Puncak Niaga’s RM14b lawsuit may backfire
Khairul Khalid 
Puncak Niaga has accumulated losses of over RM355 mil up to September since the Syabas sale

SELANGOR’s water restructuring plans have been dealt another blow with Puncak Niaga Holdings Bhd’s RM14 bil lawsuit. The former concessionaire is claiming abuse of power by the state government in the water restructuring which saw Puncak Niaga disposing its highly-prized subsidiary Syarikat Bekalan Air Selangor (Syabas) in 2015 for RM1.55 bil.

Khalid (left) and Azmin are seeking to dismiss Puncak Niaga’s RM14 bil lawsuit

The legal action, which names former Selangor Menteri Besar (MB) Tan Sri Abdul Khalid Ibrahim, current MB Datuk Seri Mohamed Azmin Ali and the Selangor state government as defendants, has taken many by surprise.

A source tells FocusM a number of its top management were unaware of the plans for the lawsuit, which could have adverse repercussions on the company.

“Apparently, not many of Puncak Niaga’s senior management knew that this was coming. Most were in the dark. Some were informed only a few days before the


He says the legal action may even backfire. “Although it has not named the federal government as defendants, it might get dragged in too due to the mention of the Water Services Industry Act 2006 [WSIA] in the suit. It may get messy, if the case proceeds.”

Financial strain

The source adds that shareholders may be concerned that should the case go to trial, it might strain the group’s resources and finances if the lawsuit drags on for years.

“What if it loses? In its current position, the company cannot afford a further squeeze to its finances.”

The company has been bleeding since giving up Syabas and has failed to replace it as the group’s main revenue stream.

Puncak Niaga’s investors are still waiting for it to recover after almost two years of being in the red since losing its water concession. Its core business is still the water sector but it is struggling to establish a foothold in new business ventures such as oil & gas (O&G) and plantations.

For its third quarter ended Sept 30, Puncak Niaga posted a net loss of RM25.38 mil on the back of RM37.26 mil in revenue, its eighth consecutive quarterly loss.

For the financial year (FY16) after the Syabas deal, Puncak Niaga posted a net loss of RM258.9 mil. Its year-to-date losses to September amount to RM98 mil, which totals up to accumulated losses of over RM355 mil since the Syabas sale.

After disposing its Selangor water assets, Puncak Niaga had planned to use the proceeds to expand its plantation and O&G arms but none has come close to match the revenue generation of Syabas.

Last July, the company completed the purchase of Danum Sinar Sdn Bhd, an oil palm plantation company in Sarawak for RM446.5 mil cash.


WSIA contention

There is a possibility the case might not get to the trial stage. In response to Puncak Niaga’s move, Azmin and Khalid have filed an application to dismiss the lawsuit. The court has also instructed the parties involved to attempt mediation next January.

There are three crucial points in Puncak Niaga’s claims against Selangor – the use of WSIA, valuation of Syabas and losses purportedly caused by delays in the sale of the concessionaire.

Section 114 of WSIA allows the federal government to forcibly seize control of water assets in matters of national interest. In 2014, it did just that by approving the use of WSIA to resolve the water restructuring in Selangor that had been delayed for more than seven years.

Nevertheless, the federal government has so far not enforced WSIA despite cabinet approval, preferring to use the legislation to pressure water concessionaires to sell their assets on a willing-buyer, willing-seller basis.

In October 2015, after more than seven years of deadlock, Puncak Niaga finalised the sale of its major water assets in Selangor – Puncak Niaga (M) Sdn Bhd and Syabas – to Pengurusan Air Selangor Sdn Bhd for RM1.55 bil.

In its lawsuit, Puncak Niaga stated the Selangor government “is vicariously liable for the tortious acts of Khalid and Azmin in abusing their powers in public office/misfeasance by threatening to cause and/or requesting or attempting to cause the federal government to invoke the use of WSIA to force a takeover of the state’s water industry.”

Protracted negotiations

Although the disagreements between Puncak Niaga and the Selangor government were widely known, mainly on the valuation of Syabas, when the deal was finally agreed upon by the parties in 2014, it looked like both had reached a win-win solution.

Puncak Niaga’s announcement on Bursa Malaysia on Nov 12, 2014 stated the company’s directors had unanimously agreed to support the decision to dispose Syabas.

“Although not present at the signing ceremony, [founder and executive chairman Tan Sri] Rozali [Ismail] has given his undertaking to support the entire transaction as a major shareholder of Puncak Niaga at the EGM of Puncak Niaga to be convened in due course, whilst seeing through the smooth implementation of the agreement.

“He further emphasised that his support is for the benefit and best interest of consumers in Selangor and the Federal Territories of Kuala Lumpur and Putrajaya,” the company said in its Bursa Malaysia filing.

However, after that announcement it took almost a year for the deal to reach completion and Puncak Niaga to receive its payment from Selangor.


Rozali negotiated for seven years before selling Syabas to Selangor

In fact, just before the company announced on Oct 15, 2015 that it had received the balance purchase price of RM1.55 bil from Air Selangor and completed the disposals, the deal was on the brink of collapsing.


The completion of the sale and purchase agreement (SPA) had been extended eight times to enable Air Selangor to fulfil its conditions precedent under the SPA.


Political dimensions

Although the deal was eventually completed, Puncak Niaga’s current lawsuit involving claims damages, interest on damages and costs could possibly refer to the delays.

It is claiming for the difference of its valuation of Syabas (between RM2.08 bil and RM2.35 bil) and the RM1.55 bil it received from Selangor. It is also claiming for loss of business opportunities (local and foreign) totalling RM13.49 bil.

Syarikat Pengeluar Air Selangor (Splash) is the last remaining private water concessionaire in Selangor and is still in negotiations with the state on a sale. Its previous deadline in October has been extended until next year.

This article first appeared in Focus Malaysia Issue 261.