Budget Debate 2017 – Speech by Pritam Singh

(Delivered in Parliament on 28 February 2017)


Water – Understanding how it is priced in Singapore

Mr Deputy Speaker, this year’s budget has brought the focus on cost of living issues by way of an increase in water prices. This increase comes on the back of a 15%-odd increase in HDB car park charges, higher electricity and gas charges and the announcement of higher Service and Conservancy rates all in the space of about three months. The Straits Times noted that the government feedback channel REACH, had identified cost of living as a key pre-Budget concern among Singaporeans.

I have a few questions for the Minister so as to understand the decision-making processes around the latest round of increases in water prices. The last time an announcement was made to raise water prices in 1997, prices were raised by 120% for households and 30% for industrial and commercial users over a four-year period.


Singapore’s Water Pricing Principle – Long Run Marginal Cost

The Government has stated in previous parliamentary replies that its prices water according to its Long Run Marginal Cost or LMRC. To this end, the water tariff, water conservation tax and used water charges or waterborne fees are priced to reflect the cost of producing the next drop of potable water, which is (I quote) “likely to come from desalination and NEWater.” (unquote)

In announcing the opening of the 5th NEWater plant last month, the Minister for Environment and Water Resources noted that there has been upward pressure on costs because of increases associated with asset replacement, energy and manpower. Can the Government share details on how the components of Long Run Marginal Costs for water pricing are computed by the Public Utilities Board (PUB) and how it assesses when to increase the price of water? Can the Government also clarify if the maintenance and upkeep, and the associated manpower costs of current PUB assets, including thousands of kilometres of transmission networks etc. would have already been factored into the calculation of LRMC before the latest round of price hikes? Even so, it would be helpful to understand which variables of LRMC have changed from 1997 when the last price hike was announced, what is the range within each variable, and how often is the LRMC determined or re-determined. Can the Government also share how much it costs each desalination and NEWater plant to produce water today, especially since some of these plants operate on a private-public partnership basis? How do they compare with plants run directly by the PUB?

Finally, when the PUB refers to the long-run in LRMC, what sort of time horizon is used for projection purposes and what are the population parameters for these projections? Are we looking at 2061 when the Water Agreement with Malaysia comes to an end, or is it when the PUB expects a doubling of Singapore’s consumption in absolute terms for a much larger population and when 85% of our needs are projected to be met by NEWater and desalination? If this is so, what are the projections for expected water price hikes as the population grows?

It is noteworthy Mr Deputy Speaker that PUB was able to bring down the cost of NEWater production from 2002 to 2004 from $1.30 to $1.15 per cubic metre as a result of more competitive membrane technologies. In 2003, a Straits Times article quoted then Prime Minister Goh assuring Singaporeans that (and I quote) “the price of PUB water, which now costs $1.52 a cubic metre, would stay below $2 for some time, reversing all earlier projections. The sums were redone because desalinating sea water was cheaper than thought; and NEWater, even cheaper to produce.” (unquote) The same year, it was also reported that the Tuas desalination plant desalinates water at the cost of $0.78 per cubic metre. This compared very favourably against about $0.90 per cubic metre produced by the Ashkelon desalination plant in Israel, considered in 2003 to be the one of the cheapest producers of desalinated water. In 2008, Sembcorp, which secured the bid to design, build, own and operate the fifth and largest NEWater plant submitted a first-year price of about $0.30 to produce a cubic metre of NEWater. A 2011 Business Times report also noted that Singapore would produce the world’s cheapest desalinated water by 2013. How does the PUB adjust its Long Run Marginal Cost projections with the advent of new technology so as to keep the prices of water affordable and to keep its profits within reasonable limits, on an ongoing basis?

From parliamentary replies in the past, it would appear that energy is the real cost variable that can be difficult to track with a sufficient degree of accuracy. In view of the lower cost of producing water over the years, can the Government reveal how much NEWater and desalination costs have fluctuated over the years as a result of energy prices? In 2008, the Siemens Water Technologies Team was awarded a $4m grant from the Environment and Water Industry Development Council (EWI) for successfully designing a more energy efficient desalinisation technique which produced a cubic metre of drinking water on 1.5 kWh of power as compared to PUB’s current desalination method uses 3.5 kWh. In addition, the 2015 PUB annual report highlights PUB’s collaboration with a US water technology company which has piloted electro-deionisation technology which has achieved reductions in energy consumption in the desalination process by more than 50%, and this pilot would be expanded in 2016. Can the Government share details of this project and its prospects going forward?


The Linggiu Reservoir Factor

Separately Mr Deputy Speaker, the announcement of an increase in water tariffs bookends a two-odd year period when Singaporeans were repeatedly reminded of water scarcity issues as a result of very low water levels in the Linggiu reservoir in Malaysia, a water supply source five times the size of all of Singapore’s reservoirs. At the start of each respective year, the water levels were at 84% in 2015, 49% in 2016 and 27% in 2017. We have been informed by the Minister of Foreign Affairs in response to a parliamentary question in January this year that there is a significant risk of the water levels in the Linggiu Reservoir falling to 0% this year should there be a dry spell in Johor.

In view of the low water levels in the Linggiu Reservoir from 2015 onwards in particular, how often has Singapore drawn less than the 250 million gallons a day it is legally entitled to under the 1962 Water Agreement and what has been Singapore’s average daily rate of abstraction from the Linggiu Reservoir since 2014? To that end, what role, if any, have the low water levels in the Linggiu Reservoir played in the latest water price revision especially since the Government’s position as late as 2013 confirmed no need to raise water prices?

In the middle of last year, on the back of the Singapore International Water Week, a PUB official stated that should the Linggiu Reservoir fail, there ought to be no cause for panic in Singapore as there were new and indigenous capacities in Singapore to meet such a contingency in the form of NEWater and desalination. However, the Minister of Foreign Affairs last month stated that the failure of the Linggiu Reservoir would cause severe problems for Singapore and Malaysia. Can the Government elaborate what are its contingency plans in the event of such an eventuality – do these contingencies include the possibility of another rise in water prices, especially the water conservation tax since its policy rationale is aimed at reminding the taxpayer about the importance of saving water and separately, to account for the Long Run Marginal Cost of desalination and NEWater? That would also prompt a corollary question as to whether the latest water price revision was set with a view to account for the complete failure of the Linggiu Reservoir.

Even so, in the middle of 2016, it was reported that Johor was studying plans to divert water from two rivers into the Linggiu Reservoir. The first proposal was to build a low wall to channel about 50mgd of water from the Sayong River catchment area at the cost of about RM$250m. The second plan called for the building of a dam at the Ulu Sedili Besar River to transfer about 110mgd to the Johor River at the cost of RM660m. At the end of the last Leaders Retreat between Prime Ministers Lee and Najib in December last year, it was reported that Malaysia was looking at measures to increase the supply of water at the Linggiu Reservoir. Can the Government comment, in the event Malaysia successfully diverts water to the Linggiu Reservoir allowing Singapore to draw its full entitlement of 250mgd or more, would such an outcome end up reducing the price of water for consumers in Singapore? If so, would Singapore consider co-funding the diversion of the two rivers or renegotiating some aspects of the Water Agreement with a win-win prospect in mind especially since Singapore has not hesitated to supply Malaysia with more treated water than it is required to in its time of need particularly during times of drought and over the Ramadan period last year?


Is Water Scarce Or Not?

This brings me to my final point about the public messaging on water conservation policies and the outcomes the Government seeks from the water conservation tax and how these outcomes can be improved. About a month before the 2015 General Elections, the Prime Minister said and (I quote), “In Singapore, water will always be a precious resource. Never take it for granted or waste it.” (unquote) In the middle of last year, on the back of the Singapore International Water Week in a piece titled How Singapore Will Never Go Thirsty, the PUB CEO announced that Singapore, in spite of being water-poor, had (I quote) “significantly overcome the challenge of water scarcity” and later on that “Singapore is not short on water” (unquote). While I understand the PUB official was showcasing to an international audience the good work over many decades of our water specialists, there is a risk that over amplifying self-sufficiency can have a dampening effect on efforts to encourage water conservation. The fact is that self-sufficiency comes at a high price for the consumer.

In fact, Singapore’s per capita water consumption rates have been dropping steadily from 2005 when it was 162 litres per day to 151 litres per day today. It would appear that the answer to the question of whether we can reduce consumption without price increases is a yes – perhaps not as resounding a yes as the experts would wish for – but a yes nonetheless. Even with our hot and humid climate and cultural practice of not using dishwashers, perhaps as result of the spices, sauces and seasonings in Asian cooking, progress on water conservation has been steady and continuous. Rather than to look solely at water pricing to promote conservation, the Government should look at new policies to further tighten regulations on the sale of sanitary appliances such as mixers and shower heads which discharge excessive water so as to nudge consumers to use more water-saving appliances.

Some experts have also proposed pricing strategies used elsewhere like Spain which hosts a pricing structure that provides for a 10% rebate should a household’s water consumption pattern show a 10% decrease compared to the year before. What these creative pricing strategies suggest is the prospect of a different approach towards water conservation taxes to promote a more efficient usage of water. We already see PUB nudging Singaporeans in this direction by informing consumers of the consumption patterns of their neighbours and the national average in our monthly bills. What may truly push a renewed commitment to a water conservation drive is to significantly alter consumer behaviour towards a tax regime that differentiates between efficient and inefficient usage of water by lowering taxes for consumers who use less water.

For example, a household of four which meets the national average consumption can have their water conservation tax remain at the current 30% of the tariff rate. Depending on additional usage, PUB could establish an ascending and descending scale relative to consumption. This has better prospects for water conservation as real savings would be given to individual households, building on the current two tiered approach set between households that consume more or less than 40 cubic meters of waters. This approach would also be more targeted and would cohere with the objective of saving water as opposed to the budget announcement which bluntly increases the water conservation tax from 30% to 50% or 35% to 65% for all households.



To conclude Mr Deputy Speaker, a piece in the Straits Times last week argued that the water price only reflected the reality of increasing water stress worldwide and that bigger hikes were needed to curb wastage. The comments to that story were unexpectedly, rather animated. I believe a deeper explanation from the Government about how it prices water and its long-run cost imperatives would enable the public to better understand and rationalise this water hike in addition to improving public understanding on this issue. This would be important as the water price hikes occurred on the back of many other municipal prices increases which could arguably have been better phased to reduce the impact on the average Singaporean for whom cost of living issues are an increasing concern. There remain concerns among Singaporeans who fear the knock-on effect of the water price hike on daily necessities and I hope the Government will address this point too.

Thank you.