From 1998 to 2003, Singapore and Malaysia were engaged in a period of difficult negotiations over a number of issues which included the price of water. A succinct account of the negotiations can be found in a statement made by Minister for Foreign Affairs Professor S Jayakumar to Parliament on 23 January 2003, and in the publication Water Talks? – If Only It Could.
Briefly, in 1998, Singapore and Malaysia began negotiations on a “framework of wider cooperation”. During the 1998 Financial Crisis, Malaysia wanted financial loans to support its currency; Singapore suggested that Malaysia give its assurance for a long-term supply of water to Singapore. Malaysia eventually had no need for the loans. Negotiations turned to other matters of mutual interest. In particular, Malaysia wanted joint development of more land parcels in Singapore in return for relocating its railway station away from Tanjong Pagar.
Over the next three years, more items were bundled together to form a negotiated package, where both sides asked for and offered various concessions on several outstanding bilateral issues. One of the items added by Malaysia was a higher price for the water it sold to Singapore.
Singapore’s position has consistently been that neither Malaysia nor Singapore can unilaterally change the prices of raw water and treated water specified in the Water Agreements. Under the Water Agreements, Singapore pays Johor 3 sen per thousand gallons of raw water and Johor pays Singapore 50 sen per thousand gallons of treated water. 50 sen is only a fraction of the true cost to Singapore of treating the water, which includes building and maintaining the entire infrastructure of the water purification plants. The Water Agreements provided for a price review after 25 years. This would have been in 1986 for the 1961 Water Agreement and in 1987 for the 1962 Water Agreement. Malaysia chose not to review the price of water then. Malaysia has therefore lost its right to review the price of water.
While we tried to negotiate on terms acceptable to both sides, Malaysia kept changing its negotiating positions on the package of items. On water, Malaysia’s asking price kept increasing throughout the negotiations. It increased from 45 sen per thousand gallons in August 2000, to 60 sen in February 2001, to RM6.25 in September 2002.
Finally, in October 2002, Malaysian Prime Minister Dr Mahathir Mohamad told Prime Minister Goh Chok Tong that Malaysia wanted to “decouple the water issue” from the other items in the package. Prime Minister Goh told Prime Minister Mahathir that since Malaysia wanted to discontinue the package approach, Singapore would have to deal with water and the other issues on their stand-alone merits.