A dispute over land ownership of dams and treatment plants between the federal government and opposition-held Selangor has derailed an agreement that is crucial to ending a supply crisis for Malaysia's richest state.
Solving the water crisis is urgent - taps in Selangor, federal capital Kuala Lumpur and seat of government Putrajaya ran dry for over two months last year, affecting seven million people.
The six-year stalemate appeared to have been resolved with a RM9.65 billion (S$3.6 billion) agreement in September last year between the state and federal governments.
The deal was struck following a rationing exercise that lasted all of March and April, which heightened concern over a lack of reserve water supply as investment in the industry came to a standstill.
Under the deal, Selangor is to hand over assets used in collecting, treating and distributing water to consumers in the densely populated Klang Valley. In exchange, debt owed to Putrajaya would be written off and the state would get cash of RM2 billion.
But the January deadline was extended by two months following a dispute over land - a hot-button political issue - and failure to meet yesterday's cut-off saw Selangor withdrawing completely from the negotiations.
"We have given extensions and they have failed to honour the agreement," Selangor chief minister Azmin Ali said yesterday.
The agreement listed four items, including the Semenyih Dam and Bukit Nanas treatment plant, to be handed to the federal government in exchange for the RM2 billion injection. But Putrajaya now claims it already owns these assets, along with thousands of kilometres of pipelines.
Opposition MP Tony Pua, who is part of Selangor's water committee, said the federal government also insists that the RM9.65 billion deal includes land on which these assets are located.
"But the agreement explicitly states that they are not included," he told The Straits Times.
When news of the deadlock first broke last month, Water Minister Maximus Ongkili had said: "We haven't given up. I am hopeful we don't have to extend (the deadline) beyond April 9."
But a source close to the deal said Putrajaya "will not move ahead until the land issue is resolved" and has rejected a proposal to replace the two disputed assets with four others of the same value.
"Neither side wants to be seen as having lost land as part of the water deal, so it is likely to end up in the courts and take a long time," the source told The Straits Times.
Handing over the water collection, treatment and distribution assets is a statutory requirement under the Water Services Industry Act 2006. In return, Putrajaya will undertake capital expenditure and license operators to treat and distribute water.
But after the Pakatan Rakyatalliance won a record five states in the 2008 general election, the lucrative water business in Selangor - controlled by companies linked to the ruling Barisan Nasional - faced a political deadlock.
These firms and Selangor bickered over asset valuation and tariff hikes. As these assets would be leased back to operators, future tariffs would be directly affected by their value, which the rental agreement would be based on.
According to Mr Pua, the law also requires land containing the assets to be handed over to Putrajaya, "and we are willing to, but not for free".
Last year's deal was a milestone towards resolving the water crisis in Selangor because it also allowed the federal government to proceed with the RM3.6 billion Langat 2 plant that will treat 1.9 billion litres of water daily from neighbouring Pahang.
Selangor's current supply of about 4.5 billion litres is already fully used and water cuts occur each time a treatment plant is taken offline either due to failure or for maintenance. Studies show that demand growth in Malaysia's economic hub is 2 per cent to 3.5 per cent annually.
This article was first published on March 10, 2015.
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