Penang exco defends RM8.4b Perak water deal, says charge covers dedicated plant over 40 years

Penang's state government has defended a RM8.4 billion capacity charge under its conditional water supply agreement with Perak, stating that the payment covers a treatment plant dedicated to Penang and spans over 40 years. Penang Infrastructure, Transport and Digital Committee chairman Zairil Khir Johari explained that the charge represents a deferred payment for constructing and financing the plant, which would solely supply treated water to Penang.

The plant costs RM3 billion to build, and including 40-year financing and refurbishment costs, the total comes to RM8.4 billion. This agreement, a government-to-government deal between Penang Bulk Water Supply Authority (PBAPP) and Perak's water agency, aims to ensure Penang's future water security by providing between 300 and 500 million liters a day for the next 40 years.

Perak is solely responsible for the plant's construction, financing risks, maintenance, and upgrades throughout the agreement. Penang receives no upfront payment or capital contribution, instead repaying the plant cost through an annual capacity charge spread over 40 years to make it more affordable. The charge ensures Penang's plant capacity is reserved, covering construction and financing costs, and is separate from the supply charge, which only applies to delivered water.

Zairil emphasized that building a desalination plant would cost more than the BWSA arrangement, with internal estimates placing the capital and lifecycle cost of a 300 MLD desalination plant above RM25 billion over a 20-year lifespan. The agreement protects Penang's water supply, with 16.2 billion out of the 24.6 billion in total payments being supply charges for the water itself.

In case of water shortages, Penang only pays supply charges on delivered water that meets the pre-agreed quality, and PAIP must pay liquidated damages for any shortfall.