The MARC-1ID/AA-ID rating of Syarikat Bekalan Air Selangor Sdn Bhd’s (SYABAS) RM3.0 billion Bai Bithaman Ajil Commercial Papers / Medium Term Notes Programme was affirmed with a stable outlook, reflecting its dominant position as the sole distributor of treated water for the states of Selangor, Wilayah Persekutuan Kuala Lumpur and Putrajaya; the Government’s support for the water privatization programme; the low risk nature of the business given the importance of treated water for daily consumption; and the growing water demand in the said territories. The rating is, however, moderated by the hefty on-going capital expenditure incurred to expand water coverage in the distribution areas; to reduce the incidence of non revenue water (NRW) in the distribution area and to obtain a timely tariff hike from the Government as scheduled in the Concession Agreement (CA).

Apart from the supply and distribution of water, SYABAS has to carry out the development and upgrading of distribution system, asset replacement and NRW reduction programme, to reduce NRW to 15% by the end of year 2015.  As at end December 2005, NRW was at 37.3% compared to the target level of 37.8%.  Hence, SYABAS has achieved its Key Performance Indicator for the first operating period.  As of 28 February 2006, the audited and verified NRW level stood at 36.6% representing a reduction of 6.2% from the base level of 42.8% recorded on 1 January 2005. 

Under the CA, water tariffs for end-consumers shall be revised every three years and the first tariff adjustment was due in January 2006. Recently, the Minister of Water, Energy and Communications, Datuk Seri Lim Keng Yaik announced that the water tariffs will increase by an average of 15% for consumers in Selangor, Kuala Lumpur and Putrajaya. The adjustment is warranted as the tariff formula incorporates a performance-linked adjustment to provide an incentive for SYABAS to achieve operational efficiency and successful NRW reduction. SYABAS is also entitled to compensation from the Selangor State Government (State Government) in circumstances where the latter decides to gazette tariffs lower than the applicable agreed tariffs or delays the implementation of the agreed tariffs.  As at-to-date, SYABAS has yet to obtain the effective date of the tariff hike as well as the details of the compensation from the State Government.  However, MARC understands that more detailed announcement on the tariff hike and the compensation be made by the State Government in the immediate future.

The management is aggressively undertaking plans to enhance operational efficiency and reduce commercial and/or physical water loss. Campaigns to legalize as well as to prosecute illegal connections, the setting up of district metering zones for improved monitoring, etc have been fruitful, evidenced by the improvement in NRW. Cash flows are expected to be strained due to the high capital expenditure coupled with the absence of the timely tariff hike.  Nevertheless, no immediate deterioration to the cash flow is expected, helped by the slower phase of its capital expenditure programme compared to the previous schedule. The contribution from the grant provided by the government to be utilized for the NRW reduction programme shall alleviate some pressure on the cash flow. 

The repayments of the Bai Bithaman Ajil Commercial Papers and Medium Term Notes issuance programme of up to RM3 billion (“Financing Facilities”) will commence eight years after operations (Year 2013), are structured to provide sufficient time for SYABAS to accumulate cash. Monies in a Debt Service Reserve Account serve as additional liquidity buffer for the repayment of the Financing Facilities. Thus far, SYABAS has complied with all of its financial covenants.    In FY2005, SYABAS recorded profit after tax of RM126.9 million on the back of RM1.07 billion in revenue. The higher actual revenue compared to the projected revenue was derived from the lower NRW recorded which resulted in higher metered consumption of 2,416.1 MLD as compared to the earlier projection of 2,367.2 MLD.