SUBANG JAYA - Malaysia's richest state Selangor announced on Friday (Aug 3) it will take over water firm Splash for RM2.55 billion (S$839 million), removing the final hurdle for solving water woes that have for years plagued millions of households in the Klang Valley.

Splash is the last of four companies with water assets to sell their treatment plants and pipes to the Selangor government, after drawn-out talks that the Pakatan Harapan state administration claims were deliberately stalled by the then Barisan Nasional central government.

The protracted talks were among chief causes for dry taps for seven million people who live in the Klang Valley, which encompasses Kuala Lumpur and administrative capital Putrajaya.

"We failed previously because there wasn't close cooperation between the federal and state government. After nearly 10 years ... we have found a solution today. This moment is the result of a year's negotiation," Selangor Menteri Besar Amirudin Shari said at a press conference on Friday.

Splash has accepted the offer - which was first reported by The Straits Times on July 27 - in principle, pending approval by its directors and shareholders. It will receive RM1.9 billion upfront, with RM650 million paid in tranches over the next nine years.

Official sources told The Straits Times the RM1.9 billion will be paid by the federal government. State-owned water operator Air Selangor will pay the RM650 million over nine years.

"This takeover will not involve any financial allocation from Selangor funds and the long-term payment will allow Air Selangor to operate at a reasonable cost to ensure a tariff that will not burden the public," said Mr Amirudin, referring to the nine-year timeframe.

However, the chief minister said he could not reveal the amount contributed by Putrajaya pending "certain approvals to be declared by the federal government".

With PH helming both the Selangor government and the federal government since the general election in May, the deal was hammered out within a fortnight of Parti Keadilan Rakyat (PKR) vice president Xavier Jayakumar being appointed Water, Land and Natural Resources Minister.

The water deal is politically timely too, coming just a day before ballots open for a by-election in Selangor constituency Sungai Kandis. There are also two other by-elections coming up in Selangor following the recent deaths of their assemblymen.

Splash has a net book value of RM3.54 billion, which means the deal was struck at a 28 per cent discount. The firm is also foregoing RM4.7 billion in net receivables - outstanding payments for treated water - that was due from the state.

The company is owned by Selangor-controlled Kumpulan Perangsang Selangor, with a 30 per cent share, conglomerate Gamuda - whose largest stakeholders are state-controlled savings funds - with 40 per cent and Sweet Water Alliance, a private company controlled by businessman Wan Azmi Wan Hamzah, a protege of Tun Daim Zainuddin, who chairs the government's powerful advisory body, the Council of Eminent Persons.

"It is well short of what we set out to do largely because of this final discount that we had to concede. But... it is a concession that we do not begrudge too much. This is the time when everybody, including the corporate sector, have been called to put their shoulders to rebuild the nation," said Tan Sri Wan Azmi, who is also Splash chairman.

Selangor suffers the highest incidence of water supply disruption among Malaysia's 13 states. Half of the 160,000 disruptions recorded in 2016 were in the Klang Valley, and Selangor's treated water reserves have been at zero since 2015, meaning outages occur whenever there is a drought, scheduled repairs or unforeseen damage to pipes, treatment plants or reservoirs.

Under Malaysia's Water Services Industry Act 2006, which was intended to centralise the country's water infrastructure under the federal government and standardise water services nationwide, all states were required to hand over their water assets to central government.

Previous discussions to hand over water assets in Selangor pitted the Pakatan Rakyat state administration against the BN federal government and four water supply companies, who were awarded lucrative contracts by BN before PR won the state in 2008.

Three of these companies sold their assets, including water plants and thousands of kilometres of pipes, to Selangor in 2014.

At the height of the dispute between Selangor and the BN administration, the latter in February 2018 refused to allow the state to use the federal government-owned Langat 2 water treatment plant to supply water to Selangor consumers, until the state resolved outstanding issues with Splash.

Dr Xavier, who was part of the Selangor government which was criticised over unstable water supply to the Klang Valley, has announced that the Langat 2 plant will begin supplying treated water to Selangor in November. Once fully completed, it will add close to 50 per cent to current capacity for the Klang Valley.