It has been a tumultuous past few months for Malaysians, which brought about a new government and lineup of cabinet members. While still recovering from the political turmoil, we are now subjected to the onslaught of the Covid-19 pandemic. This brings about an eerie feeling of what else is around the corner? Disasters can happen, to recover successfully requires certain level of preparedness and the resources to withstand the catastrophe. In the case of our health care system, we can be proud that they have proved so far that they can deliver even in highly stressed times.
What if the next disaster is prolonged drought? Brazil which has the highest renewable water resources in the world, also known as “the Saudi Arabia of water” for having as much water as Saudi Arabia has oil; experienced major water crises due to prolonged droughts in 2015. In Cape Town, South Africa, Day Zero, the day when the water stops flowing from taps, nearly happened in 2018 due to extreme drought. It is evident that climate change is making rainfall variable and unpredictable worldwide. Water rich countries with abundant rainfall like Malaysia are ill-prepared for it.
This is because up to 97% of water supply is from catchment areas; rivers; lakes and reservoirs which totally relies on rainfall which averages at 3000 mm per year. However, climate change is a phenomenon that Malaysia must prepare for. Extreme weather like prolonged droughts and heavy floods are predicted according to studies by the National Hydraulic Research Institute of Malaysia (NAHRIM). In March 2014 Selangor and Negeri Sembilan were affected by prolonged hot and dry climatic conditions that lasted from February to August 2014. It had caused a huge impact on industries, such as food and drinks processing, rubber, chemical, electrical and electronics as well as tourism. The water crisis occurred again in April 2016, with dams especially in the northern states of Perak, Penang, Kedah and Perlis drying up. The Linggiu Reservoir in Johor, which also supplies water to Singapore was only one-third full while the Bukit Merah Dam in Perak, Malaysia’s oldest dam dried up.
Although there are many problems to address in the water industry, the focus of this article is on the Water Agreement with Singapore. The State of Johor and the City Council of Singapore signed two long-term Water Agreements. The first Water Agreement was signed in 1961 and expired in August 2011. This agreement allowed the Singapore to withdraw an unlimited amount of water from the Tebrau and Skudai Rivers. Johor was to receive 12 % of the water extracted that was treated. When the agreement expired, the water treatment plants in Gunung Pulai and Skudai as well as the pump houses in Pontian and Tebrau which was operated by Singapore was handed over to the Johor state government. The second Water Agreement was signed in 1962 and will expire in 2061. Singapore is allowed to extract 1,136 million liters per day (MLD) or 250 million gallons per day and in return Johor will receive 2% of the treated water at 50 cent per 1,000 gallons. Singapore is to pay RM0.03 for every 1,000 gallons of water supplied. The trans-boundary sharing of water supplies between Singapore and Malaysia is unique because the countries share water even though they do not share the same water basin.
What happens if Johor faces extreme drought ? Does it still supply water to Singapore? In 2016, when the Linggiu Dam dried up, Johor had to uphold its agreement and provide 250 million gallons to Singapore every day despite not having enough water for its own citizens. Johor even bought additional treated water from Singapore and imposed water rations for 85,000 residents and industrial users. There has been a long-standing contention between Malaysia and Singapore to change the 1962 Water Agreement. The previous Prime Minister, Tun Mahathir stated the price of water sold to Singapore at RM0.03 for 1000 gallons is not reasonable and the 1962 Water Agreement has to be renegotiated and a revised raw water selling price was being finalized to be proposed to Singapore. However, with the new government in place, let us hope the negotiation is still on going. That bring me to the proposal of a water market between Johor and Singapore.
Water markets would allow Johor to relook into the apportionment of water to its different sectors and water may well become an asset class that it can trade. Markets determine the price which is responsive to both temporary (seasonal) scarcity as well as longer-term scarcity. Varying the price according to the availability and demand for water is more reflective of the true value of water compared to the set tariff. In fact, there is a growing interest in water markets as a solution for the growing demand for water.
Formal water markets have been practised in Chile, Australia and the USA. In order to design a water market between Johor and Singapore there needs to be a clear definition of the total resource available for consumption and how it can change over time. These limits should reflect the sustainable level of extraction, to ensure there is no environmental degradation ( also applicable to water transfers between states in Malaysia).The price of water during drought should be at a higher price reflective of the scarcity of the resource and the opportunity cost. A clearly defined and tradeable water right is required. In this case, since its between Johor and Singapore the water right is clearly state-owned. The infrastructure to transport the water is required and this too already exists.
Of course, Singapore has taken measures to be self-sustainable water-wise by 2061 when the Water Agreement expires, by recycling its waste-water and increasing the efficiency of water use. Nonetheless, to have a water market would ensure water is traded at the true value.
In conclusion, the threat from water be it water scarcity, flooding or pollution is real. Malaysia should take precaution and ensure water security for its people, before transferring water to other countries. Establishing a formal water market, instead of a set water tariff for trading water with Singapore will be more reflective of the true value of water especially during droughts when the demand is more than supply. The main reason for the collapse of nations is the inability to accept risk and to act upon it.
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