Combining Concession Contracts With BOT :

Challenges for the Water Operator

Ranhill Utilities Experience in Malaysia
 RANHILL GROUP OF COMPANIES

Corporate Structure

Engineering &
Power Water Energy Infrastructure
Construction

Ranhill Utilities Berhad

Services
Asset Ownership & Operation
 Group Structure

Ranhill Utilities Berhad

*SPV
70% 100% 100%

Ranhill Water SAJ Holdings Ranhill Water Services

Technologies (RWT) (SAJH) (RWS)

• Provision of technology driven
solutions for water and
wastewater treatment
• 4 BOT (15 - 29 years)
wastewater and recycle water
projects in Thailand and 2 water
projects in China
• 30 years potable water supply
concession for the entire Johor
State
• Successful turnaround of SAJ
Sdn Bhd from loss making to
profitable business and improving
service levels
• NRW management, networking
modeling and geographical
information system (GIS) service
• Provide operational services to
water companies and agencies

* investments and undertakings through other SPV - special purpose investment vehicles

Saudi Arabia:
On-going
1. Consultancy: Full Operational
Audit for Water & Wastewater
for Madinah City, 2006-2007,
Turnover: USD 2.4 mill
PPP Projects world wide
China:
On going
1. Yichun 100mld WTP, BOT-29years, (2003-2031)
China Annual Turnover: USD 6.6 mill
Saudi Arabia
2. Xiao Lan, 30mld WWTP, BOT-29years
Thailand
Annual Turnover: USD 1.2 mill
Malaysia
3. He Fei, 30mld WWTP, BOT-25years
Annual Turnover: USD 2 mill
Thailand:
On going
1. Amata City WTP& WWTP, BOT-15years, (2005-2019)
Annual Turnover: USD 0.4 mill
2. Amata Nakorn WTP, WWTP & Reclaimed plant, BOT-
Malaysia: 20years (2005-2024) Annual
Turnover: USD 0.2 mill
On going
3. Safeskin, WWTP (O&M), 2years renewable contract, Annual
1. SAJ Holdings: 30years water supply
turnover: USD 2.2 mill
concession (2000-2029) for the state of
Johor. Annual turnover: USD 235 mill
(18 months) for 2006 Precursor to PPP Projects:
Finalising Terms On going
1. Melaka Water Supply :Management 1. NRW reduction contract for State of Johor: 5
Contract, 5 years Potential annual years contract with annual turnover of USD 4 mill
turnover: USD 1.4 mill
• NRW reduction contract for the State of Melaka: 1 year
2. JB City Sewerage Management pilot contract with turnover of USD0.3 mill
Contract, 22 years (2008-2029) Potential
5 years contract with annual turnover of USD 1 mill
annual turnover: USD 25m
 30-year water supply concession in Malaysia
State Government Concession: Source to Tap Capabilities (1,737 employees)

Abstraction Production Distribution Customer

Catchment Area, From river and • 43 treatment plants • 487 reservoirs • 3.1 mil population
rivers & some dams • Production 1,315 mld • >12,000 km • 830,000 accounts
dams • Capacity 1,624 mld pipeline • > 99% coverage

SAJ Holdings Sdn Bhd (SAJH) has been granted a 30-year Concession by the Johor State Government
(“SG”) to collect and treat raw water and distribute treated water to the consumers of Johor State commencing
1 March 2000.

Salient Features of SAJH’s Concession

The concession agreement entitles SAJH to yield an IRR of 14% to 18%
To pay Concession Charges and Concession Consideration
Self finance for all future capital works to meet the projected water demand
Transfer of all SAJH shares to State Government at end of Concession Period for RM1.00
SAJ Holdings Current Position
 Operating Regulatory Structure in Malaysia
Water Treatment Water Distributor Government /
Operators Regulator
SAJ Holdings Sdn
• SAJ Holdings Sdn
Bhd
Bhd State Water
Supply Regulate Regulatory
• Equiventures Sdn treated Body
Bhd (“ESB”) water
Lease
immovable
assets
• Southern Water
Corp Sdn Bhd State Government /
(“SWC”) Syarikat Air Johor Sdn
Pay Concession
Bhd
Charges
• Public Utility Board, Distribute
Singapore (“PUB”) treated
water
Pay bill

CUSTOMERS
 Concession Framework – SAJH Risk Exposures
Water
Treatment Water Company Operator (SAJH)
Operators
Capital Capex
Markets Programme
BULK WATER Raise financing & Pipes, WTPs, NRW,
OPERATORS repayment of debts Reservoirs, etc.
THROUGH BOT
CONTRACTS
Supply treated
SAJH
Risks /
water
Water Obligations
Operator • Operation risk
• Finance risk
Risk limited Distribute • Concession
to water treated Collection liabilities
treatment water • NRW reduction
activities Customers • Availability risk
only
 SAJH’s Risks & Obligations
Risks
Operation Risk – quantity and
quality of raw water; and treated
water from bulk water suppliers
Financial Risk – to ensure
sustainable financial position,
including debts obligations
throughout the Concession
Period
Collection Risk – SAJH faces non
collectible debts from customers
Obligations
Provide full funding for the operations and capital
expenditure
Undertake Concession Charges and Concession
Considerations to State Govt
Concession Liabilities – Assumed State Govt liabilities
upon privatisation
Assumed additional term loan to undertake Federal Govt
project
NRW to be reduced to 20% by 2010
Comply with Regulatory Requirements
Restructuring of the
Concession
 SAJH’s FMP & BSR Commitment
SAJH REVENUE
Pursuant to the Concession Agreement, SAJH is obligated to pay
UTILISATION
FMP and BSR for the water purchased from Bulk Water Operators
respectively; until the expiry of their concession in 2012 and 2014
BSR respectively.
Balance:
Capex, tax, 25% The high payments of FMP and BSR translate into high water
interest, etc. =
17% tariff to the customers.

FMP Paid Payable

Opex, retirement Total FMP
benefits & 21% & BSR (Actual + 2005 (2006
concession est.) onwards)
charges = 37%
BOT 1 RM2,785m RM1,389m RM1,396m

BOT 2 RM1,114 RM521m RM593m

46% of SAJH water revenue
is utilised to pay FMP & BSR Total RM3,899m RM1,910m RM1,989m

FMP - Fixed Monthly Payments

BSR – Bulk Sales Rate (variable)
 2005 Estimated Collection vs. Payment
RM million Total collection = RM480.0m
900.0
Total payment = RM771.4m
800.0
Total deficit = (RM291.4m)
700.0
272.4
600.0

500.0
2005 total collection = RM480 million
91.1 91.1
400.0 Biggest 37.0 37.0 37.0
operating 99.6 99.6 99.6 99.6
300.0
cash outflows
200.0 116.9 116.9 116.9 116.9 116.9

100.0 89.3 89.3 89.3 89.3 89.3 89.3

65.1 65.1 65.1 65.1 65.1 65.1 65.1

-
Variable
variable Cost
cost +Fixed Cost
+fixed cost +FMP
+FMP +BSR
+BSR +C. Charges
+C.Charges +Interest
+Interest +Capex
+Capex
 Challenges for SAJH

Inequitable PCCA Inequitable Bulk Water Supply Agreement

PCCA-Privatisation Cum
Concession Agreement

Financial Self- Cash flow deficits – high initial capex and

Sufficiency payments to bulk water suppliers

Contractual risk – long gestation period

Risk to Investors

Resistance to full cost-

Water Tariffs
recovery tariffs

Availability of long term Mismatch in funding – market

Funds appetite
Reform of
Water Services Industry
 Johor Water Supply Services Restructuring Scheme
On 30 Dec 2005, SAJH and Johor State Government (“JSG”) entered into an additional Water Supply
Agreement (“WSA”) to restructure the water supply business on a sustainable basis (“Scheme”). Johor
Special Water Sdn Bhd (“JSW”) was incorporated by JSG to undertake the Scheme implementation as
follows:
JSG WSA

100%
bonds
Scheduled
Bondholders issuance & JSW SAJH
Payments
redemption

Bulk Water Acquire BOT

Operators Assets

Revised tariff
schedules

Average Tariff Increase 2007* 2009 2012

Proposed Scheduled Tariff 2.4% 18.9% 20.0%

2003 Scheduled Tariff 48.5% 19.2% 8.0%
 The Water Bills Framework
SPAN SPAN & CORP.COMPANY
Regulatory • Regulator-regulated relationship
powers via PAAB
licensing • Primary control via licensing regime
conditions Commercially
Corporatised driven • Tariff escalation supervised, administered by
Company contractual SPAN
agreement
PAAB & CORP.Company
• Asset light entity with pure • Owner-operator relationship
operational focus
• Commercially driven, based on principles of
• Economic rent payable to PAAB fairness, equity and affordability
for use of assets
• Limited funding needs • Public support payments administered by SPAN
via PAAB
• Billing infra
SPAN & PAAB
• Working capital
• Regulator – regulated relationship
• Primary control via capital budget & funding
Need a framework that fulfils the following:
• Ensures continued investments in water/
9 Congruence with Water Bills sewerage infrastructure
9 Commercially driven arrangement
• Removes public interest burden from
9 Regulatory risks mitigated commercial operators
 Understanding Of The Water Bills
Budget allocation, • Water Services Industry Bill :-
capital markets Minister • Establishment of SPAN
• Transfer of water & sewerage related
matters from State to Federal Govt
Administers Planning, • Powers to plan, license, regulate,
SPAN Fund SPAN Licensing, enforce
Regulation, • Dispute resolution between licensees,
Enforcement permit holders
• SPAN Bill:-
• Powers of SPAN
• Composition of commissioners
Owns, Service Facilities • Funding
funds PAAB Provider Provider
• Meeting procedures
assets
• Nature of relationship between PAAB &
Service/ Facilities Providers MUST be
one that :-
• Is Fair on both parties
The basis of lease rental Governed • Allocates responsibilities & risks
chargeable for the rights clearly
by Water • Is commercially driven
of use. Bills
 Water Acts: A Timely, Innovative Reform Initiative…
Medium term 15-20 years' maturity
funding
The current Cash flow
mismatch!
predicament
Long term 30-40 years of useful
assets life

Govt better able to

Long term borrow long term at
funding favourable rates
A pragmatic
solution
Better matching of
Long term asset & liability tenure
assets

IT IS VIEWED THAT THE REFORM INITIATIVES TO BE POSITIVE AND

TIMELY STEP TOWARDS TRANSFORMING WATER SERVICES INTO A
SUSTAINABLE INDUSTRY
 …Which, Will Help All Stakeholders
9Gradual, as opposed to steep increases in tariff levels
Public 9Investments in water assets, quality continues
9Reduction in non-water revenue lessens pressure on tariff further
9Pure operational focus ⇒ primary objective to improve operational
efficiency
Operators 9Burden of capital investments and funding the same removed
9Ability to distribute earnings better ⇒ no need to conserve cash for heavy
capital investments, meet funding obligations
9Attractive business model ⇒ financially sustainable
9Central planning of investments ⇒ better resource allocation/
Regulator/ management
Govt 9Investment plans independent of private sectors' ability to raise funding
9Lower cost of funds, and hence overall investment costs
9Able to moderate increases in tariff
SAJH Reform Experiences
 SAJH’s Improvement Initiatives
SAJH strives to enhance the performance of the company and achieves the
following results:
Productivity Billing &
Production Cost Customer Service
Collection
• Employee’s • Introduction of Spot • Production Cost is • 24 hours operation
productivity is Billing, allowing the major cost driver centre
improved by 25% current period billing of the Company • Customer outreach
• Overtime payment is • Reduce Billing Cycle • Concerted effort to program
reduced by 50% to 30.9 days reduce Production • Costumers’
Cost from above
• Reduce Collection awareness program
RM0.21/m³ to in water
Period to 39.4 days,
RM0.19/m³ conservation
from 75 days
• Collection Efficiency
improved to 99%
Key Parameters Comparison Before and After Privatisation
Parameters Before (1999) After (2006)

Revenue (USD per annum) 56.7 130

Profit Before Tax (USD per annum) - 48.9 42

Coverage (%) 99 100

Staff (per 1000 connections) 2.8 2.1

30
Non Revenue Water (Gross %) 45
(12 mths average)

Billing Cycle (days) 40 31

Collection Period (days) 75 34.3

Active Debts/Revenue (%) 28.4 10.4

Production Cost (USD/m3)

0.06 0.05
(ex plant)
 Key Improvement Initiatives

ORGANISATION STRUCTURE CUSTOMER FOCUS LEVEL OF SERVICE

9Transformation from Public
9Restructuring from multi Entity into Private Company 9Meeting the Rising
function responsibility at local 9Staff Appreciation as a Expectations of Consumers
level to a central management Service Company 9Setting Benchmarks for
based on business and 9Implement new work Service Levels at all aspects
operational functions culture based on customer of the operation
9Staff empowerment and satisfaction 9Implement new work
ownership of actions culture based on customer
9Reduce hierarchical overlaps satisfaction
to ensure more focused
management
9Management Information
System for informed and timely
decision making
 NRW REDUCTION PROGRAMME
Targeted Reduction of NRW
AT RANHILL WE RECOGNISE THAT: 50%
Significant reduction
45% post acquisition by RB

z NRW program requires company-wide 40%

35%
commitment as NRW occurs at every level of 30%
Current NRW Level

operation. 25%
AT 30%

20% Targeted reduction

z NRW reflects upon Ranhill efficiency as a 15%

water company. 10%

1999 2002 2003 2004 2005 2006 2007 2008 2009 2010
SAJH NRW reduction Current National Average
z NRW has a direct effect on Company
financial position.

z As a concession holder, NRW is one of our

commitments to be fulfilled.

z It demonstrates our corporate value, as

water is a precious commodity entrusted
upon Ranhill to manage.
 Non Revenue Water Reduction activities in Johor, Malaysia

• DMA Establishment • Over 700 DMA established with 80% coverage

• Leak detection • 12,052 found and repaired in 2005

• Currently with 90 leakage detection staff
• Flow balancing • 20 nos of flow balancing analysis carried to date with significant results

• 127 reservoirs on RMS and a further 360 monitored manual on a six month
• Reservoir Monitoring basis.

• 95% of water assets transferred into GIS (over 12,000km mains)

• GIS • Integration with WAQIS, BIS, JMS, etc.

• Strategic model constructed

• All main models under construction
• Network modelling
 QUALITY OBJECTIVES
CUSTOMER QUALITY QUALITY TARGET Achievement
REQUIREMENT 2006 2006
Water Quality (MOH Standard) 99 % Compliance 99.7% Compliance

Continuous Supply Scheduled disruption not more than one 24

hrs per customer/ 90 days 100%

Adequate Pressure At any point in reticulation > 10 meters 93%

residual pressure.
Water Quantity Min. 120% supplies capacity against 119%
demand.
Min. 12 hrs storage capacity at reservoirs. Average 24 hrs

Safe Working Environment. Zero penalty, Zero hospitalization, 0/3

100% PPEs compliance and -
0/1000 personal/year injury time 168 hrs
Environmental Compliance. Provide sludge treatment for all plants > 5 Development work in progress
mgd capacity (Design stage)

New connections Individual connection within 3 days Developer 99.1%

application within 7 days 99.7%
Water Supply Approval Plan approval within 3 months -
CF Support Response within 30 days. 80%
Billing cycle Average 30 days. 31.1 days
NRW Concession target 20% by 2010 30% in 2006
 CUSTOMER CHARTER
CRITERIA Target (%) 2006 Achievement
2006
1) Water supplied in compliance with MOH requirement 98% 98.6%
2) Customers informed of all planned interruptions more than 24 hours in advance 100% 98.3%

3) Pipe bursts repaired within 24 hours upon receiving of complaint 100% 89%
4) Pipe leaks repaired within 3 working days upon receiving of complaint 100% 98%

5) Bill queries at the counter shall be attended to within one hour 100% 100%
6) Queries and complaints requiring a visit to the premise shall be attended as follows:-
i) Visit to the premise within 3 days from date of complaint received.
ii) Complaint resolved within 10 days from date of complaint received 100% 95%
98%

7) New water meters shall be installed at the premise as follows:

i) 2 working days for individual household after deposit paid 100% 99.4%
ii) 7 working days for housing developer after deposit paid 99.5%
8) Disconnected water supply shall be reconnected within 3 working days after the 100% 99.5%
related payment is received.
9) Deposit money will be returned within 3 weeks upon the application to terminate 100% 96%
supply along with related document have been received.
10) Application for the approval of reticulation plans and internal plumbing shall be 100% 97.2%
responded to within 3 weeks from the date the application is received.
THANK YOU