SINGAPORE/MALAYSIA BILATERAL TALKS ON WATER

[Mr Speaker in the Chair]

Dr Ong Chit Chung asked the Minister for Foreign Affairs whether he will give the House an update on the latest developments in (i) the Singapore/Malaysia bilateral talks on water; and (ii) other bilateral issues in the package of negotiation.

Ms Irene Ng Phek Hoong asked the Minister for Foreign Affairs to clarify (a) whether, under the provisions of the 1961 and 1962 water agreements, Malaysia has any legal basis to ask for (i) a price review of raw water after failing to do so in the two years, 1986 and 1987, or (ii) a price revision to be backdated to 1986 and 1987 and (b) if not, why Singapore is prepared to consider a price review now.

The Minister for Foreign Affairs (Prof. S. Jayakumar): Mr Speaker, Sir, can I have your permission to take the first two Questions together?

Mr Speaker: Yes.

Prof. Jayakumar: Thank you. Mr Speaker, Sir, I believe these two Questions are timely as they enable me to brief the House on the state of play since I last spoke on this subject at the sitting on 23rd July 2002. There have been quite a number of developments and much has been said. I hope Members will bear with me as I take them through these developments.

The key developments have been:

The Second Ministerial Meeting in Singapore from 2-3rd September 2002;

PM Goh's meeting with PM Mahathir in Putrajaya on 8th October 2002;

Exchange of letters between PM Mahathir (7th October 2002) and PM Goh (14th October 2002); and

Senior officials' meeting in JB from 16-17th October 2002. I will touch on each of these developments.

Second Ministerial Meeting in Singapore, 2-3rd September 2002

On price revision of water under the current Agreements: In July 2002 I informed the House that Singapore's position is that the 1961 and 1962 Water Agreements do provide for a review after 25 years. However, if Malaysia wanted a price review, this should have been undertaken in 1986 and 1987. Notwithstanding the fact that it is 15 to 16 years late, we told the Malaysians at the First Ministerial Meeting in KL (1-2nd July) that in the interest of making progress in our package talks, we were prepared to consider Malaysia's request to discuss the price revision but as part of the package.

At the September Ministerial meeting in Singapore, the Malaysians presented a formula for pricing current water, which in effect, was based on our peg price formula meant for future water.

We asked them to justify this in relation to the specific clauses in the two Agreements which set out very clearly the factors and criteria. They have not given us an answer. They have also not given us an answer to our question on which provision in the Water Agreements authorised their claim for retrospective application.

We reiterated our position that Johor should have invoked the review clauses in 1986 and 1987 and that Johor has lost its right of review. If Malaysia insists on a review outside the package, Singapore will have to challenge every aspect of Johor's claims.

Malaysia insisted that Johor had not lost its right of review and that the matter of price revision be discussed between both sides but not as part of the bilateral package.

On the supply of future water, Malaysia indicated that "the detailed discussions (on a new water agreement) should be undertaken two years before the expiry of the

1962 Agreement." As Members know, for Singapore, a key element of the package is the long-term supply of water. To say that we should talk about this issue only in 2059 was not realistic and showed that they were not being serious.

Malaysia also wanted to delink the proposed bridge to replace the Causeway from the package. We explained that we saw no need for the bridge but were prepared to go along and spend several hundred million dollars provided it is part of the package. The Malaysian side wanted to delink the bridge from the package even though the bridge was listed as a package item in PM Mahathir's letter of 4th March 2002.

On POA, Malaysia indicated that the KTM station would remain in Tanjong Pagar. While the Malaysians did not question the legal validity of the POA, they took the position that the POA would become operative only after the KTM vacates the Tanjong Pagar station. This is contrary to the fact that the POA is a G-to-G agreement which took effect and became operative on the date of signing (ie, 27th November 1990).

On CIQ, Malaysia reversed its earlier position to relocate its CIQ to Johor. Malaysia now wants to have its rail CIQ in Tanjong Pagar.

At the end of the Second Ministerial Meeting, both sides agreed to have a meeting at the officials' level to focus on the water issue on the understanding that it would be part of the package and without prejudice to our legal position.

PM's meeting with PM Mahathir on 8th October 2002

PM Goh visited KL to participate in the World Economic Forum meeting (7-8th October 2002). PM Goh requested a meeting with PM Mahathir which was fixed on 8th October 2002. They discussed terrorism as well as the on-going package negotiations.

PM Mahathir said that Malaysia wanted to "decouple the water issue" from the other items in the package. PM Mahathir added that if both sides could resolve the water issue, the other issues could then be resolved. PM Goh explained why all items had to be taken as a package. If water were taken out of the package, then Singapore would have less leeway to make concessions on other issues, for example, the POA.

On revision of price of water under the current Agreements, PM Goh said that Singapore was agreeable to discuss this but as part of the package. The two Prime Ministers expressed hope that the officials meeting to be held on 16-17th October would make progress.

Immediately after the meeting on 8th October 02, Foreign Minister Syed Hamid announced to the media that Singapore had accepted "Malaysia's prerogative to review the water rates" and that Singapore had agreed to delink water from the package. This was a gross distortion, as the two Prime Ministers never discussed the issue of legal right of Malaysia. PM Goh had only agreed to a discussion of price revision of water as part of the package.

Press Secretary to PM therefore clarified on 8th October 2002 that the legal point about Malaysia's right to review the price of water had not even been discussed by the two Prime Ministers. Singapore's position was that Malaysia has lost the legal right for reviewing the price of water under the current Agreements 15-16 years later but Singapore was prepared to discuss a price revision as part of the bilateral package.

PM Mahathir's letter of 7th October and PM's reply of 14th October 2002

On 10th October, two days after PM Goh's meeting with PM Mahathir, he received a letter from PM Mahathir. It was dated 7th October, that is, one day before his meeting with PM Goh, and sent by a Third Party Note dated 9th October from Wisma Putra which we received on 10th October. In his letter, PM Mahathir told PM Goh that he was discontinuing the package. He wrote:

"The approach that both sides had adopted so far in dealing with the outstanding issues in a package, has not yielded any meaningful results. In view of this, Malaysia has now decided to discontinue the package approach and to give the highest priority to first resolving the long-delayed water issue, particularly the price review of raw water. Once this issue is satisfactorily and amicably resolved, I am confident that Malaysia and Singapore would be able to move forward much faster in finding solutions to the other outstanding issues that stand in the way of our bilateral relations." Members should note two important aspects of PM Mahathir's letter.

Firstly, the letter was dated 7th October, ie, written one day before PM Goh met PM Mahathir. But this letter was never mentioned at the meeting.

Secondly, the discontinuation of the package was a unilateral Malaysian decision. It was not a proposal that was put to PM Goh for consideration. PM Goh was not asked if he agrees with this new approach.

PM Goh replied to PM Mahathir's letter on 14th October 2002 to remind PM Mahathir that they both had agreed on a package approach, as PM Mahathir himself had acknowledged in his letter, and this was why Singapore had been prepared to make concessions. But now that Malaysia has unilaterally discontinued the package and wants Singapore to deal with the water issue separately, trade-offs would no longer be possible and each issue would have to be dealt with individually based on their stand-alone merits.

PM Goh said:

"As you wrote in the opening sentence of your letter of 7 October, you and I had reached a decision 'on 27 December 1998 in Hanoi for Malaysia and Singapore, to resolve, once and for all, the outstanding issues between our two countries in a package.' In other words, we had agreed to trade-off, in a package, the benefits to each other from the various issues, namely, water, POA, airspace, CPF and the bridge to replace the Causeway."

PM Goh added:

"I had been prepared to make concessions in varying the POA with extra pieces of land, allowing an early withdrawal of CPF deposits, and building our part of the bridge to replace the Causeway at our expense, as trade-offs, so that you could give us airspace and future water at a fair price. Regarding water, you had written in your letter of February 2001 that Johor believed that a fair price for raw water was 60 sen".

Continuing, PM Goh stated:

"Since you now want to deal with the water issue separately and discontinue the package approach, these trade-offs are no longer possible. And as the package deal is off, I have instructed my officials to deal with water and the other issues individually and separately, on their stand-alone merits, and no longer as a package. I hope our officials can make some progress at their coming meeting with your new approach". Since PM Mahathir had not mentioned the fact of this letter when the two Prime Ministers met on 8th October 2002, PM Goh in his reply said:

"Had you, at our 8 October meeting, told me that you had already written and signed this letter on 7 October, I would have elaborated on the pros and cons of your new approach. We would then have jointly decided on the basis upon which our officials would negotiate."

Mr Speaker, Sir, I have referred to this correspondence at some length because there have been many statements in the Malaysian media and from Malaysian politicians that have deliberately misrepresented what transpired at this meeting between PM Goh and PM Mahathir. Here is a sampling:

PM Mahathir was reported to have said:

"This is very clear. As I understood it, Goh Chok Tong agreed that there should be a review and a formula to determine the price of water." and "Singapore's denial of what had been agreed would only complicate the talks." [Utusan Malaysia, 12th October 2002]

Foreign Minister Syed Hamid was reported to have commented on Press Secretary to PM Goh's clarification on 8th October 2002:

"We think our comprehension of the language (sic English) is very reasonable (but) every time we come to an understanding, they later deny it." [New Straits Times, 14th October 2002]

These statements have impugned PM Goh's integrity and imply that PM Goh was not telling the truth about what transpired during his meeting with PM Mahathir. Singapore's leaders stand by their words. It is in our fundamental interest to preserve our credibility. The Malaysians also alleged that the package was discontinued because Singapore always wanted to discuss the water issue only, as can be seen from the quotes that I read out. It was Malaysia that unilaterally discontinued the package. And it was Malaysia that wanted to discuss only water. Senior Officials' Meeting in Johor Baru from 16-17th October 2002

Although PM Mahathir's letter announcing the discontinuation of the package came just days before the Senior Officials' meeting of 16-17th October in Johor Baru on the water issue, our officials still attended that meeting in good faith. We were prepared to discuss all aspects of the water issue.

However, at the Johor Baru meeting, Malaysia was only prepared to engage in discussions on the price review of current water, as evident from the wording of their agenda and the banner. They amended these only after we protested and stressed that the discussions should also be on treated water and the future supply of water to Singapore.

Malaysia presented the same pricing formula for current water as at the Second Ministerial Meeting, namely, the price of raw water today as the average cost of desalinated water and NEWater less the treatment cost in Johor. We took the position that Malaysia had lost the right of review, and even if Singapore was willing to consider such a review, it would have to be based on the express provisions or factors listed in the review clauses. The Malaysians again could not justify their pricing formula for current water under the review clauses in the existing Water Agreements.

We reminded them that the provisions in the Water Agreements allow for a price review using the rise and fall in the purchasing power of money and the rise and fall in the cost of labour, power and materials for the purpose of supplying the water, and there are no provisions for retrospective payments. Since PUB incurs all these costs, the only relevant factor is the change in the purchasing power of money. Using the Malaysian Consumer Price Index (MCPI), we calculated that the revised price of raw water would be no more than 12 sen per thousand gallons. But we made it clear to them that the 12 sen was not an offer but a calculation based on the review clauses. The Malaysians asked if we could consider going beyond the figure of 12 sen. They pointed out that Singapore had previously offered 45 sen. We said Singapore could not go beyond the review clauses and we had no leeway to make any concessions because the package is off due to PM Mahathir's letter of 7th October 2002.

On treated water, we informed the Malaysians that if we applied the MCPI to the review of price of treated water, we would get a figure around RM2 per thousand gallons. Again, we made it clear that this was not an offer. It was our calculation going by the terms of the review clauses.

On future water, ie, post-2061, the Malaysians actually were not interested or serious in wanting to have any detailed discussions. They continued to take the position that both sides could discuss the issue two years before the expiry of the 1962 Agreement. We stressed that this was not a realistic proposal. Our position is that current water and future water are linked and we cannot discuss price review of current water now and future water only in 2059. It is difficult for Singapore to agree to Malaysia's proposal because we need to plan our long-term needs well in advance. Singapore would need to work out in detail the complex issues involved in regard to a future water agreement, including water demand management, capacity building and technological advances.

Price Review

Ms Irene Ng has asked questions specifically on the review clauses in the Water Agreements. She wants to know whether Malaysia has any legal basis to ask for this price review after failing to do so in 1986 and 1987, and if they have any legal basis also to backdate such price revision; and if not, she asks why is Singapore prepared to consider a price review now.

My answer is that we have been advised that they do not have a legal basis. I do not want to go into all the legal arguments here. But let me say that we have taken legal advice. That is why we maintain that they have lost the legal right. And even if they have the right to review the water price now, there is no legal basis in the Agreements to backdate it. We also added that if there were to be any review, it must logically also cover treated water.

If they have no legal basis, Ms Irene Ng asks: why are we prepared to discuss it? Well, Sir, the answer to that question is that they have said it is important to them. We said: alright, we understand that it is important to you and we are prepared to discuss as part of the package but not as your legal entitlement. In the same way as we do not have a legal right to insist on airspace rights and we do not have a legal right to ask for water supply after the expiry of the 1961 and 1962 Water Agreements when they expire in 2011 and 2061. But let us, nevertheless, take the approach of trying to accommodate each other's concerns as best as we can for reaching a mutually beneficial agreement.

Our position on price review is clear. Malaysia has lost its right of review. If Malaysia claims that it has the right now to invoke the review clauses, we will contest it.

Concluding Remarks

Mr Speaker, Sir, from what I have said, Members can see that there have been many twists and turns in our negotiations with Malaysia. If I may sum up:

First, both Prime Ministers agreed on the package approach in 1998 to resolve the outstanding issues, including the long-term supply of water, CPF, POA, CIQ and airspace.

Later, the Malaysians wanted to include the bridge to replace the Causeway.

When we said we are prepared to spend several hundred millions to build our part of the bridge as part of the package, they said the bridge is no longer part of the package.

In 2000, they said price revision of water under the current agreement (which was never part of the original package agreed by PM) should be included in the package. In February 2001, Malaysia had informed us that "Johor believes that a fair price would be 60 sen". We had then counter-proposed 45 sen for current water and 60 sen for future water. An in-principle agreement was reached on this in September 2001.

But in its letter of 4th March 2002, Malaysia changed its position and tabled new proposals, including raising the price of current raw water to RM3. This meant that they rejected our 45 sen offer. Consequently it was no longer on the table. We have told them so.

Now the Malaysians wanted water to be taken out of the package.

Finally, six days before the Senior Officials' Meeting, we received PM Mahathir's letter stating that the "package is discontinued."

Then at the Johor Baru meeting (16-17th October 2002), Malaysia went further to take the position that the water issue involves only the price revision of current water and that, as far as future water is concerned, we can discuss this two years before it expires in 2061.

So, at present, Mr Speaker, because Malaysia has unilaterally called off the package, the concessions which Singapore was prepared to offer, for example, on the POA, the bridge, the CPF, are off and each issue has to be discussed and agreed on its stand-alone merits.

In the meantime, the usual barrage of accusations, allegations as well as threats continue to be hurled at us. This includes the threat last week that they can enact a new law to render the Water Agreements null and void. As usual, we are also accused of being "insincere", and that we are told to be "sincere" by accepting their demands. As I have repeatedly said in this House, we should take the Malaysian criticisms and attacks against us in our stride. There is no need to over-react to these pressures and efforts to intimidate us. We will continue to state the facts and stand our ground, in a quiet but serious manner.

Sir, I think it is a pity that they have taken matters to this point. We have expended a great deal of time and effort in trying to reach a win-win solution for both sides. Since December 1998 when PM Goh agreed, at the request of PM Mahathir, that the outstanding issues be discussed as a package, we have had three Senior Officials' Meetings in 1999, and two Ministerial Meetings this year. Senior Minister had visited KL twice (August 2000 and September 2001) to see how to move the package forward.

In closing, let me say that the sooner we can put these issues behind us the better. As PM Goh told PM Mahathir on 8th October 2002, Malaysia and Singapore really face very serious problems in the region posed by terrorism. It is in the interest of both countries to settle these bilateral issues so that we can deal with the real threats and problems that confront us in the region.