Change in Cost of Producing NEWater and Desalinated Water, and Support for Businesses facing New Water Recycling Requirements

Mr Leong Mun Wai asked the Minister for Sustainability and the Environment (a) whether there has been a change in the cost of producing NEWater and desalinated water since 2017; (b) what is the difference between the current marginal cost and long-run marginal cost of producing water in Singapore; and (c) whether the Government considers that there will be a need to increase water prices within the next five years.

Thank you, Mr Speaker. In Singapore, the water price is pegged to the cost of producing and supplying the next drop of water. This includes the cost of building and upgrading water infrastructure. Pricing water on this basis allows the Public Utilities Board (PUB), Singapore's national water agency, to finance its long-term investments sustainably to meet future water demand and safeguard Singapore’s water security.

The cost of producing and supplying water has increased substantially since the last price revision in 2017. Average electricity tariffs have increased by 37%. Operating expenses for chemicals needed for water production have grown by 33% due to global supply chain disruption and higher transportation cost. Maintenance expenses have risen by 18% due to higher costs for contracted services. Construction costs have also gone up by 35%.

Together, these cost pressures have led to an increase in PUB’s operating expenditure by around 30% since the last water price revision in 2017.

PUB has undertaken various measures to moderate the impact of these cost drivers. These include leveraging energy-efficient technologies to reduce energy consumption, harnessing engineering solutions to offset higher construction costs and optimising and digitalising processes to reduce chemical and maintenance expenses.

PUB’s efforts have borne some fruit. For example, at the new Tuas Water Reclamation Plant (TWRP), PUB avoided the construction of a long deep-sea outfall costing $650 million by adopting membrane bio-reactor technology to treat used water to an adequate standard for near-shore discharge. TWRP will also generate 80% of the energy it requires for used water treatment, compared to only 25% for the conventional Ulu Pandan and Jurong WRPs it will replace, through enhanced primary treatment of used water and synergies from co-locating with the Integrated Waste Management Facility.

Despite such cost-saving measures, the cost of producing and supplying water, and collecting and treating our used water, remains significantly higher than the current water price. An increase in water price is thus necessary to catch up with rising costs. This is why the Government has announced the revision of water price by 50 cents per cubic metre in two phases, over 2024 and 2025, with a smaller increase in the first phase after due consideration for the current inflationary pressures.

The Government will continue to review the water price regularly to ensure that water is right-priced.

With the full increase in water price by 2025, three-quarters of households will see an increase of less than $10 per month in their water bill. As announced by the Ministry of Finance (MOF) last week, the Government will provide financial support to mitigate the impact of the water price increase and other cost of living concerns, especially for lower- and middle-income households. This includes additional U-Save rebates of $20 per quarter in 2024 and 2025 for all Singaporean HDB households. The additional rebates will, on average, fully offset the increase in utility bills for 1- to 2-room HDB households and offset about 80% of the increase in utility bills for 3- to 4-room HDB households during this period. With these rebates, 3- and 4-room households will see increases of only about $2 per month in their utility bills.

Besides right-pricing water to safeguard our water security, it is also important that we manage the growth in our water demand. This is especially so in the non-domestic sector, which will account for about two-thirds of our water demand by 2065.

Ms Poh Li San asked about water recycling requirements for companies which are large water users and Government support for them. From January next year, PUB will mandate minimum water efficiency requirements on new projects in water-intensive industries, with high potential for water recycling. By recycling water, companies can recover the cost of their investments over time and enjoy cost savings in the longer term through reduced water usage. Based on our estimates, the payback period for installing such recycling infrastructure ranges from two to four years for wafer fabrication companies and less than one year for the electronics and biomedical companies.

To better support businesses, PUB has also recently enhanced its Water Efficiency Fund, which businesses can tap on to implement water recycling, adopt innovative technologies for water conservation and conduct studies to identify water-saving opportunities in their operations. This includes an increased funding cap of up to $5 million to support large-scale recycling projects in water-intensive industries. PUB also works with businesses with high water consumption to identify ways to reduce consumption through their Water Efficiency Management Plans, or WEMP.

Everyone – individuals, households, community and businesses – has a part to play in conserving and using water wisely. With right pricing and sustainable growth in water demand, we can continue to ensure a sustainable water system and safeguard water security for Singapore.

I thank the Senior Minister of State for her reply. Given that the subsidies are for new equipment, how can the Government further support businesses that have already invested in equipment and these equipment typically last 10 to 20 years, and also prevent these cost increases from being passed down to consumers?

I thank the Member for her supplementary question. First, let me also say that in addition to the fact that three-quarters of households will see a less than $10 per month increase in their utility bills without the U-Save rebate by 2025, actually 75% or three-quarters of businesses will also see a less than $25 per month increase in their utility bills as a result of the price revision. Obviously, it varies from business to business and it will impact the more water-intensive industries more. But in that sense, for the water-intensive users, companies that use more water, it is to their benefit and they are incentivised to look into water conservation projects and improve their water efficiency. Therefore, we have upped our Water Efficiency Fund in order for them to implement such water recycling projects.

In fact, from next year, there will be mandatory water recycling requirements, say, for wafer fabrication plants, a minimum 50% water recycling rate and, for the biomedical and electronics industries, specific waterwaste streams must be recycled.

In addition to that, as the Member has said, there will probably be some existing infrastructure. Indeed, the Water Efficiency Fund is also available for innovative technologies to be implemented, for instance, in order to conserve or save water usage as well as, of course, to audit and identify where else there are opportunities for water savings.

Sir, I have two questions for the Senior Minister of State.

First supplementary question: I agree with the Senior Minister of State that right pricing is important. So, is it possible to reduce the water price increase for households by introducing a progressive, multi-band pricing system to replace the current two-band system? This is fairer because, as the Senior Minister of State has said, most of the future increases in water consumption will come from the larger users in the non-household sector.

Second supplementary question: can the Senior Minister of State confirm that the current water pricing formula has already taken into account fully the cost of producing water from our local sources? If so, can Singaporeans expect that, barring unforeseen changes in ingredient costs, including energy, the water price will not shoot up drastically after the expiry of the Johor Water Supply Agreement in 2061?

With regard to right pricing, first, I am happy to note that the Member said that he agrees with us that we need to right price water. But perhaps the Member's concept would differ from what we mean by "right pricing". When we say "right pricing", we mean we want to reflect the scarcity value of water, that every drop of water is precious and, therefore, the price of water is pegged to the cost of producing and supplying the next drop of water. And that will also take into account investments in additional facilities, additional water infrastructure, as well as renewing existing water infrastructure.

As to the Member's question about tiered pricing – I think that is what the Member is saying – beyond the threshold of 40 cubic metres and above, as I have said, when we say "right price" water, we want to reflect the scarcity value of water, that water is precious from the very first drop. So, in order to do that and encourage consumers to save water and use water wisely, we need to price it properly. And that is the price of the next drop, the cost of producing and supplying the next drop of water. Therefore, everybody, whether it is individuals, households, businesses and communities, ought to pay the right price for water and that is why we do not have additional bands.

Having said that, an average household uses about 15 cubic metres of water monthly. For a four-person household, it is maybe about 18 cubic metres. We have a higher tariff for those who use above 40 cubic metres. The percentage of households that would be affected by this higher tariff is less than 4%. The higher tariff is in place to encourage and incentivise households to use water wisely and conserve water.

With regard to the Member's second question on whether the cost of producing water, say, from the local catchment has been fully priced, as I have said, the price of water is pegged to the cost of producing and supplying the next drop of water. And to ensure water security, we have a blend of water, not just from local catchment, imported water, but also desalinated and NEWater. That has to be taken into account. When I say the cost of producing and supplying the next drop of water, as I have said, we also take into account long-term investments to meet future water demand and that will take into account the fact that water demand will increase and we will have to invest in additional capacities.

Mr Speaker, just two questions for the Senior Minister of State.

First, in 2018, water prices were raised by 30%. The latest announcement by the Government sees them go up by another 18%. Can I ask the Senior Minister of State why such a short interregnum, as compared to the pre-2018 increase, before which prices are going up again for water? Is there any scope, policy space, for the Government to delay this increase with a view towards the profits generated by the authorities vis-a-vis water and the supply of water?

My second question is with regard to the household water consumption patterns. I understand they have been on the down over the past few years, although it saw an uptick during the COVID-19 pandemic – and, understandably so, because most people were at home. With this as a backdrop, can I query the relevance of the water conservation tax as opposed to the Government's implementation of more water-efficient features for households, which is a more effective policy tool to encourage lower consumption of water and achieve the outcome that the Ministry is looking at with regard to ensuring that every Singaporean sees the first drop of water as a very scarce resource?

So, is there space for the Government to reconsider the utility of its water conservation tax? Is it achieving the policy purpose that is intended? Or are water-efficient features actually a more likely source of realising water savings from household consumers?

With regard to the first question about the earlier increase of 30% in 2017 and the current increase of 18%, as I have explained earlier in my reply, the latest revision in water price which would actually only take effect from 1 April 2024 and not now – is really due to external cost pressures. And I have listed the increase in costs: due to electricity cost, which increased by 37%, and construction cost which increased by 35%. The electricity cost increase is just from tariff increase. Actual increases could be higher, depending on when we contracted our energy contracts and so on. And then, there are maintenance cost increases due to increased manpower as well as chemical costs.

So, that is the reason why the cost of producing and supplying the next drop of water has exceeded our current water price and there is a need to have a price revision in order to ensure that PUB can continue to sustainably cover its operating costs as well as continue to make investments in water infrastructure to ensure reliable water supply as well as water security. And we will continue to review our water price regularly, taking into account, of course, costs and other factors.

The Member was talking about profits. Let me clarify that, actually, if we look at the financial statements of PUB, in 2020, net operating income was positive, $10 million. But in FY2021, net operating income, before Government grants, was negative $109 million and it has actually widened to negative $264 million. After Government grants, it has become positive. But if we look at the revenue, the net income generated, whatever is generated, is actually ploughed back, reinvested, to fund the operating expenditure of the water system and, as I have said, in terms of ongoing investments, as well as additional investments. In fact, it is not enough.

By way of illustration, if you accrue the net income after Government grants for fiscal years 2018 to 2022, it is $1.5 billion. Some people talk about $2.4 billion and so on, of net surplus. Between 2018 and 2022, it is $1.5 billion, but that is really needed, as I have said, to fund the operating expenditure as well as investments. But it is not enough. In fact, the capital investments required then to meet future demand was $3 billion.

Therefore, PUB has had to, in addition, borrow from the market and issue bonds. For instance, last year, in 2022, we issued $800 million in green bonds. We borrowed from the market for long-term infrastructure projects. So, there is no profit; everything is actually reinvested or used.

With regard to whether it is better to use water efficiency features to incentivise water conservation efforts instead of the water conservation tax, first of all, the water conservation tax, is a tax, as the Member has rightly noted, to reflect the scarcity value as well as to incentivise consumers to use water wisely. But the water tariff, together with the water conservation tax, is actually part of the price of water, which reflects the cost of producing and supplying the next drop of water. So, it is actually part of the water price. Then, the waterborne tax is a tax contribution to the used water system.

Speaker, maybe I would just add, too – because I did not reply to water efficiency features – I would say that both are needed.

Sir, in the Senior Minister of State's reply, she mentioned that the non-domestic sector accounts for two-thirds of the overall water demand. And if we were to have further new demand, we are going to continue to tap on the more expensive sources of water, for example, desalination and recycled water.

I would like to ask the Senior Minister of State: should we really look at this non-domestic sector and do a review, or even if need be, rationalise, so that we will not continue to have this kind of demand, where we will consume more of our strategic resource, like water?

Perhaps, some industries are consuming too much that does not make sense for us. And for some of the new investments, when we look at them, do they make sense for us, from a water resource standpoint?

So, is the Government doing an exercise on that as well, to review the mix of our industry, whether it makes sense for us from a water resource standpoint?

First, let me say that water-intensive industries or large users or consumers of water do not necessarily use water inefficiently. It may be because of the nature of the industry and the processes needed, like our wafer fabrication factories for instance, where water is needed. But it does not mean that they are not using water efficiently.

Having said that, indeed, we continue to work with the industries. The mix of industries is something that the economic agencies, together with us, will have to continue to study. In addition to that, within each industry, PUB also works with them to look at how we can help them to improve their water efficiency, as well as, where it is possible, to recycle water as much as possible.

That is why for new projects in wafer fabrication, we are mandating 50% minimum water recycling requirements next year. And for the other industries, we will continue to work with them and see what we can do, in terms of technologies and projects. And that is also the reason why our Water Efficiency Fund funding cap has gone up to $5 million.