From Joshua Woo Sze Zeng
My earlier article “The story behind Penang’s 95% debt reduction” has generated various responses, discussion, and questions. This article aims to address some of them.
Whose achievement?
One question is over who (state or federal government) should take the credit for the successful reduction of the 95% state debt?
Supporters of the ruling party are claiming credit for the water restructuring agreements, praising the federal government for the benevolent initiative.
One should not conveniently overlook the fact that both governments are beneficiaries of the arrangement. The federal government is relieved from unsustainable financial obligation to the states (which had increased to RM7.6 billion before the launch of the water reform), and the states are relieved from accumulating debts to the central government. So, both sides benefited.
One should not also overlook the fact that both governments have to give. The federal government will service the state’s RM655 million debts, while the state transfers ownership of water assets worth RM655 million to the federal side.
Therefore, it is quite delusional on the part of Gerakan’s secretary-general Liang Teck Meng to claim that “it was the federal government which reduced Penang state debt by 95%.” The reduction was only possible through the state’s alienation of assets to the federal government.
As highlighted in the previous article, both governments are involved and so both should be rightly credited. The debt reduction is not the result of the federal government’s benevolence, but of a mutual transaction between the federal and state government.
What has been achieved so far?
Since the first water restructuring agreement was signed in December 2008, the finance ministry’s Pengurusan Aset Air Berhad (PAAB) has acquired water assets from eight states (Malacca, Negeri Sembilan, Johor, Perlis, Penang, Perak, Selangor and Kelantan). The total value of these assets is RM10.14 billion.
On top of the acquired assets, the federal government, through Suruhanjaya Perkhidmatan Air Negara (SPAN), also collects annual licensing fees from states’ water suppliers, which is charged at 1% based on sales revenue, subject to periodical revision.
In return, the federal government will develop water supply infrastructure for the states. This again shows that the agreement is a transaction, not due to the sole benevolence of the federal government.
After signing the agreement, Penang state government’s Perbadanan Bekalan Air Pulau Pinang (PBAPP) has been honouring the deal every year by paying a leasing fee of RM14.56 million to PAAB and licensing fee to SPAN.
In total, from 2012 until 2015, PBAPP has paid RM67.3 million to the federal government.
However, the federal government has not entirely fulfilled their part of the agreement.
First, the promised completion date of the Mengkuang Dam Expansion Project has been postponed from July 2016 to mid of 2017, due to “technical issues”.
Secondly, the federal government has proposed to change the previously agreed pipeline design that connects the dam to Sungai Dua canal, which will reduce the delivery of water by 40% and thus threatening water security for the state.
As Penang’s water consumption has increased by 469% from 1973 to 2015, and is expected to rise further, the state government has rejected the federal government’s proposed changes to secure Penangites’ water supply.
Penang MCA secretary Tan Chuan Hong has previously stated that the Mengkuang Dam expansion was the federal government’s “gift” to Penang as the state “lacks the ability” to initiate such a project.
What a delayed and threatening gift it was! Not to mention, the current federal-states arrangement requires the states to contribute a lot to the central administration. Last year alone, Penang paid RM7 billion in taxes and duties to the federal government. If not for such an arrangement, the state would have been more than capable to initiate such a project, without delay and later changes in pipeline design.
Penang state government’s competency
Negotiating the water restructuring agreement is not easy. The whole exercise began in 2006 through the passing of the Water Services Industry Act and the establishment of PAAB and SPAN.
Malacca was the first state to enter into the agreement in 2008, followed by Negeri Sembilan and Johor in 2009, and Perlis in 2010. Penang became the fifth state to sign the deal in 2011. Perak and two water companies in Selangor followed in 2012 and 2015 respectively. Kelantan is the latest to join the fold.
Each state has to undertake the tedious process to balance compromises and benefits with the federal government.
The fact that even BN-led states such as Pahang, Kedah and Terengganu are still deliberating over the restructuring initiative after its launch more than a decade ago shows that it is not easy for states to come to an agreement.
Even the former chief executive officer of SPAN, Teo Yen Hua remarked that it has “taken too long to finalise the restructuring for some states”.
Dr Chin Yoong Kheong, who was the lead consultant of the reform exercise, lamented, “We have now travelled almost 10 years down the road of reform and I must say that the journey has not been as smooth as anticipated…
“Whilst we did not expect the journey to reform to be smooth, we did not expect it to be this rough.”
Despite the difficulty, the Penang state government, even though under the Pakatan Harapan coalition, successfully negotiated the transaction with the federal government, preceding other BN-led states.
In this regard, the state has demonstrated its administrative competency and political maturity to cooperate with different parties for the sake of Penangites. This is an aspect that all should not overlook as well.
Joshua Woo Sze Zeng is a councillor of Seberang Perai Municipal Council (MPSP).
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