INCREASE SAND PRICES TO SINGAPORE
PRIME Minister Tun Dr Mahathir Mohamad is calling for a renegotiation of the 1962 Johor River Water Agreement between Singapore and Malaysia. His purpose is to make Singapore accept a tenfold increase in the price of water supplied to the republic.
This is despite the plain language of the agreement which controls the current price of water sold to Singapore until 2061.
According to the terms of the 56-year-old agreement, Singapore is granted unfettered access to 250 million gallons of water per day, at the low rate of 3 sen per 1,000 gallons. In return, Johor may purchase two per cent of the water treated by Singapore at a cost of 50 sen per gallon.
This price reflects the water treatment infrastructure costs shouldered by Singapore.
While the prime minister’s position may be laudable, especially since the price has been in effect since 1962 and is below current market value, the Johor government has only itself to blame for its predicament, having failed to take advantage of its option to renegotiate the contract in 1987 under the terms of the agreement.
As such, Malaysia should forego any attempt at negotiations.
However, this is not to say that the government doesn’t have other options with which to generate new streams of revenue.
One need only to examine the terms of export of certain commodities to Singapore to find ways to raise comparable revenues to decrease the country’s bulging deficit.
Take sand exports as a perfect example.
According to Bloomberg, Malaysia exported about 57 per cent of Singapore’s annual sand supply in 2016, despite its ban on sand exports. This amounts to about 22 million tonnes. (Vietnam, Cambodia and Myanmar supplied the rest.)
For the sake of argument, let’s say that Malaysia, as a matter of national policy, decided to increase its sand export prices tenfold, beginning next year. Instead of asking S$23 (RM69) per tonne, which is about the going rate, Malaysia should demand a price of S$230 per tonne next year.
This rate may seem high, but in reality, it is reasonable in light of current world demand for sand.
As has been widely reported, sand is an increasingly difficult natural resource to come by. Moreover, the competition for it is keen.
This is particularly so in Southeast Asia because Cambodia and Vietnam have recently banned all sand exports to Singapore.
This makes Malaysia’s sand that much more valuable. Malaysia should take advantage of the favourable market conditions.
Based on a tenfold increase in the sales price of sand to Singapore, Malaysia could generate an additional S$5 billion in state revenue every year.
With this additional revenue, Malaysia could afford to expand its coastal sea patrol fleet that is capable of ending sand smuggling operations that are currently occurring along its shores.
Malaysia’s spokesperson has stated that the sale of sand is being permitted on a “case-bycase basis”. Therefore, it would appear that there is no legal impediment to raise sand prices more or less immediately.
Moreover, Singapore is a very wealthy nation, especially compared with Malaysia, and can readily afford to pay for such an increase in price.