Perak-Penang water deal cheaper than large-scale seawater desalination, says state exco

George Town, October 30 - Penang state exco Zairil Khir Johari revealed during a state legislative assembly session that the Perak-Penang water project presented minimal risks despite its economic viability. Zairil highlighted concerns such as insufficient tariff adjustments, rising costs, and potential supply disruptions, yet emphasized that acquiring treated water from Perak remains more cost-effective and practical than constructing large-scale seawater desalination plants.

A due diligence review identified issues like delayed water tariff adjustments and escalating electricity and chemical expenses, but Zairil assured that the agreement includes exit provisions and mitigation measures to address these risks. He attributed these concerns to the due diligence report, which discussed stress tests on water demand and Penang Water Supply Corporation's (PBAPP) financial capacity.

Lee Khai Loon, a Machang Bubuk assemblyman, expressed support for securing Penang's water supply but voiced concerns over financial security under the 40-year agreement, estimating annual capacity charges of RM210 million. Lee inquired about presenting a summary of the due diligence report to state assembly members prior to final approvals and asked about penalties for terminating the agreement.

Zairil noted that revealing such details would require Perak's consent due to its government-to-government nature. The water supply agreement, signed on July 15, commits PBAPP and Prasarana Air dan Irigasi Perak Sdn Bhd (PAIP) to purchase 300 million liters of treated water daily from 2032 to 2072. PAIP bears the estimated RM8.4 billion infrastructure cost, including construction, operation, maintenance, and land acquisition.

Penang's water demand is projected to surpass 1,162 million liters per day by 2032, making the Perak project a secondary water source. The final consumer cost remains undetermined and depends on future tariff rates. Zairil clarified that tariff adjustments would necessitate SPAN's approval before federal Cabinet consideration. The agreement can be terminated or extended if certain conditions are unmet by January 1, 2035, including failure to meet conditions precedent, supplier default, insolvency, or prolonged supply disruption followed by unsuccessful renegotiation.