RM400mil water deal is Penang’s best option for now, says expert

 However, the state will have to deal with higher tariffs for consumers on top of the costly agreement with Perak in the long term.

Under the deal between Penang and Perak, water is to be drawn from Sungai Perak, treated at a new plant in northern Perak and then piped into Penang. (PBAPP pic)

PETALING JAYA:

At about RM400 million a year, Penang’s new water deal with Perak may look expensive but, an expert says, it is likely the best option available now.

Water Watch Penang president Chan Ngai Weng said that with the arrangement, Penang will secure an additional water source besides Sungai Muda, on which it has relied for decades, without having to spend billions upfront to build and operate its own treatment plant, pipelines and other infrastructure.

He said the issue was not simply about buying the cheapest water, but about ensuring Penang has sufficient supply to support its people and economy in the coming decades.

Penang urgently needs another major water source because Sungai Muda, which currently supplies about 80% of its raw water, is shared with Kedah and has become increasingly vulnerable during dry periods.

How the deal works

Under the new deal, Perak will build and operate a new water treatment plant and delivery system, while Penang will pay for the water that will be supplied over a 40-year period.

The water will be drawn from Sungai Perak, treated at a new plant in northern Perak and piped into Penang. The exact route and the cost of any infrastructure required on the Penang side have yet to be disclosed.

At the minimum supply level of 300 million litres a day, Penang’s commitment works out to about RM400 million a year. The payment comprises a fixed annual capacity charge of RM210 million to secure the infrastructure, plus RM1.70 for every cubic metre, or 1,000 litres, of treated water purchased.

At the minimum purchase level, the water charge alone would amount to about RM186 million a year. Combined with the capacity charge, Penang’s total annual payment would come to about RM396 million.

If Penang purchases the maximum 500 million litres a day, the effective cost falls from RM3.62 to about RM2.85 per 1,000 litres because the fixed capacity charge is spread over a larger volume.

Safeguarding the deal

USM economist See Kok Fong said the RM210 million annual capacity charge was a common mechanism for financing major infrastructure projects.

Under the agreement, Perak will finance, build and operate the facilities, assuming the borrowing and construction risks, while Penang secures a long-term water supply without making a large upfront investment.

See said Penang’s water tariffs would almost certainly have to increase over time because current rates would not be sufficient to cover the cost of purchasing the new supply.

He said commercial and industrial users would likely bear a larger share of the increase, although household tariffs could also be raised gradually.

He said Penang should ensure that safeguards are in place to ensure that Perak meets its end of the deal for the RM1.70 per 1,000 litres charge that Penang has to pay. Among other things, Perak must meet agreed standards for water quality and supply reliability.

The charge can be reviewed every three years.

University of Nottingham Malaysia water engineering professor Teo Fang Yenn said buying treated water from another state was not the usual practice in Malaysia.

“Most interstate transfers involve raw water, with treatment carried out by the receiving state,” he said, citing the Johor-Melaka and Pahang-Selangor schemes.

Teo said the Perak deal could help Penang in the medium term because it would give the state another water source and reduce its dependence on Sungai Muda. However, he said, Penang should not rely on the deal alone for the next 40 years.

“For a long-term solution, Penang should explore other alternatives, such as coastal reservoirs, rainwater harvesting, seawater desalination and reusing wastewater,” he added.

Based on previous statements by Penang Water Supply Corp, the state’s water consumption is expected to rise from 865 million litres a day in 2025 to at least 1,162 million litres a day by 2032, driven mainly by the emergence of new factories, industrial parks and residential property.

Chan said Penang should also begin serious planning for desalination as a longer-term solution, as both Kedah, which also relies on Sungai Muda, and Perak will require more water as they continue to develop.

He said advances in desalination technology are making it an increasingly viable option, although the final cost will depend on factors such as the size of the plant, energy requirements and waste disposal. - FMT