One of the changes announced in the 2017 Singapore budget was that we would be paying a higher tariff if we do not conserve water.
This is especially so for those businesses or household who spends more than 40 cubic meters of water.
The changes can be summarized by the table above.
In the future we won’t have a sanitary appliance fee. The sanitary appliance fee is really stupid if you ask me. Just because you have more installation, you will use more water. This is certainly not always the case for households, and I wonder if this is the case for business.
The sanitary appliance fee, will be combined into the Waterbourne fee. Thus, we see the big increase here.
As a consumer, you are never happy to see price increases. This is even so, when they communicate its been ages since we raise the tariff on water.
I managed to take how much my household consume and see what are the changes that I am likely to see:
My usage for a household of 3 is half the average. For the current year, what we might be paying is actually less (-2.98%). However, from 2018 onwards, it will be 11% higher than what we are currently paying.
That is 3 dollars.
What is 3 dollars to me? The difference in spending lavishly on one meal. Eating Western Food versus eating Caipng.
The Effect of Increase Cost of Water
If we review the changes in the budget, it seems rather strange that given the challenging backdrop, one of the key things we remember are increasing the cost of water and…..that you have to pay more for premium bikes.
My thoughts is that whether it is their main aim or not, water is universally used by the population and business.
Doing this will create some form of cost push inflation.
To produce more, you got to need more water. All these increase in cost will funnel into prices of goods and services.
GDP will go up. Which happens to be their KPI for civil service.
Water Plants as a Business
Even before this budget, there was some announcement in the news on increasing our water resources.
The bidding of the fourth desalination plant was awarded in December to Keppel Corp’s infrastructure arm. The plant will be ready in 3 years time in 2020 and Keppel will sign a contract with PUB to supply and operate for 25 years.
Likely this will be a future acquisition for KIT, a rather good yielding infrastructure business trust (about 7% dividend yield) but with a lot of assets on concession.
If you are looking to invest in the companies that design, build and transfer these water plants, they are rather bad business.
A review of Hyflux, Biotreat, Hyflux Water Trust (delisted), and Boustead’s water business have shown that they do not generate good cash flows. They are predominately orderbook business, and yes, you could make money on these business like other orderbook business.
However, from our examination, even if they secure contracts and eventually deliver, you do not see much cash flows earned and they tend to be loss making.
In particular, the water engineering business is something shareholders of Boustead have often made known to their management to disposed off. The probable reason is that, the water engineering business is required for some scale of tender.
Fresh Water may be getting Scarce
To end this off, raising tariff may really be an indication that water as a resource is getting very challenging.
This morning, I listened to an episode on Micheal Covel’s podcast on Trend Following. He brings on both trend following traders, behavioral experts but also entrepreneurs and businessmen who all have very similar symmetry to trend following.
The interview is with Brad Rotter, a venture capitalist. You can listen to it here.
Brad Rotter happens to be one of the earliest investors in the original hedge funds, where the fees are worst than they are now, but when there were true in-efficiency that you could actually make a lot of money (Brad actually said he is out of all hedge funds except 1 because the business have changed).
His latest venture is on providing water desalination plants that floats in the sea. There is a problem in providing fresh water, as most of the world is still depending on water drawn from the ground. However, there are signs that due to us drawing water from the ground, it has resulted in the ground collapsing inwards.
The technology for desalination, or the removal of salt to develop fresh water have improved a lot, but the traditional way, which is to develop desalination plants inland, or at the shore, have environmental problems and irked environmentalist.
Their solution is to develop the plants like aircraft career that floats in the sea, and somewhat it becomes portable. They cost much less than it takes to build them inland. Brad cites the case study of an Australian desalination plant that cost 6 billion to build, but was never turned on (because before it could turned on, that area suddenly kept raining). I did some digging and he could be talking about this.
In July 2016, it is reported that Singapore have to suddenly supply water back to Johor, due to the pollution of Johor river. Singapore have 4 taps to tap upon: their own catchment area, imported water, NEWATER, and desalination.
However, imported water from Malaysia still make up 40% of our needs. And NEWATER and desalination requires energy. However, Singapore aims to be self sufficient somewhere in 2060. Improvements in technology can make this possible.
The disruptions in Malaysia, both politically and their rising water demand, not to mention falling rainfall, means that Singapore cannot just focus on increasing the water usage, but there is a need to optimize it.
Hence, the official explanation for the water hike.
The narrative from experts suggested that if we need to create a bigger deterrent of water wastage, the hike should be much more drastic.
At this point, we can only guess whether the reason for putting in place this is to create some form of inflation , so as to push some growth. This is not the only cost based inflation measure that they did. However, what if water shortage is really on our horizon?