MoF Inc-backed PAAB solicits bids for construction of new water-treatment plant

KUALA LUMPUR (Feb 16): Minister of Finance Inc’s (MoF Inc) wholly-owned company Pengurusan Aset Air Bhd (PAAB) is seeking bids from prospective bidders for the planned construction of a new water-treatment plant in Semangar within Johor’s Kulai district and water-distribution system within the state’s Kota Tinggi district.

According to PAAB’s tender notice, the tender advertisement was dated Thursday (Feb 10) while the closing date for the bidding exercise will be on March 10, 2022.

PAAB said it is "not obliged" to accept the lowest bid from a bidder and indicated reasons for rejecting certain bids.

"PAAB wishes to invite local companies with the relevant experience and expertise to submit their bids,” PAAB said.

According to PAAB’s website, it was incorporated on May 5, 2006 with the objective of being the holding company for Malaysia’s water assets.

PAAB said the company forms part of the government’s efforts to restructure the water services industry in the country to achieve better efficiency and quality, as well as to ensure sustainability of the industry.

According to PAAB, its primary responsibility is to develop the nation’s water infrastructure across Peninsular Malaysia and Labuan, helped by competitive financing obtained from the private financial market. 

The water assets are then leased to water operators licensed by industry regulator Suruhanjaya Perkhidmatan Air Negara (SPAN) for operations and maintenance.

"PAAB is also tasked to assist SPAN to restructure the nation’s water industry to achieve the government’s vision for efficient and quality water services.

"PAAB will first take over the existing water assets from the various states. Currently, these assets are owned by either the state governments or private water concessionaires. 

"After the transfer, the state water operators (service licence) will lease back the water assets from PAAB (facilities licensee) for operation and maintenance as the states will continue to be responsible for the provision of water-supply services,” PAAB said.

The federal government provided PAAB with the latter's working capital, according to PAAB. 

"As for the development of water infrastructures, we are looking into several options, including issuing bonds in the capital market as well as borrowing from commercial banks. We are considering both short-term and long-term loans to match the lifespan of the water assets.

"As a government-owned company, PAAB is eligible for more favourable financing rates which will translate to better tariff rates, ultimately benefiting the consumers,” PAAB said.

RAM Rating Services Bhd (RAM Ratings) said the bond-rating firm believes PAAB can easily tap the Islamic bond or sukuk market for additional funding in view of PAAB's crucial function and relationship with the government. 

In a note on Friday (Feb 11), RAM Ratings' analysts Seri Nuralya Munawir and Chong Van Nee said PAAB is expected to continue to gear up as it invests in new water assets and strives to complete the restructuring of the domestic water industry.

"The MoF (Finance Ministry) also granted PAAB a federal loan moratorium last year after the group (PAAB) similarly allowed state water operators to defer repayments amid collection issues during the pandemic. 

"Owing to [the] group’s (PAAB) critical function, RAM expects the government to maintain close oversight via PAAB’s board while extending financial assistance when the need arises. The transaction terms require PAAB to remain a wholly government-owned subsidiary — the breach of this term will constitute an event of default,” the analysts said.

According to them, RAM Ratings has reaffirmed its AAA/Stable rating for PAAB’s financing conduit and 100%-owned subsidiary Pengurusan Air SPV Bhd’s (PASB) 30-year RM20 billion Islamic medium-term notes programme from 2009 to 2039.

The reaffirmation of the rating is premised on RAM Ratings' view that PASB will continue to derive substantial financial flexibility from the Malaysian government via MoF Inc, they said.

"To date, the Ministry of Finance has injected a total RM730 million of paid-up capital into PAAB — total authorised capital is RM1 billion,” the analysts said.

Edited by- Chong Jin Hun