What The Malaysian Heatwave Means For Singapore’s Water Resources And Investors

In 1962, Singapore had signed a water agreement with Malaysia that will enable the former to draw 250 million gallons of water per day (mgd) from the Johor River via the Linggiu Reservoir. This supplies roughly 58% of Singapore’s daily water consumption of 430 mgd.

But, the situation at the Linggiu Reservoir appears worrisome. The current heatwave affecting Malaysia (and to some extent, Singapore), had reduced the Linggiu Reservoir’s water level to a historic low of 35% last Friday. The water level at Linggiu Reservoir has declined drastically over the past year, having fallen from 80% at the start of 2015.

Meanwhile, the Northern Malaysian states of Perlis, Kedah, Penang and Perak have seen incredibly hot weather and are in a dire water situation – they have less than 30 days to go before their water supplies run out.

The heatwave is evaporating existing water supplies faster and is also likely to encourage the population in Malaysia and Singapore to use water more heavily.

Increasing water supply in Singapore

This heatwave is a reminder that Singapore’s water supply is not guaranteed. This is why we currently have other national water sources such as NEWater, desalination plants, and local catchment areas.

Singapore currently has an aim to be self-sufficient for its water needs by 2060 before the agreement with Malaysia runs out. NEWater and desalination is expected to meet 85% of Singapore’s water demand by 2060, which is estimated to reach around 800 mgd. 2060 may seem far off as it is another 44 years ahead, but Singapore is currently taking active steps to work on self-sufficiency.

For instance, the fifth NEWater plant in Singapore will be up and running by the end of 2016. Then, there are also the third and fourth desalination plants which are expected to be completed in 2017 and 2019, respectively; the two plants are located in Tuas and Marina East. Earlier this month, the government also announced that it’s considering the construction of a fifth desalination plant, this time in Jurong.

Water plays in Singapore

A recent article from Channel NewsAsia had pointed out that there may be a scenario in which Singapore can’t import water from its neighbours before the aforementioned 2060 self-sufficiency target is met.

Given the importance of water, it’s not hard to imagine how the government may be thinking about accelerating the water self-sufficiency schedule. In the recent 2016 Singapore Budget, Finance Minister Heng Swee Keat had increased the budget of the Ministry of The Environment And Water Resources by 13.1% to S$1.93 billion. The ministry’s budgeted operating expenditure for 2016 (excluding manpower costs) is a 105% increase from that of 2015.

One company in Singapore’s stock market that is in the business of building water treatment plants is Hyflux Ltd (SGX: 600). The company has a track record of developing NEWater and desalination plants in Singapore. In fact, Hyflux was the firm behind Singapore’s very first NEWater and desalination plants.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Ong Kai Kiat does not own shares in any companies mentioned.