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The story behind Penang’s 95% debt reduction

January 15, 2017

Negotiating a deal with the National Water Services Industry Initiative with the aim to reduce debt is neither wrong nor can be claimed as "propaganda".


penangBy Joshua Woo Sze Zeng

On January 9, Gerakan’s Liang Teck Meng alleged that the Penang government’s 95% reduction of state debt was a “propaganda”. He said the reduction was due to the administration’s changing of a RM655 million debt into a lease.

Liang said his present position as the chairman of Suruhanjaya Perkhidmatan Air Negara (SPAN) enabled him to confirm this arrangement.

However, Liang’s presentation downplays the significance of Penang’s achievement in securing the deal. This downplaying is ironic as it also trivialises the achievement of the Federal Government, to which Liang’s party belongs.

The fact is that the arrangement is not simply changing a debt into a lease as Liang has alleged. Rather, it involved the whole water industry of the nation.

This is the background – in the past, state governments had to borrow huge sums of money from the federal government to improve their water supply. As a result, large amounts of accumulated debt was incurred over the years. If nothing was done, the states’ debt would continue to increase, which in turn would lay heavier financial burdens on the federal government at an unsustainable rate.

Therefore, the federal government launched a reform exercise called the National Water Services Industry Initiative (NWSII), with the aim to provide better quality water supply without increasing but relieving the financial burden for both sides.

In other words, the whole point of the NWSII was to reduce debt. It is under this exercise that the Penang government negotiated the deal with the federal government.

The deal obliges the state government to transfer water-related assets valued at RM655 million to the Ministry of Finance’s Pengurusan Aset Air Berhad (PAAB) for 45 years. PAAB will then rent these assets to Perbadanan Bekalan Air Pulau Pinang (PBAPP) for 45 years with an annual fee of RM14.56 million, which adds up to the RM655 million in total.

Here is the catch: The servicing of the lease will be at 0% interest, and after PBAPP has fully paid PAAB, all assets will be returned to Penang. In terms of responsibility, PBAPP will focus only in providing water services and improving efficiency, while PAAB will develop water infrastructure and oversee funding matters, such as the RM1.2 billion Mengkuang Dam expansion project.

This reorganisation or “asset rationalisation” enables the Pakatan Harapan state government to repay its debts without interest, relieve the federal government from financial burden, improve water supply, and obtain back the assets in due time.

The deal achieves the objectives NWSII set out to accomplish, that is to reduce states’ debts to the federal government while improving water supply. One can refer to PAAB’s website:http://www.paab.my/regulations/national-water-services-industry-restructuring-initiatives/

Prime Minister Najib Razak lauded the deal as “a lucid example of the successful cooperation and understanding reached between the federal government and state government” and it showed “strong and blooming teamwork” between different political parties.

Penang Chief Minister Lim Guan Eng remarked that the willingness of the Pakatan Harapan state government to negotiate and work with the federal government has demonstrated its commitment to the benefit and interest of Penangites.

Both the Prime Minister and the Chief Minister see the significance of the deal in reducing Penang’s debt to the federal government — a 95% reduction at that time. In fact, that was the reason NWSII was initiated. Only Liang seems to be missing this point, and repeatedly misrepresents it as a mere change of a loan to a lease.

Joshua Woo Sze Zeng is a councillor of Seberang Perai Municipal Council (MPSP).

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