Minister for the Environment and Water Resources Zulkifli Masagos stressed that water is a strategic and national security issue. Therefore, the Government must price water fully.
The Minister stated in the Budget debate at Parliament that water is unlike any other ordinary commodity in Singapore, saying, “We subsidise housing, healthcare, education, but not water consumption.”
Mr Masagos said that even as the Government give targeted assistance to households, such as U-Save vouchers to help them pay for their utilities bills, it must price water correctly.
“The consumer must feel the price of water, realise how valuable water is in Singapore, every time he or she turns on the tap, right from the first drop,” he said.
The Minister said that the Government had not revised water prices since 1997.
He noted at that time, elements in Malaysia were threatening to block our supply of water from Johor.
“We were embarking on desalination to secure our water supply. We needed to register with Singaporeans the strategic importance of water, and the importance of saving every drop possible,” he said.
Mr Masagos then said that the Government, therefore, decided to revise the water price substantially, to reflect water’s true scarcity value.
“If we needed any additional water, where would it come from? How much would that additional litre cost? That is what we call the Long Run Marginal Cost (LRMC). That is the cost which consumers must see,” he said.
He said that at that time and even today, the Johor supply was fixed.
The Minister said that local reservoirs had been almost fully developed, except for the Marina Reservoir, noting that NEWater was not even invented in 1997.
He then stated that it came later in 2002.
“Apart from conventional methods of collecting rainwater, the only proven technology then was to produce drinking water through desalination. And desalination was very expensive, at $3 to $3.50 per m3, through the multi-stage flash distillation. This number did not even include cost of pipelines,” he said.
The Minister noted that there was no way for the government then to move the water price to the true cost of the next litre – the price of desalination, so it was moved instead in steps, over the period 1997 to 2000, to today’s water price.
Since then, he stressed that the water technology has progressed steadily. PUB itself invested in R&D. This resulted in NEWater, which was much cheaper than desalination. Desalination technology has improved, from multi-stage flash distillation to membranes today.
“As a result, we have been able to keep down the cost of water, and to hold water prices unchanged for 17 years,” the Minister said.
However, costs have gone up gradually over the years. At some point, a price revision becomes essential.
According to the Minister, there are a few examples of how costs have risen in the recent review.
Firstly, he said that the LRMC is a mix of NEWater and desalination costs. Now, in the blend between NEWater and desalination, the country have to depend more on desalination for the next litre as water demand increases. There is also a limit to recycling used water in our NEWater plants. Therefore, to increase the country water supply further, the Government must build more desalination plants. In fact, he noted that it is building three desalination plants within the next three years.
Secondly, he said that as the Government increase the proportion of used water being reclaimed for NEWater, effluent becomes more concentrated and more difficult and costly to process.
Thirdly, the Minister noted that Singapore is becoming more urbanised, so it costs more to build the new and replacement pipes to deliver water.
There are some figures from our recent expenditures, which will give an indication of how it will be in future.
“Looking at the first year price of desalination for instance, while the first-year price for our first plant, Singspring desalination plant, was $0.78/m3 (2005), the first-year price of our latest plant at Marina East was $1.08/m3, some 40% increase,” he said.
For conveyance costs, the minister said that the Government now tunnel below the road to lay pipelines, which minimises inconvenience to road users and the public. However, it costs two and a half times as much as conventional pipe-laying techniques.
Also as the pipelines age, PUB will have to more than double the rate of renewal for old pipelines from the current 20km per year to 50km per year, to minimise pipe leaks and disruptions.
Mr Masagos the said that all these point to the need to update the LRMC, which the 30 percent price increase has reflected.
However, he said that the Government is unable to provide details of its computation because of commercial sensitivities.
“We still need to build more desalination plants and NEWater plants. As more desalination, NEWater and water reclamation plants are yet to be built or expanded, revealing the specifics of the LRMC could prejudice future bids. But rest assured that the LRMC reflects the best the market can offer,” he said.
Responding to questions from Mr Pritam Singh who asked whether technology is taken into account in the computation of LRMC, the Minister said that the answer would be a definite yes, it has always been and it is also the case for this review.
“Technologically, we have squeezed everything we can from the current water processing technology. It will take several more years to achieve the next breakthrough and bring it to a deployable scale,” he said.
In a relation with a serious problem with the depletion of Linggiu Reservoir in recent years, he noted that it is not clear if the current situation is due to climate change. However, he said that the Government cannot discount the possibility that such dry weather may persist, and in the future when climate change effects become more pronounced, it will be more severe.
He pointed to the fact that Johor is also drawing water from the Johor River, and Singapore is discussing this with Malaysia to ensure that Johor’s actions do not compromise our ability to draw the 250 mgd that Singapore is entitled to from the Johor River under the 1962 Water Agreement.
“What is clear is that Linggiu is operating today at a level way below what we are comfortable with, and it will take years to build up again to a reliable capacity,” he stressed.
Mr Masagos then said that taking all these together, there is therefore urgent to have the policies, including right pricing, in place so that demand by both businesses and households can be moderated. He also noted that while also building the infrastructure, the country needs to have a secure water supply.
“It is the job of my ministry and PUB to plan and build the infrastructure, which we will do, but it is only through right pricing that we can have everyone valuing water as a strategic resource and consciously conserving it,” he said.
With 30% increase that the Government has announced, he said that the price will be close to, though still slightly lower than, the price of the next drop or LRMC today.
“This is the best way to emphasise the scarcity value of water,” he said.
The Minister then noted that members have expressed concerns over the magnitude of 30%.
He stated that clearly, this 30% increase has generated a lot of discussion on water, adding that he hopes it also raises awareness of scarcity and strategic value where water is concerned.
“But what does 30% translate to in reality? For businesses, 75% will see an increase of less than $25 per month in water bills. This is less than a dollar a day,” he said.
“Indeed, I am heartened that some businesses have taken this increase in context and have explicitly said that they would not increase prices,” he added.
For households, he noted that the Government has provided additional U-Save rebates.
He claims that 1- and 2-room HDB households will not experience any increase on average. As for other HDB flat types, monthly water bills will go up by between $2 to $11 per month.
Overall, water will still be affordable, said the Minister and it will remain at about 1% of household income.
“Therefore, that is what 30% price revision translates to; less than a dollar a day for 75% of our businesses, and still within 1% of household income for water expenses.” said Mr Masagos
“Despite our investments in desalination and NEWater plants, the truth is that we are still a water-stressed nation. Singapore was ranked first among countries with the greatest risk of high water stress in 2040, according to the World Resources Institute,”
“It is not a description of what we do, it is a description of who we are. We hope that through right pricing everyone will cultivate the habit of water saving as part of Singapore’s DNA, whether we are a household or business,” he concluded.
Read “False justifications for water price increase” – An article that points that increasing water prices to cover loss by PUB is false and that PUB has been having a healthy income till the point Singapore’s population grew beyond 5 million.