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Penang’s debt reduction due to prudence, not water deal

August 5, 2017

Minister Abdul Rahman Dahlan who keeps harping on the water deal as the reason for Penang's lowest debt in the country is clearly misinforming the public.

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Joshua-Woo-Sze-Zeng_penang_water_600

By Joshua Woo Sze Zeng

Minister Abdul Rahman Dahlan had asked the Penang state government to stop taking credit for reducing the state’s debt by 95% as the reduction was due to the federal-state water restructuring agreement.

The minister has completely missed the point of the whole issue about Penang’s low debt. It is not about the one-off water restructuring transaction that benefited both the federal and the state governments. Rather, it is about the Penang state government’s prudence in debt management.

Water deal was no free lunch

First, the water restructuring agreement signed in 2011 was not a result of the federal government’s benevolence to the state. It was a solution to address the critical debt problem affecting the federal government and all the states in the peninsular.

The collective water debt around the country in December 2007, before the signing of the first water deal, escalated to RM7.6 billion. The National Water Services Industry Initiative (NWSII) was aimed at solving this nationwide debt problem.

Both the federal and peninsular states had to compromise to benefit from the restructuring initiative. For Penang, the state government had to transfer water-related assets valued at RM655 million to the Ministry of Finance’s Pengurusan Aset Air Berhad (PAAB) for 45 years. In return, PAAB leases these assets to Perbadanan Bekalan Air Pulau Pinang (PBAPP) for 45 years with an annual payment of RM14.56 million.

PBAPP has been paying the annual fee to the federal government without default. It was not a free lunch.

Penang’s Debt Management

Secondly, as of now, there are altogether seven states that have entered into the water deal. Out of the seven, Penang has not only managed to maintain the lowest debt but also achieved the highest debt reduction rate from the year of their signing until 2016.

For example, Melaka was the first to enter into the water deal in 2008, with the transfer of water-related assets valued at RM889 million. The state’s debt in the preceding year (i.e. 2007) was RM1,100 million, and reduced to RM851 million by 2016. Melaka’s debt reduction rate is 23%.

Penang signed the water deal in 2011 with the transfer of water-related assets valued at RM655 million. Penang’s debt in 2010 was RM688 million, and was reduced to RM64 million by 2016. The debt reduction rate is 91%!

chart4This table shows that the water restructuring agreement is only one of the many factors affecting state debt.

Johor is a case in point. Johor’s debt amounted to RM1,010 million before they signed the water deal. The value of Johor’s water-assets transfer was RM4,030 million, almost three times more than the state debt. However, Johor still owed RM413 million in 2016. Johor’s debt was reduced by 59%, from the year prior to the water deal until 2016.

Kelantan’s situation is no less remarkable. The state owed RM1,354 million in 2015. Kelantan entered the restructuring agreement in September 2016, with water-assets transfer valued at RM604 million. Yet, the state’s debt in that very year increased by 3%!

These show that the water restructuring agreement is only one of the many factors in affecting state debt.

The point: Penang has managed to maintain the lowest debt and achieved the highest debt reduction rate not only because the state government has signed the water deal but, more importantly, the Pakatan state leaders have the political will and prudence in managing debt. A clean and competent government reduces debt.

Minister Abdul Rahman Dahlan who keeps harping on the water deal as the reason for Penang’s lowest debt in the country is clearly misinforming the public.

Joshua Woo Sze Zeng is a councillor at Majlis Perbandaran Seberang Perai (MPSP).

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