1. PENGURUSAN ASET AIR BERHAD (PAAB) Briefing to Analysts 19 MARCH 2009

2. 2 1.PAAB’s Role and Objectives 2.PAAB’s Progress as at March 2009 3.Johor’s Restructuring 4.Q&A Agenda

3. SPAN Regulator SPAN Regulator PAAB Water asset owner & developer PAAB Water asset owner & developer WATER OPERATORS Operation & maintenance WATER OPERATORS Operation & maintenance CONSUMERS Regulate Licensing Lease water assets Lease payments Supply of water Separation of Roles Regulate MINISTRY OF ENERGY, WATER AND COMMUNICATION Policy making

4. PAAB’s Objectives 1.Develop the nation’s water infrastructure in Peninsular Malaysia and FT Labuan 2.Source and obtain competitive financing for the development of the nation’s water assets and lease such assets to water operators licensed by SPAN for operations and maintenance 3.Assist SPAN to restructure the nation’s water industry towards achieving the Government’s vision for efficient and quality water services.

5. 5 Restructuring the Water Industry PAAB takes over existing water assets from States at values to be negotiated and agreed State water operator becomes asset-light State water operator, licensed by SPAN, lease water assets from PAAB at pre-determined rates PAAB responsible for future water infrastructure development in State Creating “Asset-Light” Operators Implication: Water operators (Service Licensees) become “asset-light” after water infrastructure transferred to PAAB (Facilities Licensee) and can focus purely on providing quality service

6. 6 Progress as at March 2009 To-date, PAAB has acquired water assets from Melaka, Negeri Sembilan and Johor PAAB is targeting Pahang and Kelantan next STATE ASSETS RM billion LIABILITIES RM billion SURPLUS RM billion VALUATION BASIS Melaka0.890.770.121x book value Negeri Sembilan1.21 -Equated asset value to liabilities Johor4.033.180.851x book value

7. PAAB is the appointed agency for the development of Langat 2  Consultants for Langat 2 has been appointed (selection through open tender)  Project is on track  Currently in Detailed Design stage, which will complete in August 09  Open tender for construction will commence thereafter PAAB is also currently evaluating some water infrastructure projects in Negeri Sembilan, Melaka and Pahang  One project in Melaka has been approved for implementation 7 Progress as at March 2009

8. 8 Financial Results (unaudited) Profit is not PAAB’s primary objective PAAB expects to book in new stream of income - lease rental received from the water operators – in 2009. 2008 (RM million) 2007 (RM million) Net profit 2.31 (0.45) Cumulative profit 1.13 (1.18) Paid up capital 410.00 103.10 Net Tangible Assets 2,476.05 102.10

9. 9 Break-even Point Operating Loss Operating Profit 1.Financial Support 2.Control mechanisms 1.Commercial Terms 2.Financially Independent Category 1Category 2Category 3Category 4 OPEX Deficit State owned: Unable to pay full lease rental State owned: Able to pay full lease Concessions Restructuring The Water Industry Categorising The Water Operators Negeri Sembilan Melaka Johor

10. 10 Structuring of Lease Rental Lease rental is structured taking into account:  Acquisition cost of water assets  Water operators’ liabilities  Water operators’ cash flow position  Future CAPEX for the state Water operators affordability is taken into account, but PAAB must meet required IRR for full cost recovery in the long run Payment Mechanism There are sufficient measures to ensure payment of lease rental such as:  Setting up of Trust Account for collection of revenue to facilitate rental payment  Assignment of the Trust Account to PAAB Structuring Lease Rental and Payment Mechanism

11. 11 PAAB has interest in ensuring weaker water companies achieve financial sustainability quickly In this regard, the following measures are included in the agreements: 1) For Category 2  Review of budgets and corporate strategies  Control of Trust Account to ensure spending on water-related expenditures only 2) For Category 1  The measures in Category 2  Setting up of Business Turnaround Committee  PAAB’s representative on the Board and Management of the company Turnaround Of Weaker Water Companies

12. 12 Restructuring In Johor SAJ Holdings Johor Government Syarikat Air Johor PAAB SAJ Holdings (remains as operator) CONSUMERS Sell water assets at 1x book value Leases back water assets for operation and maintenance Provides water services to consumers As payment, PAAB assumes all related liabilities and pays surplus asset value Mechanism

13. 13 Outcome Of The Restructuring Concession agreement mutually rescinded  The sale of assets had opened up an avenue for the concession to be negotiated  Once concession is terminated, the scheduled tariff hike in the concession agreement will no longer apply  There will be no tariff hike for Johor in 2009  Any future tariff hike will be reviewed by SPAN  Willing-buyer-willing-seller transaction Future tariff hike will be at more reasonable rates  Future capex cost will be lower– responsibility to raise funding will be taken over by PAAB which can obtain cheaper funding compared to private concessionaire  SAJH’s capex cost will be replaced with lease rental rate which is lower because lease tenure will be stretched over longer period vs loan tenure (30 years vs 15 years) Restructuring In Johor

14. 14 SAJH remains as the operator  Will lease assets from PAAB for operations and maintenance for the next 30 years A new risk-reward sharing scheme introduced  SAJH’s average after-tax profit margin will be capped at 9% for the first 3 years  Any profit beyond the agreed 9% in the first 3 years will be passed to PAAB  Government will not compensate if SAJH does not meet the after-tax profit margin of 9%  The rate of return after the third year will be determined by SPAN The concession agreements for Equiventure and Southern Water Corporation will be allowed to run their course until expiry in 2014 and 2012  Financially logical to let the concessions expire naturally Restructuring In Johor Outcome of the Restructuring

15. 15 Financial Implications to PAAB PAAB has sufficient funds to meet the initial cash outlay Depending on the outcome of the negotiation with the bondholders, PAAB may raise funds in the capital market. LiabilityAmount (RM billion) Action SAJH’s Islamic bonds 1.21 To negotiate with bondholders SAJH’s other commercial loans 0.82 To restructure the loans Johor state’s Federal water loan 1.15 To restructure the loans Surplus payment 0.85 To be paid in cash (figure not final) Total 4.03 Restructuring In Johor

16. Q & A www.paab.my