KUALA LUMPUR, July 29 (Reuters) - The surprise statement came during a rainy spell and when the seven dams in Malaysia's richest, most populous state were full.
Reserves of treated water in the opposition-controlled state of Selangor were perilously low, said the water company supplying a population of 7 million in the country's main industrial base. It was seeking approval to start immediate rationing.
For many it looked like politics, not water, was behind the problem - a measure of how high tensions are running ahead of national elections that must be called by early next year and which may be the closest in Malaysia's history.
"Of course, it's a political conspiracy," said Teresa Kok, a member of the Selangor state executive council and opposition member of parliament.
The July 14 announcement has set off an ill-tempered battle between the opposition-run state and the federal government that foreshadows an intense election struggle for the crucial swing state that is a base for multinationals including Panasonic Corp and British American Tobacco.
The state leadership says the ruling coalition is using water supplier Syabas to manufacture a water crisis and sow doubts in voters' minds over the opposition's competence.
Syabas, a unit of Puncak Niaga Bhd, has links with the Malaysia's ruling United Malays National Organization (UMNO). Rozali Ismail, the chairman of Puncak Niaga and executive chairman of Syabas, is treasurer for the party's Selangor branch and was dubbed Malaysia's "water king" by Forbes, which ranks him as the country's 37th richest person.
The federal government says the state has jeopardised its water supply by blocking the construction of a 3.8 billion ringgit ($1.2 billion) treatment plant.
"If we can make Malaysia the global centre for IPOs, how can it be that we can't resolve water issues," Prime Minister Najib Razak was quoted as saying this week by The Star newspaper, referring to several big stock debuts in Malaysia this year.
The problem could be resolved, he said, once the people of Selangor "choose a government that can do it."
As Malaysia's traditional engine of growth, the west-coast state was a prized, unprecedented win for the opposition in the last election in 2008, and the most potent symbol of the ruling coalition's worst election performance.
Wresting back the state would help lay to rest doubts about Najib's leadership within his own party and help the coalition rebound nationwide. For the opposition, retaining Selangor is crucial if it is to have any chance of winning a parliamentary majority and forming a government for the first time.
The state has been at the centre of concerns over voter fraud, with the opposition accusing the government of handing out voting rights to thousands of illegal immigrants.
"The stakes are the highest in Selangor. The prime minister really needs to win it back," said Ong Kian Ming, a political analyst and lecturer at Kuala Lumpur's private UCSI university.
The perceived performance of the four opposition-controlled states will be a crucial campaign issue as the three-party opposition alliance tries to convince voters it is capable of running the country.
Penang, another opposition-held state, has set an enviable record, attracting the country's highest level of investment in the manufacturing sector for two years running and slashing public debt levels by over 90 percent in three years.
Selangor's record is less spectacular. The state government has been dogged by talk of infighting and Malaysia's ruling coalition is presenting the water issue as exhibit A to show the state is being mismanaged.
"They want to influence the course of the elections. They have a monopoly over water resources and are holding the people to ransom," said opposition MP Tony Pua, adding that uncertainty over water supply was endangering investment in the state.
Syabas' shock warning of water rationing this month prompted i n dignant state officials to pose for pictures in front of dams brimming with water to show there was no shortage. Syabas hit back with images showing treatment plants at low reserve capacity, bolstering its case for the new plant.
"The responsibility for ensuring that Selangor has enough water treatment plants lies with the Selangor state government," it said in a statement released on Thursday.
Selangor has threatened to take over the water company's operations, a bid that was rejected by the government. The state government remains set on a takeover and is going ahead with plans to sack Rozali, aiming to use its 30 percent stake in Syabas to trigger a vote of no-confidence.
The federal government wants to open tenders for the new plant in a month, but it needs Selangor's permission to proceed.
The state government says the plant would lead to a steep rise in water tariffs and that projections for water consumption and population growth used to justify its construction are too high. Instead, it wants 225 million ringgit from the federal government to upgrade two existing plants and is prepared to add 200-300 million ringgit of its own funds.
Selangor state sources say the level of non-revenue water -- the volume lost before it reaches the customer -- at Syabas is above 33 percent. That measure of efficiency compares with Singapore's 5 percent, Denmark's 6 percent, and even falls short of Bangladesh's 29 percent, they say.
Campaigners against Syabas are urging the company to open its books to show if there really is a shortage.
"Failing to do so would only prove that the water crisis is manufactured," said Charles Santiago, an opposition member of parliament and coordinator of the Coalition Against Water Privatisation group.