Calmer waters ahead?

Douglas Wong looks at the protracted talks between Singapore and Malaysia over the city state�s water supply

Singapore�s carefully prepared political succession was almost going to plan. The one outstanding issue, as the prime minister cleared his desk, was the drawn out negotiations with Malaysia over a new water supply agreement. Malaysia wanted a higher price for the water it had supplied since colonial times, and was asking for compensation for the construction of a new dam in the southern state of Johor, including the cost of relocating the monkeys who would be affected.

It was 1990 and the first time that the two countries were seriously re-examining the two treaties from 1961 and 1962 that guaranteed Singapore�s supply of water. Since 1927 the island has relied on Johor for half its water, a vulnerability that had led to the surrender of the island to the Japanese by the British administration in the Second World War, and which to this day features prominently in the strategic thinking of both governments.

The treaties, which expire in 2011 and 2061 respectively, were enshrined in the 1965 Separation Agreement establishing Singapore�s independence, which was registered at the United Nations, making any violation an effective declaration of war. �They are fundamental to our very existence as an independent nation,� Singapore�s Foreign Minister, S Jayakumar, said in January 2003.

The 1990 supplemental agreement to increase the amount of water sold under those treaties was finally secured just days before Lee Kuan Yew handed power to his deputy, Goh Chok Tong, and after Singapore had trumpeted the dramatic alternative of a water supply agreement with Indonesia and agreed to pay Johor US$188m in compensation.

The price of raw water from Johor of three Malaysian Sen (less than one American cent) for every 1,000 gallons, and the expiry of the supply agreements, remained unchanged. Also unchanged was the price at which Johor - which had no water treatment facilities of its own - could buy treated water back from Singapore; 50 Sen per 1,000 gallons.

Both countries thrived in the first part of the 1990s, the period of Asia�s �economic miracle�, but even before the regional economic crisis of the end of that decade, tensions between them rose as they began to compete more closely for investments and business.

By 1995, with its water supply agreement with Indonesia proving difficult to implement, Singapore was raising water tariffs, running water rationing exercises and looking at whether new technology made desalinating sea water affordable. �Will Malaysia renew the water agreement in 2061? If so, at what price? If not, what will happen?� Goh asked his country. Although desalination had proved uneconomic for Hong Kong in the 1970s, Singapore identified a location for a pilot plant and earmarked S$10bn to develop it as an alternative if Malaysia did not renew the water supply agreements.

When the Asian financial crisis struck Malaysia hard in 1998, Singapore even offered her neighbour substantial financial assistance in return for a fresh 100 year water agreement running from 2061. The offer was declined, but negotiations began on a package of outstanding bilateral issues including water supply.

Like water supply, the other major bilateral issue dated from colonial times when Singapore and Malaysia were a single unit. Differences over the status of land in Singapore that belonged to Malayan Railways were apparently resolved in another agreement reached just before Lee Kuan Yew had stepped down as prime minister in 1990, but that agreement has never been fully implemented.

As the talks foundered in 2002 against a backdrop of renewed economic competition between the two countries, Singapore unveiled another potential alternative source of water: recycled waste water from the island�s sinks and sewers.

Scepticism about the viability of this new source - made possible by advances in purification technology - was met by prominent pictures of Prime Minister Goh and other luminaries drinking what was dubbed �Newater�. By the beginning of 2003, two Newater plants were on-stream and feeding water into Singapore�s reservoirs. Three Newater plants are now operational with a fourth to be operational in 2006.

Work began in January on a new US$118m desalination plant which will be ready at the same time, and together with three new water catchment projects due by 2009, Singapore says it will have sufficient supplies of water if its first Malaysian water agreement expires in 2011 and is not renewed.

Not long after Singapore unveiled its Newater in 2002, Malaysia decided to discontinue the approach of negotiating all bilateral issues together in order to focus on its priority of revising the price of water under the existing agreements.

Malaysia has always said that it is prepared to provide Singapore with treated water after 2061, but wants a higher price for the river water it currently supplies, saying that the three Sen price was agreed at a time when it wanted to help a territory with which it was about to merge, and that Hong Kong pays China the equivalent of RM8 for the same amount of water.

While Singapore has been prepared to offer Malaysia a higher price for water supplied under the current agreements in return for a new long-term agreement, it maintains that Malaysia has actually lost its right to review the price by not exercising it at the appropriate time.

Both countries embarked on an unusual public relations exercise last year to make their respective cases, publishing books and taking out newspaper advertisements to that end. Lawyers and civil servants on both sides prepared to take their cases to arbitration as provided for by the agreements.

An improvement in relations

Since then, Singapore�s new desalination plant and the opening of Johor�s first water treatment plant in February, reducing its dependence on Singapore for treated water, have been accompanied by an improvement in bilateral relations.

The new Malaysian prime minister, Abdullah Badawi, has opened the door to an amicable solution, saying that he preferred talks to arbitration and that �we can talk, let�s sit down and talk, I think we can handle it, I am sure there are ways... I am trying to find when can we begin, when can we resume�.

Singapore is again preparing for a political transition, and has confidently predicted that new technologies yet to be developed will allow it to be completely self-sufficient in water after 2061, despite its target of doubling its population to eight million.

In the last 14 years, Singapore and Malaysia have reduced their mutual water dependence and, it is to be hoped, exhausted their rhetorical battles over the issue. Both will also be aware that Hong Kong is now negotiating a reduction in the price it pays China for water, and that constant bilateral friction does not impress investors.

Putting a price on a relationship is not easy though, and a new water agreement is unlikely before Goh Chok Tong steps down in favour of his deputy, Lee Hsien Loong. Singapore�s new leader will want to secure a new water agreement with Malaysia before he hands over to his successor though, whenever that may be.

Douglas Wong is a correspondent for the Financial Times in Singapore.