IS THE 1962 WATER AGREEMENT BETWEEN SINGAPORE AND MALAYSIA FAIR?

Should it or can it be revised? 

One may be tempted to sympathise with Dr Mahathir that the price of raw water at 3 sen per 1,000 gallons is ridiculously cheap and outdated given how valuable water is and that the price was set in the Water Agreement back in 1962. 

One shouldn’t.

Water is a naturally occurring resource and it is only valuable if made drinkable and usable through its treatment. Time does not change this fact. Therefore, almost the whole of its value is created through such processing which is currently being done by Singapore.

Nevertheless, let’s examine Dr Mahathir’s case more closely.

If Malaysia sells 1000 gallons of raw river water to Singapore at RM0.03, but buys the same amount of treated water that costs Singapore RM2.40 to process at RM 0.50, then Malaysia would have benefited by RM30,880 daily for the 16 million gallons of treated water that Malaysia buys from Singapore every day. Malaysia also makes another RM7,020 from selling the other 234 million gallons of raw water to Singapore daily. So, the 1962 Water Agreement benefits Malaysia by RM37,900 daily. So, why is Dr Mahathir seemingly unhappy with this arrangement?

Johor sells drinkable water to its own citizens at RM3.95 per 1,000 gallons. Assuming that all 16 million gallons bought at a net cost of RM0.47 per 1,000 gallons is sold at that price, it will earn RM55,680 from its own citizens daily. Again, why is Dr Mahathir unhappy?

I think he is unhappy because Johor actually sells raw water at RM0.50 per 1,000 gallons to Malacca and he thinks that is now the market price for raw water. So, by selling it at RM0.03 per 1000 gallons to Singapore, Malaysia is losing RM109,980 for the net sale of the 234 million gallons at below-market price. If the market price of raw water is really RM0.50 per 1,000 gallons, then Johor will lose RM16,400 daily from its water trade with Singapore and its own citizens.

The trouble with that analysis is that the water transaction between Johor and Malacca is one that is between two Malaysian states and therefore the difference is akin to money transferring  from the left pocket to the right pocket of Malaysia. That is hardly indicative of a true market price.

Also, if Singapore buys raw water at RM0.50 per 1000 gallons from Johor and sells treated water back at the same price, then Singapore would have done expensive water treatment for 16 million gallons of water for free and lose RM38,400 daily. That cannot be. Surely, if Malaysia increases the cost of raw water it sells to Singapore, obviously, Singapore will also have to increase its selling price of treated water given that raw water will now cost RM2.90 per 1,000 gallons to buy and process. 

So, assuming that both parties agree to revise the 1962 Water Agreement, the real question is whether the much higher resultant price of treated water charged by Singapore will be acceptable to both Mr Mahathir and our own Singapore citizens. If the answer is no, it is wiser to leave that Agreement alone.

Yet, Johor’s intention to unilaterally revise the 1962 Water Agreement seems to be motivated by its secret plan to stop its dependence on Singapore for treated water. It appears to have developed its own capacity to treat water. Its suggestion to raise the selling price of raw water to RM0.50 per 1000 gallons appears to be a ploy to move things in that direction. 

Other than crying foul about Malaysia not honouring the sanctity of international agreements, what can Singapore do to ensure its water security and not be at the mercy of the arbitrary pricing of raw Malaysian water? Are water agreements really sacred and truly untouchable?