Monthly Archives: June 2014

WATER CRISIS IN SELANGOR

I wrote this article three months ago when water rationing in Selangor has ended. Today when I returned from UK, I was exasperated to know that water disruption will take place in Selangor- my hometown. Therefore, I decided to publish this article.

Unending water distruption

Unending water distruption

SUPPLY AND DEMAND

We don’t need any water expert or visionary leader to tell us that Selangor is going to consume more water in the future.

Just look at those skyscrapers in Kuala Lumpur, the opening of several new townships and the massive increase of population in Klang Valley, it’s obvious that this is a state where the pace of development has been unstoppable.

The demand for treated water would grow between 3%-4% annualy. In 2014, the daily demand for water in Selangor will reach 4,907 million litres, whereas the effective supply capacity is only 4,431 million litres. It means Selangor would face water shortage by almost 500 million litres per day and some politicians want us to believe the water rationing was due to dry spell season.

SOLUTION

So how do we cater the future demand? The answer is by channeling the raw water from Sungai Pahang. To do that, a dam, intake and pumping station together with 44.6km tunnel have to be built. But this water has to be treated. Therefore Langat 2 treatment plant is needed. The whole project costing RM8.65 billion will lift Selangor’s total capacity to an estimated 7,338 mill litre per day- 70% more than the current capacity.

Selangor will have enough water until 2025.

THE PROBLEM

However, the state government led by the ‘stingy’ Tan Sri Khalid Ibrahim has previously refused to give his approval for the 15 lots of land needed for the construction of Langat 2. The reason?

‘There’s water everywhere and we even have flash floods. Selangor has enough water until 2019.’ So said the Menteri Besar.

Therefore the state government believes that other alternatives like cutting losses from non-revenue water, and exploring other water sources like rainwater, lakes, and underground water should be prioritised instead of the Pahang-Selangor water transfer.

Never mind if the project is already 80% completed. Why the state government should cares that without Langat 2 plant, the dam and a 44.8km-long pipeline would be rendered dysfunctional and possibly become the biggest white elephant project in the country.

SELANGOR ALTERNATIVES

First option, they want to use membrane technology from Canada. But this technology will only improve water quality, not increase water supply. Not only there is no necessity to improve our raw water that is already good, the technology is costly to implement. The cost of implementing the technology is about RM95mil per treatment plant, and if it is used on all 34 plants it would be around RM3bil-RM650 million short of the Langat 2 plants. Therefore, option 1- not feasible at all.

Second option, Selangor state government is planning to invest RM300 million to generate additional water of 600 million litres per day from the rivers in the state. The plan involves the collection of storm water from the Selangor River at old mines in Bestari Jaya.

However, this collection is estimated to be sufficient only for four months during the dry season when there is no supply from the Selangor River. That means, RM300 million plan is a short term solution unlike Langat 2. Option 2- feasible only for a short term period.

Third option, TS Khalid announced that water from ponds around Sungai Selangor is pumped into the river to boost its flow. The RM10 million fund has been approved to buy high-powered pumps. But how safe is the water from disused mines considering that the water has been stagnant for years?

Water from the surface may not pose problems, but if taken from the bottom of mining pools, heavy metals would be pumped as well. Does the citizen in the most developed state deserve to get water supply from disused mines? If that’s the case, why don’t they just consume water brought in by floods. It’s free though. Option 3-not only feasible, but dangerous.

Clearly, after few years of dilly-dally with the alternatives for water solution in Selangor, Langat 2 remains the most sensible solution. The truth is, the state government wants to leverage on Langat 2 plant’s approvals to take over Selangor’s water assets.

WATER RESTRUCTURING

Why do they want to take over all the water companies? It is because they have promised to provide free water and no increase in water tariff to Selangorian. Under the concession agreement, water tariff will be gradually increased. Failure to honour the agreement means the state government has to compensate Syabas.

Of course, these are the populist move. Who doesn’t like free water anyway?

But good governance is not about being popular. It’s about being responsible.  That they deprived 8 million residents in Selangor from continuous water supply was a clear example how irresponsible the state government.

Because of the populist election manifesto, the Selangor Government halted any increase in water tariff, even though it was provided for under the concession agreements. Nor does it compensate the company. So without extra revenue, Syabas has no funds to carry out the Capex programmes such as replacement of pipes and other water infrastructure in the concession area.

NON REVENUE WATER

Admittedly Selangor has the highest NRW in Malaysia. It is due to the pipes that mostly laid over 50 years ago. Therefore a huge sum of money is needed to replace about 6000 km of pipes. Assuming RM500 per meter cost of standard sized (300mm) steel pipes, the estimated replacement value is RM3 billion. Obviously the state government couldn’t afford to finance the cost.

This explains why water industry in Selangor has been privatised. It’s simply because we need money from private sector.

And the result is encouraging. In the first year of privatisation, Syabas has managed to reduce NRW by 10% from 43% to 33%. Only when the state government through Suruhanjaya Perkhidmatan Air Negara (SPAN) decided to freeze all NRW related works in 2008, the NRW percentage remains.

The state government knows about this. They are not stupid. But being trapped in free water promise, they couldn’t allow any tariff increases. So they decided to acquire all water companies in Selangor. After all, Syabas was found to breach several contract terms in a 2008 audit report. They supposed to conduct open tender but they have awarded RM600 million worth of contracts in direct negotiation instead. And one of the foreign company secured RM375 million pipe replacement project instead of sourcing for local pipes company as required.

Whatever, after more than five years of trying, they failed to acquire the companies on a “willing seller, willing buyer” basis.

But the underlying issue is solving water supply and acquiring water assets are two different matters and should be treated separately.

Do you put on hold the MRT project just because you wanted to nationalise our toll concessionaries?

IMPACT

So they play politics with water. More than 700 new development projects could not proceed due to dwindling supply reserve. 130 factories worth RM4 billion in investments and 12,300 jobs could not get approval to be set up in Selangor.

RM750 million that has been used to finance 11 mitigation projects could have been saved.

Call it political expediency or political stupidity.

The truth is the ‘stingy’ Menteri Besar should understand construction of the plant would have been much cheaper to build had it started three years ago. Langat 2 would have been operational now, providing extra 1,130mil litres daily and avoiding the crisis today. And of course this article wouldn’t be needed.

MatRodi

It’s good to be back. Selamat Berpuasa Semua! 🙂

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MALAYSIA AIRLINES- REVISITED

I wrote a quick note in regards to Malaysia Airlines on my fb. Kindly read and share what do you think. 🙂

MAS

MAS

MALAYSIA AIRLINES

MAS tidak boleh dimufliskan. MAS bukanlah JAL yang mana setiap pekerjanya sakan menghafal setiap bait-bait ‘JAL Philosophy’ setebal 125 muka surat yang dikarang oleh CEO JAL- Kazuo Inamori.

Di Malaysia, sebarang tindakan drastik seperti memotong gaji sebanyak 30%, membuang pekerja seramai 16 ribu dan memotong duit pencen akan menyebabkan kerajaan bertukar. 

Oleh yang demikian cadangan memufliskan MAS dengan harapan ia akan ‘restart’ baru adalah hanya cantik di atas kertas. 

Tetapi MAS boleh dipulihkan.

Di dunia ini kebiasaannya syarikat penerbangan yang diwujudkan kmempunyai dua model. Pertama kerana ingin memenuhi aspirasi negara. Kedua kerana ingin buat duit.

Jika MAS menjalankan tanggungjawabnya untuk negara, ia akan terbang di laluan yang tidak popular seperti KL-Almaty (Kazakhstan) atau KL-Moscow (contoh sahaja). Laluan ini hanya merugikan wang ringgit tetapi menguntungkan dari segi hubungan diplomatik. Secara tidak langsung pelancong yang datang ke Malaysia juga datang dari pelbagai pelusuk dunia.

Tetapi jika MAS hanya terbang di laluan yang popular dan tidak mengutamakan ‘connectivity’, ia boleh untung seperti Delta dan American Airlines. (Amerika tidak mempunyai syariakt penerbangan nasional). Atau jika MAS menjadi penerbangan tambang murah, ia juga akan untung seperti Ryan Air, Easy Jet dan AirAsia. 

Etihad dan Emirates adalah syarikat penerbangan nasional UAE yang menguntungkan. Tetapi ini negara arab di mana dana bukan satu isu. Sebab itu Emirates boleh tempah 140 unit Airbus A380 yang bernilai RM900 juta setiap satu.

Etihad juga berupaya menjadikan airbus A380 mereka sebuah apartment 3 bilik di tingkat atas. Qatar Airways pula ada menyediakan kapal terbang yang 100% kerusi ‘kelas perniagaan’. Itupun masih tidak untung. Tetapi setidak-tidaknya ia menyediakan ‘connectivity’ di Doha.

Singapore Airlines bukanlah syarikat penerbangan yang untungnya besar. Ada masa rugi juga. Tetapi tidaklah rugi sepanjang masa. 

Di eropah, kebanyakan syarikat penerbangan nasional seperti British Airways, AirFrance, KLM pula sudah sedikit sebanyak beroperasi seperti penerbangan tambang murah kerana persaingan dan kos. Untuk penerbangan dalam Eropah, bagasi kena beli asing. Mendarat pun di lapangan terbang tambang murah yang terpencil.

Menyedari hakikat ini, MAS mesti mengubah model bisnes mereka. Model bisnes yang dimaksudkan adalah model perniagaan syariakt itu sendiri seperti apa matlamatnya, bagaimana ingin bersaing dengan penerbangan tambang murah, bagaimana hendak kurangkan kos, apakah sasaran pasaran mereka, etc. 

Ia bukannya model bisnes sekadar nak nampak cantik dalam buku akaun. Jual aset, sewa kapal terbang, creative accounting hanya boleh bertahan untuk setahun dua. Untuk sepuluh dua puluh tahun bagaimana?

Ada beberapa idea yang boleh dipertimbangkan selain daripada memufliskan atau ‘bail out’ syarikat ini.

Pertama, MAS perlu mencari rakan strategik yang ada ‘poket tebal’, menyediakan ‘connectivity’, menjimatkan kos dan berpengalaman memulihkan syarikat penerbangan. Untuk itu Khazanah boleh menjual 20-30% kepentingannya di dalam MAS kepada Etihad Airways.

Mengapa Etihad?

Model bisnes Etihad adalah menambahkan ‘connectivity’ dengan membeli saham syarikat penerbangan lain. Mereka tidak menyertai ailliance seperti OneWorld dan Star Alliance.

Menariknya, 5 daripada 7 rakan ekuiti Etihad adalah syarikat penerbangan nasional. Sudah jelas di era ‘Open Skies’ sekarang, industri penerbangan sangat kompetitif.

Setakat ini, Etihad mempunyai akses kepada laluan domestik dan serantau di Ireland, UK, Germany, Switzerland, Serbia, Eropah Tengah, India dan Australia melalui model bisnes ‘rakan ekuiti’.

Jika MAS menjadi rakan ekuiti Etihad, kesemua laluan ini boleh diakses oleh penumpang MAS. Penumpang Etihad dan rakan ekuiti yang lain pula boleh mendapat ‘connectivity’ MAS di Malaysia dan Asia Tenggara yang mana setakat ini masih belum disediakan Etihad.

Etihad juga akan ‘leverage’ kesemua rakan ekutinya untuk mendapatkan harga yang kompetitif bagi item seperti makanan, hiburan, servis kapal terbang dan latihan anak kapal. Ini akan mengurangkan kos MAS.

Namun yang menarik dengan langkah ini adalah- walaupun Etihad memegang ekuiti di dalam penerbangan tersebut, ia masih mengekalkan warga tempatan untuk menguruskan syarikat. Imej dan branding syarikat juga dikekalkan bagi memastikan identiti negara tersebut. Sebab itu Aer Lingus masih menggunapakai warna hijau Irish dan kekal diapnggil Aer Lingus.

Maknanya walaupun MAS menjadi rakan ekuiti Etihad, MAS boleh mengekalkan identiti Malaysia misalnya baju batik krew kapal.

Tetapi langkah ini ada harganya. Sanggupkah kita menjual sebagian kecil kepentingan syarikat nasional negara kepada syarikat luar? Bagi sesetengah pihak, ini soal maruah.

Jika tidak sanggup, langkah kedua adalah alternatif terbaik iaitu dengan membahagikan MAS kepada dua entiti- satu entiti premium bagi laluan jarak jauh dan juga destinasi tidak popular untuk mempromosi Malaysia dan satu lagi entiti hibrid untuk bersaing dengan penerbangan tambang murah di laluan-laluan popular di doemstik dan serantau.

Langkah ini perlu memandangkan majoriti penduduk rantau Asia dan Malaysia adalah golongan menengah. Mereka memilih berdasarkan harga, bukannya sentimen nasional. Sebab itu rantau ini juga mempunyai begitu banyak penerbangan tambang murah. Dan MAS terbang di laluan-laluan mereka. 

MAS tidak boleh berterusan menawarkan harga rendah hanya untuk menambahkan penumpang. Jika tidak, tak hairanlah MAS rugi RM2 juta sehari kerana kos lebih tinggi dari pendapatan. Strategi load active, passive yield hanya boleh berjaya jika MAS diuruskan seperti penerbangan tambang murah. Hakikatnya tidak sekarang.

Jadikan Firefly sebagai penerbangan yang benar-benar mencabar AirAsia dan Malindo. Ubahsuai pesawat MAS kepada Firefly. Laluan domestik dan serantau MAS berikan kepada Firefly. MAS hanya fokus di laluan jarak jauh yang tidak mempunyai AirAsia.

Langkah ini sudah dihuraikan panjang lebar di dalam artikel sebelum ini di sini.

Baca juga temu bual bersama Tan Sri Abdul Aziz di sini yang juga bersetuju dengan langkah membahagikan MAS kepada dua entiti.

MatRodi

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WHY MALAYSIA IS NOT ASIA’S WEAKEST LINK

Ahhh… this Pesek again.

KLCC-3

Mr William Pesek is a Bloomberg View columnist based in Tokyo. He, as mentioned in his writing, unabashedly confessed to be one of the Anwar Ibrahim’s admirers.

That explained why he keeps questioning about the Opposition leader’s case in his articles without fail.

His assertion in his article ‘Is Malaysia Asia’s Weakest Link’ that “Malaysia is the riskiest country in Asia more so than India, Indonesia and Thailand” is worth studying. Is it true or is it fantasy?

In his article he wrote that Putrajaya’s one-party policy and its 40-year-old pro-Malay affirmative action programme will chip away the country’s competitiveness.

Never mind if Malaysia has been chalking up in global competitiveness rankings in the past few years. In IMD World Competitiveness Yearbook 2014, Malaysia is the 12th most competitive country in the world. ATC Kearney’s Washington DC ranked us at 15th in FDI Confidence Index.

These achievements have been reflected by the rising realised investment in Malaysia. Last year, total investment hit RM264.6 billion- a whopping 32% increase from 2010.

Malaysia's Realised Investment

Malaysia’s Realised Investment

Ironically, it was achieved in spite of the ’40-year-old-Malay-affirmative action programme’. How could this scheme, which supposedly disenfranchises Malaysia’s Chinese and Indian minorities could provide a competitive business environment for the private sector to thrive? Most importantly, not only we fared better than Indonesia or Thailand, we have ably overtaken developed economies such as Norway, South Korea and United Kingdom.

Pesek also criticised Malaysia for its high levels of public debt, rising external debt and shrinking current account surplus.

Admittedly Malaysia household debt is high at 87% of GDP. Is that worrying? It depends. While the household debt is high, our household asset has quadrupled. It has now stood at 322% of GDP. It means for every RM1 Malaysian borrow from the bank, they acquire asset worth RM4. [1]

In fact, Malaysia public debt is not hovering at all time high-as claimed by Pesek. In 1990, our public debt to GDP ratio stood at 81%. But today it is about 52.2% of GDP.

Pesek has pointed out Malaysia’s current-account surplus is dwindling, from 16 percent of GDP in 2008 to 3.7 percent last year. But again, he cherry-picked facts. He should mention most of the developed and developing economies have seen their current account decreased. Only the oil-rich countries like Kuwait, Brunei, UAE,Saudi and Qatar have the luxury to have 20-30% surplus. The rest? They have to stimulate the economy through spending.

Even so, our trade surpluses will help in improving current account balance. As for today, Malaysia has international reserves of RM427 billion. It is 1.3 times sufficient to pay our short term external debt.

Well, that is Malaysia. How about other Asia countries?

Indonesia’s deficit is worsening. After 14 years of surplus, the current-account balance swung to a deficit of 4.4%.. A coup-ridden Thailand is even worse. The last time Thailand had a coup, the stock market crashed. Singapore’s indebtedness has swelled to the most in Asia after China and India.

Against this backdrop, why Pesek believes Malaysia is Asia’s weakest link? Maybe it is safe for him to impute all kinds of mismanagement by the Malaysia Government. After all, he concluded that as Indians just elected the reform-minded Narendra Modi, Malaysia may send his darling to go back in jail as he believes Malaysia’s Prime Minister is clinging to power.

Very telling, indeed.

MatRodi

[1] As explained by @EkonomiUmno in twitter

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