Following the uplift of the negative outlook, the reaffirmation of the ratings on Puncak Niaga (M) Sdn Bhd’s (PNSB) RM1,020 million Bai Bithaman Ajil Islamic Debt Securities, RM350 million Murabahah Commercial Papers/Medium Term Notes and RM546.875 million Junior Notes A reflects the Federal Government’s assistance in the partial settlement of the long outstanding trade receivables owed by Perbadanan Urus Air Selangor Berhad (PUAS) pending the formation of the National Water Service Commission or the implementation of the water privatization exercise and the unfaltering demand for treated water in Selangor and the Federal Territories of Kuala Lumpur and Putrajaya.

PNSB is the operator of 28 water treatment plants (WTPs) in Selangor and Federal Territory with a combined design capacity of 1,902.52 million litres per day. Under the Privatisation Cum Concession Agreement and Construction Cum Operations Agreement, PNSB is required to sell treated water to the Selangor State Government until end-December 2020 under a minimum take-or-pay structure.

In 2003, PNSB produced 703.1 million m3 of treated water, an increase of almost 3% from the same period previously. Nevertheless, the higher sale did not translate into higher cash receipts. As at 31 December 2003, total receivables owed by PUAS in respect of bulk supply of treated water increased to RM1,058.2 million. And for 1H2004, total receivables stood at RM1,220 million.

Given the severe financial woes faced by PUAS and the high level of non-revenue water (NRW) currently prevalent in Selangor, in October 2004, the Ministry of Energy, Water and Communications indicated that the water privatization exercise in Selangor and the Federal Territories of Kuala Lumpur and Putrajaya will proceed even before the formation of the National Water Service Commission. On 25 October 2004, PNSB received RM427.2 million from PUAS arising from a loan extended by Bank Pembangunan dan Infrastruktur Malaysia Bhd to PUAS. In return, PNSB accepted a 2% discount on the total receivables payable by PUAS and the waiver on all late payment interest on the outstanding amount until actual payment is made. Part of the payment was used to deposit RM180 million into the Debt Service Reserve Account due on 27 October 2004.

Revenue in FY2003 increased marginally by 2.3% to RM578.3 million (FY2002: RM565.1 million), due to higher production volume and the annual upward adjustment in the bulk supply rate. The last fiscal year also saw PNSB maintaining its operating profit margin at over 50% for the third consecutive year. Going forward, the privatization programme is envisaged to address the payments of past and future receivables, hence reducing rating concerns on collection risk.