18 March 2011

The Price of Water - The Malaysian Perspective

In an earlier posting, I discussed the water agreements between Singapore and Malaysia to determine whether the price of water purchased from Malaysia was comparable to the price of water from other sources.

Former Malaysian Prime Minister Tun Mahathir Mohamad recently touched on this issue in A Doctor in the House, The Memoirs of Tun Mahathir Mohamad.

Under the agreements, Malaysia undertook to supply Singapore with 350 million gallons per day of raw water at 3 sen per 1,000 gallons and Singapore undertook to sell to Malaysia treated water not exceeding 12 per cent of the raw water quantity drawn down at 50 sen per 1,000 gallons.

According to Tun Mahathir, the cost of treating the water was probably in the region of RM1.20 per 1,000 gallons.  (Singapore said that its cost of treating water was RM2.40 per 1,000 gallons.)

He reasoned therefore that if Singapore and Malaysia took the maximum quantities of water allowed under the agreements, Malaysia would pay Singapore RM21,000 per day while Singapore would pay Malaysia RM10,500 per day.  The result was that Malaysia "earned zero" while Singapore received RM10,500 per day after paying for the raw water.

That's incomprehensible math.

Tun Mahathir omitted the cost that Singapore incurred in treating the water it sold to Malaysia.  Using the same assumptions as above, this cost amounted to RM50,400 per day.

Singapore incurred a loss of RM30,660 per day from selling treated water to Malaysia.  Taking this into account, the raw water that Singapore bought from Malaysia for its own use cost 12.95 sen per 1,000 gallons, not 3 sen per 1,000 gallons.  These amounts do not include the depreciation of the water collection infrastructure and related pipework, or their maintenance, all of which was borne by Singapore.

Malaysia paid Singapore RM10,500 per day for water that cost Singapore RM51,660 per day to procure and treat.  Presumably, Malaysia could sell, and has sold, that water for more than 123 sen per 1,000 gallons.

That, together with the RM9,240 per day paid by Singapore for Malaysian water consumed in Singapore, is Malaysia's gain from the water agreements.

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Notes

1.  "The Doctor's Beef with S'pore" (an excerpt from the book A Doctor in the House, The Memoirs of Tun Mahathir Mohamad) The Straits Times (13 Mar 2011).

2.  The Price of Water (8 Mar 2011).

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