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

Penang state exco Zairil Khir Johari said there were risks such as delayed or insufficient water tariff adjustments and rising electricity and chemical costs identified in a due diligence review of the project. — Bernama pic

By Opalyn Mok

First Published: Friday, 30 Oct 2026 11:58 AM MYT

GEORGE TOWN, Oct 30 — Penang state exco Zairil Khir Johari told the state legislative assembly that there were risks identified in the Perak-Penang water project such as insufficient tariff adjustments, rising costs and supply disruptions but buying treated water from Perak was still more economical and practical than large-scale seawater desalination.

The state infrastructure and transport committee chairman said there were risks such as delayed or insufficient water tariff adjustments and rising electricity and chemical costs identified in a due diligence review of the project.

In comparison to seawater desalination, he said desalination process requires not only substantial capital expenditure but also operating expenditure.

“The highest cost of desalination is its operating expenditure, as the process requires a great deal of electricity to remove salt from seawater,” he said.

Zairil said there are clauses in the Perak-Penang water project agreement to ensure there are specific exit provisions or mitigation measures to address certain risks.

He was replying to a question by Machang Bubuk assemblyman Lee Khai Loon, who asked about the main risks identified in the due diligence report, including stress tests on water demand and the Penang Water Supply Corporation’s (PBAPP) financial capacity.

Lee said he supported efforts to secure Penang’s water supply, but raised concerns about the state’s financial security under the 40-year agreement, which he said involved capacity charges of around RM210 million a year.

He asked whether a summary of the due diligence report could be presented to the state assembly members before approvals were finalised and asked for details of any penalties associated with terminating the agreement.

Zairil said any detailed disclosure would require the Perak state government’s consent because the agreement was between two government-owned companies and was considered a government-to-government arrangement.

He said the conditional bulk water supply agreement was signed on July 15 between PBAPP and Prasarana Air dan Irigasi Perak Sdn Bhd (PAIP) for the purchase of at least 300 million litres of treated water daily from 2032 to 2072.

However, he said the agreement is still subjected o approval by the National Water Services Commission (SPAN) and shareholders of PBAPP’s parent company, PBA Holdings Berhad.

“An extraordinary general meeting for shareholders’ approval would be held next month,” he said.

He said PAIP would bear the estimated RM8.4 billion cost of infrastructure development, including construction, operation, maintenance and land acquisition.

The project is intended to provide Penang with a second water source and reduce its dependence on Sungai Muda.

He said the state’s water demand is projected to exceed 1,162 million litres per day by 2032.

“Penang had limited options for new raw water sources after 2030, when projects to maximise the state’s available surface water were expected to be completed,” he said.

The cost to consumers from the Perak water project had yet to be finalised and would depend on several factors, including future tariff rates, he added.

“Implementing this water supply project from Sungai Perak does not automatically mean that water tariffs will increase,” he said.

Any proposed tariff adjustment would require SPAN’s approval before being brought to the federal Cabinet, he explained.

 Zairil also listed circumstances under which the agreement could lapse or be terminated, including failure to meet its conditions precedent, supplier default, insolvency and prolonged supply disruption followed by unsuccessful renegotiation.

He said if the conditions for supply were not met by January 1, 2035, PBAPP could agree to an extension or allow the agreement to lapse.

In another clause, he said conditional termination is available if the parties fail to agree on a rate review before the 22nd contract year.

“This would include payment of the net present value of the remaining capacity charges and any outstanding amounts,” he said.