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Economy

Dry spell highlights Malaysia's water-policy weaknesses

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Residents collect water from a tanker near Kuala Lumpur on Feb. 25. Hot weather and the closure of two water treatment plants since Jan. 28 due to ammonia pollution in the Langat River have resulted in water shortages in some areas of the Klang Valley, according to local media.   © Reuters

KUALA LUMPUR -- Rainfall is abundant throughout the year in tropical Malaysia and Singapore, with both countries receiving an average of more than 2,000mm of precipitation annually. But an unusual dry spell has kept policymakers on their toes and raised calls for a re-examination of water-use policies.

     The first few months of the year are normally dry in Malaysia, but the capital of Kuala Lumpur is parched, with rainfall totals 60% below normal. This has forced water rationing that has affected about 90% of the residents in the metropolitan area. 

     The amount of water in at least three of the seven reservoirs that supply drinking water to the city has dropped to critical levels. Rationing started in March and will last until the end of April. During that time, water will be supplied to 1,340,231 households and businesses on a two days on/two days off schedule, the National Water Services Commission said.

     People in affected areas have complained of the inconvenience and cost of buying spare water tanks for storage. "I bought four 20-liter pails, each costing 200 ringgit ($61.7), for use during the two days of dry taps," lamented Daniel Chong, a restaurant owner in a suburb of Kuala Lumpur. 

     Low tariffs encourage high water consumption, with Malaysians using some 212 liters per person per day, far more than the minimum requirement of 15 liters a day recommended by the World Health Organization. 

     Water supply is regulated by state governments, and like many essential goods, it is heavily subsidized. In Kuala Lumpur, households pay only 0.57 ringgit per cubic meter of water. In the state of Selangor, which surrounds the capital, water usage of up to 20 cu. meters per month is free. 

High and dry

As a short-term measure, the government has turned to cloud seeding to induce rainfall near reservoirs. In cloud seeding, a salt solution is sprayed from aircraft into clouds to squeeze the water out of them, but so far the attempts to create rain have failed. 

     Rapid urbanization over the last few years has strained much of Kuala Lumpur's infrastructure, including its water supply. The government is building a tunnel to channel water from Pahang, a less densely populated state next to Selangor. The two states signed a water transfer agreement in 2007 when they were administered by the ruling party.

     The 44.6km tunnel, which is being built by a Japanese-Malaysian consortium, is expected to be completed in June. Planners say it will be able to supply 1.89 million cu. meters of untreated water daily through 2050. But Selangor is now ruled by the opposition, and before the water shortage became acute, the state government objected to the construction of a water treatment plant on its land, due to a dispute over its ownership.

     In February, the central and state governments hastily signed a memorandum of understanding on what they called a "historic occasion," setting aside their differences to authorize construction of the Langat 2 water treatment plant. But although Selangor has given the go-ahead, it will take at least three years to complete the project before potable water starts flowing to Kuala Lumpur, Selangor and Putrajaya, the seat of the national government.

Better prepared

The drought is also affecting neighboring Singapore. February was the driest month in the city-state since 1869, according to the National Environment Agency. But unlike Malaysia, Singapore has not had to resort to rationing because it gets over half its water supply from recycled wastewater called NEWater and desalinated seawater. The rest is imported or obtained from local catchments. 

     Singapore is committed to water reclamation, working to capture every spare drop of water and recycle it more than once. In 1961, an agreement was reached for the southern Malaysian state of Johor to supply Singapore with all its water needs. But friction between the two sides following Singapore's independence four years later compelled its leaders to look for alternatives.

     Singapore's desperation became dangerously acute in the 1970s. Lee Kuan Yew, then prime minister, wrote in his memoirs published in 1999 that he warned Mahathir bin Mohamad, Malaysia's deputy prime minister at the time, that Singapore would not hesitate to go to war should its neighbor abruptly cut off the water supply.

     Last year, the land-scarce country announced a second phase of construction on a deep sewage tunnel system to boost its supply of reclaimed water. Costing $2.35 billion, the 18km underground "superhighway" will allow Singapore to meet 55% of its water needs with used water, up from the current 30%, when it is completed in 2022. Phase 1's 48km tunnel currently treats the equivalent of 320 Olympic-size swimming pools of used water daily, according to the Public Utilities Board, the national water agency.

Tapping adversity

Singapore's water policies have also created opportunities for its companies at home. Hyflux, which started in 1989 as a trading company selling water treatment products, has since grown into Singapore's largest listed water company, with a market capitalization of $1 billion Singapore dollars ($799 million).

      The company made a net profit of S$44 million on revenue of S$535.8 million in 2013. It draws two-thirds of its sales from emerging markets in Asia, where it builds and maintains water treatment and seawater desalination plants.

      Together with Hitachi, it is currently constructing a desalination plant in the state of Gujarat in northwestern India. Hyflux says the $600 million plant will be the biggest desalination plant in Asia, capable of supplying 336,000 cu. meters of water per day for 30 years. The project is part of the Delhi-Mumbai Industrial Corridor projects being promoted by the Japanese and Indian governments to build industrial parks along a 1,500km stretch between the two cities using private funds.

      Despite an 18% drop in revenue last year, Hyflux is upbeat about its prospects this year. It sees good opportunities in its key markets with an estimated $8 billion worth of projects available for tender, according to OCBC Investment Research.

      With an order book of S$2.67 billion as of the end of 2013, the company is shifting its attention from established markets in Asia to the Middle East and Africa. Last month, it inked a joint venture agreement in Nigeria to explore opportunities in the water business there. Hyflux's partner in Nigeria is Tolaram, a Singapore-based conglomerate engaged in food, logistics, energy and property in Asia and Africa.

      Back on its home turf, Hyflux completed Singapore's largest desalination plant last September. The plant supplies 318,500 cu. meters of desalinated water per day, meeting 25% the island's water demand together with another plant.

      Today, Singapore is proud that it no longer relies on only one source of water.

      "We have resilience in our system. Even if there is a drought, we are prepared," Prime Minister Lee Hsien Loong said during the official opening of the desalination plant. "What was once our strategic weakness has become a source of thought leadership and competitive advantage."

     Malaysians poked fun when Singapore launched its NEWater program 10 years ago, saying their much more affluent neighbors had to drink "sewer water." But with faucets in Malaysia running intermittently dry for more than a month, few are laughing now.

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