Water must be priced fully as it’s a matter of national security, says Masagos

SINGAPORE — While housing, healthcare and education are subsidised in Singapore, water has to be priced fully as it is a matter of national security, and consumers “must feel the price of water” to realise its value, said Minister for the Environment and Water Resources Masagos Zulkifli on Wednesday (March 1).

But even with the impending 30 per cent hike in water prices, the price of water here will fall short of the long-run marginal cost (LRMC) — which is the increase in cost over the long run from rising production, said Mr Masagos, who was speaking in Parliament during the debate on the Budget statement.

Speaking a day after Members of Parliament, including those from the Workers’ Party, had questioned the timing and need for the price hike, he noted that water is unlike any other ordinary commodity in Singapore. 

“Water is a strategic issue. It is a national security (issue). We must price water fully … The consumer must realise how valuable water is to us in Singapore every time he or she turns on the tap — right from the first drop,” said Mr Masagos.

“With the 30 per cent increase that we have announced, the price will be close to, though slightly lower than, the price of the next drop or LRMC today. This is the best way to emphasise the scarcity value of water.”

Mr Masagos also outlined how the cost of water has gradually gone up over the years, but said that details of how the LRMC was computed cannot be revealed. 

Revealing these specifics could prejudice future bids for desalination, NEWater and water reclamation plants that have yet to be built or expanded, he explained.

The LRMC of water comes from the costs of NEWater and desalination. Between the two, Singapore will have to depend more on desalination to meet increasing water demands, as there is a limit to recycling used water in the NEWater plants.

Hence, three more desalination plants will be built within the next three years. 

Meanwhile, as the proportion of water being reclaimed for NEWater increases, effluent or waste water becomes more concentrated, making it difficult and costly to treat.

It also costs more to build new and replacement pipes to deliver water.

Mr Masagos noted that treated water from Singapore’s latest desalination plant at Marina East costs S$1.08 per cubic metre for the first year, which is about 40 per cent more than the corresponding price at Singapore’s first desalination plant, Singspring, in its first year.

The last revision in water prices was between 1997 and 2000, to reflect water’s true scarcity value. Back in 1997, there were elements in Malaysia threatening to block the supply of water from Johor, while Singapore was embarking on desalination to secure its water supply. 

“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,” said Mr Masagos. 

He also stressed that, for three-quarters of the businesses here, the 30 per cent increase in water prices translates to an increase of less than S$25 a month in water bills. 

Overall, water will still be affordable because it will remain at about 1 per cent of the household income.

Responding to a slew of supplementary questions from Mr Pritam Singh (Aljunied GRC), Mr Masagos said providing rebates to those who save water is “counter-intuitive” to getting Singaporeans to pay for the cost of producing water. “To give back that cost means we are subsidising the use of water,” he said.

Mr Seah Kian Peng (Marine Parade GRC), meanwhile, also spoke against detractors who “lost no time in politicising” the water price hike. 

The accusation that the Government is “making money off water” cannot be further from the truth, he said, citing 2012 figures showing that the authorities subsidised at least 30 per cent of water in Singapore, in simple terms.