KUALA LUMPUR: Syarikat Pengeluar Air Sdn Bhd (Splash), a 40% subsidiary of Gamuda Bhd, has dismissed a call by former Selangor menteri besar Tan Sri Abdul Khalid Ibrahim for the current Selangor state administration to resist “any ludicrous and outlandish demands from any water concession companies” in the state’s water restructuring exercise.

Splash refuted Abdul Khalid’s assertion that the previous state administration made four unchanged offers to water concession companies, calling the RM2.8 billion demanded by Splash “appalling” and “tantamount to gross injustice”.

In a statement last Friday, Splash said it had previously accepted in principle two earlier offers from the state based on 1 time book value in principle. However, later offers were much reduced by 90% and were deemed unacceptable.

The water concessionaire said the state’s valuation formula based on 12% return on equity minus historical dividend payout is flawed.

The formula, Splash said, pays no heed to the company’s current financial position, does not consider actual operational efficiency, does not value remaining concession terms, favours companies that operate longer and takes only cash dividends into account.

It said the RM2.8 billion quoted by Splash to the Selangor state government was based on discounted cash flow, a universally accepted method for the valuation of concession assets.

“The state’s offer to Splash as stated is RM1.83 billion. However, netting off Splash loans of RM1.56 billion, the offer is worth only RM350.6 million, whereas the book value of Splash after netting off loans is RM2.8 billion,” it said in a statement.

Further, Splash cited that six other states, namely Melaka, Negeri Sembilan, Johor, Perlis, Penang and Perak, have all completed their water industry consolidation exercises based on 1 time book value.

“In four of the six states, the assets acquired by Pengurusan Aset Air Bhd were the same in value as their liabilities. The obvious result of the 1 time book value principle of asset acquisition is that in all the six states’ consolidation exercises, there were no gains or losses reported by the exiting shareholders,” Splash said.

On the issue of delay in the water restructuring exercise as pointed out by Abdul Khalid, Splash said the inconsistency in the offers made by the state had caused the delay.

Splash also denied that it is “less willing” to bring the issue to arbitration to avoid disclosing terms and conditions of the privatisation agreement which favours water concessionaires.

It said that is “agreeable to arbitration if the scope of the arbitration is not merely restricted to the flawed equity value method of valuation but includes universally accepted methods of valuation”.

It was responding to a letter written by Abdul Khalid that was published in a local daily on Dec 16, 2014, calling for the current state administration to resist demands by water concession companies to prevent any impasse in “returning the water assets to the people, their rightful owners”.

Splash is the only one of four concessionaires in Selangor that has yet to agree to the state’s takeover offer totalling to RM9.65 billion for the concessionaires.

This article first appeared in The Edge Financial Daily, on January 5, 2015.