over by invoking Section 114 of WSIA (Water Services Industry Act 2006). It would avoid the government from the possibility of arbitration and paying a higher price,” said Dzulkefly.
The PAS executive director felt that after reading the MoU in its entirety, more assurances need to be agreed upon by both sides to ensure a fairer and more equitable solution.
“That is why I can only give Khalid a “Pass” grade with reservations for striking this MoU deal, instead of an enthusiastic two-thumbs up. He is a smart and astute corporate figure. Surely, he could have handled this water issue more effectively. With the MoU, the best interests of the Selangor citizens especially on the matter of higher water tariffs cannot be guaranteed,” said Dzulkefly.
Selangor must not concede
MP of Petaling Jaya Utara Tony Pua echoes Dzulkefly’s sentiments.
“If the water concessionaires still refuse the offer (of RM9.65 billion), then the federal government must exercise its powers under WSIA to compulsorily acquire the companies under clause 114. Should the government fail to do so, then Selangor must not concede by giving the licenses for Langat 2 at all costs,” Pua told KiniBiz.
According to Pua, the ball is now in the federal government’s court.
But when pressed on the legality of the MoU, Pua answered rather cryptically.
“It is legally binding where it says it is legally binding,” Pua said. That means the MoU may be more than one.
Khalid did not reply to repeated messages from KiniBiz.
Tomorrow: What prompted Khalid to decide unilaterally?