Penang’s 40-year purchase of treated water from Perak has yet to take full effect, and the agreement carries exit clauses that could end it well before 2072, the state legislative assembly heard on 30 Oct.
State infrastructure, transport and digital committee chairman Zairil Khir Johari said the Penang Water Supply Corporation (PBAPP) will buy at least 300 million litres of treated water a day from 2032 to 2072 under a conditional bulk water supply agreement signed with Prasarana Air dan Irigasi Perak (PAIP) on 15 July. Registration with the National Water Services Commission (SPAN) and approval from PBA Holdings shareholders are still outstanding, with an extraordinary general meeting to be held next month (Pocket News, 31 Oct).
The Perak supplier will carry the estimated RM8.4 billion cost of building, operating and maintaining the scheme, including land acquisition, so PBAPP does not shoulder the upfront burden.
A due diligence review flagged risks of delayed or insufficient tariff adjustments, rising electricity and chemical costs, and a break in supply. Treated water from Perak still works out cheaper than large-scale seawater desalination, Zairil told the house, since the costliest part of desalination is running it. “The highest cost of desalination is its operating expenditure, as the process requires a great deal of electricity to remove salt from seawater,” Malay Mail quoted him saying.
Machang Bubuk assemblyman Lee Khai Loon asked about stress tests on water demand and on PBAPP’s financial capacity, and wanted a summary of the due diligence report tabled before approvals are finalised. He also asked what penalties apply on termination. Zairil replied that detailed disclosure needs the consent of the Perak state government, because the deal sits between two government-owned companies and counts as a government-to-government arrangement.
On cost, Zairil put the total water purchase at an estimated RM24.6 billion across four decades, a figure he said covers 40 years of buying rather than an immediate commitment. The volume is not meant for storage but for sale to Penang industries at commercial rates above domestic tariffs, Buletin Mutiara reported. He added that the project does not by itself mean tariffs will rise. “Implementing this water supply project from Sungai Perak does not automatically mean that water tariffs will increase,” he said, noting that any adjustment needs SPAN’s approval and the federal government’s.
The agreement can lapse or be terminated on several grounds: conditions precedent not met, supplier default, insolvency, or a prolonged break in supply that renegotiation fails to resolve. If the conditions for supply are not satisfied by 1 January 2035, PBAPP may agree to an extension or let the agreement lapse.
A conditional termination is also open if the parties cannot agree on a rate review before the 22nd contract year. That route carries payment of the net present value of the remaining capacity charges plus any outstanding amounts.
Penang is counting on the scheme as a second water source, cutting its dependence on Sungai Muda. State demand is projected to pass 1,162 million litres a day by 2032, and Zairil said options for new raw water sources inside the state run out after 2030, once works to maximise surface water are completed.
