193 F INANC IAL Statements Sect ion 05 Annual Report 2022 NOTES TO THE F INANC I AL STATEMENTS For the year ended 31 December 2022 15. SERVICE CONCESSION ASSETS (Contd.) Service concession assets comprise assets resulting from the application of accounting policy as disclosed in Note 3 on accounting for concession contracts. In line with the move to improve the quality, coverage and reliability of the nation’s water supply and safeguard the interests of consumers, the Water Services Industry Act 2006 (“WSIA”) and Suruhanjaya Perkhidmatan Air Negara Act 2006 were introduced. Pursuant to the enactment of the WSIA, Pengurusan Aset Air Berhad (“PAAB”) was established for the purposes of, inter alia, acquiring the existing water infrastructure and/or build new water assets which will be leased to water operators. Under the WSIA, the existing water operators are given an option either to continue to be authorised to carry out the water supply services in accordance with their respective current concession agreements, but subject to certain amendments as may be agreed by Suruhanjaya Perkhidmatan Air Negara (“SPAN”) or to migrate to a licensing regime whereby relevant licenses will be granted by the Ministry of Environment and Water (currently known as NRECC) with the recommendation from SPAN. On 11 March 2009, a subsidiary of the Group, RanhillSAJ migrated to the licensing regime for water supply services in the State of Johor via a Master Agreement executed with relevant parties. RanhillSAJ had also executed on the same date, the facility agreement with PAAB mainly for the purpose of PAAB to receive the lease rental for the grant of a right to use, occupy and operate the water related assets to RanhillSAJ. Under the new licensing regime, RanhillSAJ shall be required to apply and comply with the conditions of a service license to be granted by Ministry of Environment and Water (currently known as NRECC). Amongst the conditions are the submission of a Three-Year Business Plan, adherence to a set of Key Performance Indicators and determination of the water tariff by SPAN. RanhillSAJ’s application for individual service license under Section 4(1)(b) of WSIA (Act 655) was approved by the Ministry of Environment and Water (currently known as NRECC), and was further renewed in accordance with the Operating Periods entered by the Company as follows: • First Operating Period with a period of three years, commencing from 1 July 2009 to 30 June 2012; • Second Operating Period with a period of two and a half years, commencing from 1 July 2012 to 31 December 2014 (to be consistent with the change in the financial year end from June to December); • Third Operating Period with a period of three years, commencing from 1 January 2015 to 31 December 2017; • Fourth Operating Period with a period of three years, commencing from 1 January 2018 to 31 December 2020; and • Fifth Operating Period with a period of three years, commencing from 1 January 2021 to 31 December 2023. Apart from the standard conditions set out by SPAN on the individual service license to be complied with under the Fifth Operating Period, the RanhillSAJ is subjected to the following special conditions: (i) The individual license grants the right for the RanhillSAJ to treat raw water, distribute and supply the treated water to the consumers within the State of Johor only; (ii) RanhillSAJ is supervised by SPAN based on a set of key performance indicators; (iii) RanhillSAJ is required at all time to maintain at least 30% of its Bumiputera equity shareholdings; (iv) Any compensation and grant received by RanhillSAJ from the Federal Government must be taken into consideration in computing the profit margin; (v) RanhillSAJ is required to inform and to provide information to SPAN any matter in relation to current, unsettled or threatened litigation, legal proceeding, arbitral and disputes; (vi) RanhillSAJ shall comply with the provisions on procurement and supply works. Any contract of restoration work, maintenance and supply works, excluding emergency works should be awarded based on competitive biddings and the duration of the contract shall not exceed the maximum period of three years; (vii) RanhillSAJ is responsible for the operation and maintenance of assets in rendering water supply service to rural or developed areas in the State of Johor; and (viii) RanhillSAJ shall comply with the Integrity and Anti-Corruption Framework for Licence Holders and Certified Agencies which was approved by SPAN on 10 July 2019 in preparing and implementing appropriate integrity and anti-bribery related policies, procedures and control measures.
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