Singapore seeks to break reliance on Malaysian water

Commentary from: Stratfor.com

SINGAPORE and Malaysia, deadlocked in negotiations over water supply issues since last May, may soon experience a break in the dam. The city-state Singapore depends on Malaysia for water. Now, innovative desalination technology may enable Singapore to tap the sea, stealing Malaysia's longtime trump card, often used in prickly relations between the two.

Singapore's chronic dependence on Malaysia's water has saddled it with a hefty political disadvantage. In the past, Kuala Lumpur used its control over water to gain leverage in negotiations over sensitive border issues, among other things. Now, though, Malaysia is rapidly emerging as a competitor in semi-conductor production - one of the world's most water-intensive industries - giving it an economic impetus to tinker with Singapore's water supply.

Chip production is currently one of Singapore's most dynamic growth industries, despite several years of decline. In 1999, the semi-conductor sector grew more than 20 percent, leading the electronics industry, which represents more than half of the country's manufacturing. Manufacturing itself encompasses 25 percent of GDP. One of the largest chip companies operating in Singapore, Chartered Semiconductor Manufacturing, increased its sales to $694.3 million - a 64 percent gain from the previous year, reported the Electronic Engineering Times.

Now Malaysia is becoming a serious competitor for wafer manufacturing. As long as the two countries are industry competitors, Malaysia's faucet-control puts Singapore at a major disadvantage. It is working to increase Singapore's water costs, and in turn, the cost of wafer production. In negotiations for the new contract, Malaysia has insisted that Singapore buy treated water, which is more expensive.

In previous negotiations, Singapore had used the prospect of a water deal with Indonesia to eke out some wiggle room with Malaysia. Last January, Singapore's Economic Development Board (EDB) chairman suggested that Indonesia could supply water. However, the Kuala Lumpur and Jakarta governments have appeared to move closer in recent months. Indonesia's use as a pressure point may have all but evaporated, providing yet more incentive to explore a domestic water source.

The decreasing cost of desalination has broadened Singapore's options. For the first time, the country's officials believe that desalination plants could be as cost-effective as buying the water from Malaysia.

Rather than construct the plants itself, the government has opened bidding to the private sector for contracts to supply water. The suppliers themselves will determine which desalination technology to use, practically guaranteeing that competition will accelerate innovation.

Singapore may soon be able to eliminate one of Malaysia's most valuable bargaining chips. This will give the city-state far greater leverage in negotiating sensitive border agreements concerning immigration and air space. On a more symbolic level, Singapore's very sovereignty depends on its ability to control its access to water. It may finally gain that control..