After two days of the Budget debate saw many MPs focusing on the impact of the water price hike, Environment and Water Resources Minister Masagos Zulkifli yesterday took the House back to 1997, when water prices were last revised.
Back then, elements in Malaysia were threatening to block the supply of water from Johor, and Singapore was just embarking on desalination.
Hence, the Government needed to register with Singaporeans the strategic importance of water.
It therefore decided to revise water prices substantially to reflect its true scarcity value, he told MPs in his first remarks to the House about the hike since it was announced in the Budget statement last week.
"If we needed any additional water, where would it come from? How much would that additional litre cost? That is what we call the 'long run marginal cost' (LRMC). That is the cost which consumers should see," Mr Masagos said.
Water price increases were introduced progressively between 1997 and 2000.
We have been able to keep down the cost of water, and to hold water prices unchanged for 17 years... But costs have gradually gone up. At some point, a price revision becomes essential.
MR MASAGOS ZULKIFLI , Environment and Water Resources Minister.
Since then, water technology has progressed. Newater - which is much cheaper than desalination - came about in 2002, and desalination technology has advanced.
"As a result, we have been able to keep down the cost of water, and to hold water prices unchanged for 17 years," said Mr Masagos. "But costs have gradually gone up. At some point, a price revision becomes essential."
Why costs have gone up
MORE DESALINATION PLANTS MUST BE BUILT
•Three plants being built in the next three years.
•First-year price for Singapore's first plant, SingSpring, was $0.78 per cubic m in 2005. The first-year price for the latest plant in Marina East is $1.08 per cubic m.
•This is a 40 per cent increase.
MORE USED WATER IS BEING RECLAIMED FOR NEWATER
•As effluent gets more concentrated, it is harder and costlier to treat.
MORE EXPENSIVE TO BUILD, REPLACE PIPES FOR WATER
•Tunnelling below roads costs 21/2 times as much as the traditional method of laying pipes.
•PUB has to renew some 50km of pipes a year, up from 20km today.
•Seventy-five per cent of businesses will see an increase of less than $25 per month in water bills. This is less than $1 a day.
•Additional U-Save rebates mean one- and two-room HDB households will not see any increase on average. Bills for other HDB households will go up by $2 to $11 per month.
Water prices will go up by 30 per cent in two stages, starting in July.
The magnitude of the hike has ignited much discussion over the past week, but Singaporeans should ask what this 30 per cent translates to in reality, said Mr Masagos.
He noted that 75 per cent of businesses will see a water-bill hike of less than $25 a month - or less than a dollar a day. One- and two-room HDB households will not see any rise on average, while most other HDB households will see bills going up by between $2 and $11 a month.
"Water will still be affordable. It will still remain within 1 per cent of household income," he said.
Mr Masagos also highlighted three examples of how costs have risen, making a price hike essential.
First, more desalination plants will have to be built to increase Singapore's water supply, as there is a limit to reclaiming used water for Newater. Three desalination plants are in fact being built within the next three years, he said.
Second, as the proportion of used water being reclaimed for Newater goes up, effluent - or sewage - becomes more concentrated and more difficult and costly to treat.
Third, building new and replacement pipes to deliver water has become more costly.
Mr Masagos cited how tunnelling below the road to lay pipelines now costs 21/2 times as much as the traditional method.
These point to the need to update the LRMC - which the 30 per cent price increase has reflected, he said. He could not, however, disclose details of the computation owing to "commercial sensitivities".
He said revealing the specifics could prejudice future bids for desalination, Newater and water reclamation plants. "But rest assured that the LRMC reflects the best the market can offer," he added.
While his ministry will continue to plan and build the infrastructure, it is only through the right pricing that people will realise the value water has as a strategic resource, and consciously conserve it, he added.
"With the 30 per cent increase that we have announced, the price will be close to, though still slightly lower than, the price of the next drop (of water) or LRMC today," he said. "This is the best way to emphasise the scarcity value of water."
Addressing a question raised by Mr Pritam Singh (Aljunied GRC) on whether technology is taken into account in computing this cost, Mr Masagos said "technologically, we have squeezed everything we can from the current water processing technology". "It will take several more years to achieve the next breakthrough and bring it to a deployable scale," he added.