Dr Amy Khor: Water price needs to be increased to cater for future consumption

SINGAPORE: In a recent parliamentary session on Wednesday (4 Oct), Dr Amy Khor, the Senior Minister of State for Sustainability and the Environment, shed light on the financial intricacies of PUB (Singapore’s National Water Agency) and the reasons behind the forthcoming water price revision.

Dr Khor emphasized that despite popular misconceptions, PUB operates without generating profits.

“There is no profit, everything is actually reinvested or used, ” Dr Khor claimed.

A scrutiny of the PUB’s annual reports reveals a Net Income of $2.4b after Government Grants and Contributions to the Consolidated Fund and Tax over the decade preceding FY2021.

Dr Khor pointed out that taking a closer look at PUB’s financial statements, in 2020, the agency had a net operating income of a positive S$10 million.

However, fiscal year 2021 witnessed a significant shift, with net operating income before government grants plummeting to a negative S$109 million, further widening to a negative S$264 million.

“After government grants, yes, it has become positive, but actually if you look at the revenue, the net income generated, whatever is generated is actually plowback reinvested to fund the operating expenditure of the water system as well as ongoing investments, in fact, it’s not enough.”

The revenues generated are consistently reinvested into the system to ensure its sustainability and reliability, said Dr Khor.

Dr Khor provided an illustrative example, noting that the net income after government grants for the fiscal years 2018 to 2022 amounted to 1.5 billion dollars.

“Some people talk about S$2.4 billion and so on net surplus. But between 18 2018 to 2022 is S$1.5 billion, and actually, that is really needed as I’ve said to fund the operating expenditure as well as investments. ”

She stressed that the capital investments required to meet future water demand amounted to a substantial $3 billion.

“Therefore PUB has actually had to in addition borrow from the market, and issue bonds, which we did for instance last year, S$800 million green bonds borrowed from the market for long-term infrastructure projects.”

Leader of the Opposition questions water price hike timing

Dr Khor was replying to supplementary questions posed by Pritam Singh, the Leader of the Opposition, who asked why there was a relatively short period between the 2018 water price increase of 30 per cent and the latest announcement of an 18 per cent increase.

He inquired if there was any policy flexibility for the government to delay the increase, considering the profits generated by water authorities and water supply.

Mr Singh, who is also Workers’ Party Chief and Member of Parliament for Aljunied GRC questioned the relevance of the water conservation tax, especially given the declining household water consumption patterns in recent years.

He suggested that implementing more water-efficient features for households might be a more effective policy tool.

Regarding the water conservation tax, Dr Khor clarified that the tax was not meant to generate profits but rather to reflect the actual cost of water and incentivize consumers to use water wisely.

She explained that the water tariff, together with the water conservation tax, constituted the price of water, reflecting the cost of production, supply, and conveyance of water.

Dr Khor also replied to Parliamentary questions filed by Ms Poh Li San, PAP MP for Sembawang GRC, and Non-Constituency Member of Parliament Leong Mun Wai.

Ms Poh inquired about the impact of recycling requirements on large water users’ business costs and whether the government would offer additional support in light of rising costs.

Mr Leong Mun Wai asked about changes in the production costs of NEWater and desalinated water since 2017, the difference between current marginal and long-run marginal costs of water production, and whether there would be a need for water price increases in the next five years.

In response, Dr Amy Khor mentioned that in Singapore, water prices are pegged to the cost of producing and “supplying the next drop of water”.

She clarified that the cost of producing and supplying water has increased substantially since the last price revision in 2017.

Factors contributing to this increase include a 37 per cent rise in average electricity tariffs, a 33 per cent increase in operating expenses for chemicals needed for water production due to global supply chain disruptions and higher transportation costs, an 18 per cent increase in maintenance expenses, and a 35 per cent increase in construction costs.

Dr Khor said PUB has implemented various cost-mitigation measures, including the use of energy-efficient technologies, engineering solutions to reduce construction expenses, and process optimization to lower chemical and maintenance costs.

Notably, at the TUAS Water Reclamation Plant (TWRP), the adoption of membrane bioreactor technology not only saved S$650 million by avoiding the construction of a deep-sea outfall but also enabled TWRP to generate 80% of its required energy for water treatment, surpassing the conventional Ulu Pandan and Jurong WRPs which can only produce 25%.

“Despite such cost-saving measures, the cost of producing and supplying water and collecting and treating our use water remains significantly higher than a current water price.”

Last month, PUB announced a notable 18% hike in water prices over the next two years, in light of rising production and supply costs since 2017.

This price augmentation translates to an added 50 cents per cubic metre, divided over two increments: 20 cents in 2024 and 30 cents in 2025.

NCMP Leong Mun Wai proposes a progressive multi-band pricing system for water

NCMP Leong Mun Wai, while aligning with the government’s emphasis on “right pricing,” inquired whether it was feasible to introduce a progressive multi-band pricing system, replacing the current two-band structure, to potentially reduce the water price increase for households.

He argued that such a system would be fairer, considering Minister Khor’s observation that most of the future water consumption growth would originate from larger non-household users.

Furthermore, Mr. Leong sought confirmation from SMS Khor regarding whether the current water pricing formula fully accounts for the cost of water production from local sources.

He inquired whether Singaporeans could expect a stable water price in the absence of unforeseen changes in ingredient costs, including energy, after the expiration of the Johor water supply agreement in 2061.

“Communities ought to pay the right price for water,” says Dr Khor

In response, Dr Khor clarified the concept of “right pricing,” emphasizing that it aims to reflect the scarcity value of water, treating every drop as precious.

Regarding Mr Leong’s query about tier pricing beyond the initial 40 cubic meters, Dr Khor reiterated the importance of pricing water properly to encourage consumers to use water judiciously and save it.

“We need to price it properly, and that is the price of the next drop, the cost of producing the next drop of water.

“Therefore, everybody where there’s individuals, households, businesses and communities ought to pay the right price for water.”

Regarding the cost of producing water from local catchments, Dr Khor affirmed that the pricing reflects the cost of producing the next drop of water.

“To ensure water security we have a blend of water, not just from local catchment in pot water, but also desalinated NEWater and that has to be taken into account.”

“We also take into account investments long-term investments to meet future water demand and that will take into account the effect that water demand will increase and we will have to invest in additional capacities.”