THE fact that water prices have not changed in the last 17 years means that a large part of the investment and technology that went into producing Swiss-quality water levels in Singapore have not been covered by the users themselves.
“It’s therefore inevitable there needs to be a price that reflects the investment and the cost of running a sophisticated water system,” Jochen Krauss, a partner at Simon-Kucher & Partners, told The Business Times yesterday.
The economist was rationalising why the water price increase, announced at Budget 2017 last month, is necessary.
The cost of operating and maintaining the water system has risen over the years, prompting the government to review the price of water.
Finance Minister Heng Swee Keat told the House during the Budget debate that, including taxes, water prices will go up by 30 per cent in two phases: July 2017 and July 2018.
The previous hike was phased in from 1997 to 2000, and it saw tariffs go up by 20 per cent to 100 per cent on a scale depending on usage.
But costs have gone up sharply since then.
Last month, national water agency PUB said it cost about S$500 million to run the water system in 2000. By 2015, this had risen to S$1.3 billion. This includes collecting used water, treating water, producing NEWater and desalination, as well as maintaining water pipelines.
Read also: Cost of supplying water has more than doubled: PUB
“As a consumer, I would say there’s never a right time for a price change,” said Dr Krauss.
“But at some point, a good government that cares for its people has to make a decision and force measures that, on the outside, are unpopular.
“If you were to look deeper into why price changes are made or why price systems need to work in a certain way, then I would say this is actually a sign of a good government.”
Dr Krauss said countries such as Singapore, where there is no natural resources and has high water stress, it is only through right pricing that everyone will learn to value water as a strategic resource.
Read also: Price hike reflects scarcity value of water: Masagos
He also said how Singapore is pricing its water is “moving in the right direction” and is fair.
“For instance, the current price system has what is referred to as the sanitary appliance fee, which is S$2.80 per fitting. It is a proxy of water usage. Just because I have another fitting in my home doesn’t necessarily mean I consume more water.
“By changing that into a variable fee, you are essentially creating a fairer system because you are basing the cost of a variable consumption pattern.”
Citing the United Nations’ report, Dr Krauss said that what a household has to contribute is actually still a “marginal amount that is being spent on the water bill itself”.
“Even with the 30 per cent hike, I don’t think the price of water really fully covers the true value of the investment the government has put in to provide good, clean water.”
Referring to the recent launch of the fifth NEWater plant in Changi, Dr Krauss pointed out that although it is a new resource for water, “that resource is not infinite”.
“I still have the marginal cost of producing that additional litre of water, and that additional litre is again scarce resource that falls under the purveyance of a price system.
“Singapore is striving to provide Swiss-quality water levels and that has a price. It may have new technology (to do so), but it’s still the volume of water that needs to be produced and paid for.”
Dr Krauss added that as long as pricing works hand in hand with public education, the government will be able to communicate why there is a need to safeguard water for the future.
Read also:
Challenging times ahead for Singapore’s water security
Water price hike necessary, but why now?
Budget 2017’s water price hike: What you’re not hearing about the 30 per cent increase
This article was first published on March 16, 2017.
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