Managing Risks In Transboundary Water Supply: Hong Kong vs Singapore

By Chenlin Zhao 19 March, 2020

Zhao from the City University of HK examines why Hong Kong's water supply deal is not as secure as Singapore's

Dongshen Water Supply Project provides 70-80% HK's fresh water consumption, yet HK cannot purchase from Guangdong due to a jurisdiction issue & relies on Guangdong Holdings as a medium
This commercial agreement led to a HKD2.8bn financial deficit from 2006-12 due to underuse, yet HK is in a weak negotiating position with Guangdong as the water rights does not lie with HK
With Singapore-Malaysia, the UN-filed water agreement is protected by international law, giving SG more power in negotiations; can HK learn from this given rising water competitiion in the GBA?

After World War II, Hong Kong’s rising population and dramatic economic development has resulted in a significant challenge to the supply of freshwater. Since then, water policy has long been a top priority for Hong Kong’s administrators.

For most of Hong Kong’s British colonial era, water reserves heavily depended on the skies; the catchment zones and reservoirs built for collecting rainfall served as Hong Kong’s most basic safeguard for water security. It was not until the 1960s that the British colonial government began to purchase water from Guangdong. These purchases, along with the construction of the Dongshen Water Supply Project (DWSP), have largely alleviated water shortages.

DWSP is not a simple commercial transaction of natural resources; it has generally been perceived as a typical model of cross-border collaboration under the constitutional principle of “One Country, Two Systems” since the handover.

Until 2018, DWSP has cumulatively supplied 23.7 billion cubic meters of water to Hong Kong, which amounts to 70 to 80 percent of the freshwater consumption of the city. However, over-reliance on transboundary water supply may risk the sustainability and development of the city. This article compares the impact of water rights on the cross-border water supply in Hong Kong and Singapore and outlines a feasible recommendation for Hong Kong to avoid long-term water risk.

Water Rights and Fiscal Inefficiency

Water rights management systems vary around the globe due to different water resource conditions, management systems, laws, and regulations.

China has a relatively complicated water rights system, and these rights are assigned in three ways: the state takes ownership of water; local governments are given the right to manage water; individual enterprises may obtain the permit from local governmental agency to draw water. Under the principle of hierarchical watershed management, China has carried out pilot projects centered on licensed water rights (許可水權) for the distribution of initial water rights in river basins.

HK does not have the right to directly purchase water from Guangdong…

…it needs GD Holdings (a state-owned company) as a medium to solve the legitimacy deficit

Hong Kong does not have the right to directly purchase water from Guangdong because the city neither locates in the basin of Dong Jiang (River) nor a typical local government under the Chinese jurisdiction that legally as a subject of being award water rights. To solve this legitimacy deficit, the provincial government of Guangdong licensed the exclusive water rights to Guangdong Holdings Limited (GD Holdings), a state-owned company under the supervision of the Guangdong State-owned Assets Supervision and Administration Commission (廣東省國有資監督管理委員會). The initial purpose of this administrative licensing was to assure the quality and security of the water supply to Hong Kong, but it has unintentionally reduced Hong Kong’s power in the negotiation with Guangdong.

The 1989 Water Supply Agreement’s water provision overestimated the increase of water consumption of Hong Kong, which made the city continually paying for more water than it actually uses. This problem was put on hold until a solution was proposed in the 2006 Water Supply Agreement, which incorporated a regulated distribution scheme based on Hong Kong’s daily water consumption, which reduced the waste of resources generated by excess water supply.

Despite improvement in the 2016 agreement, the “package deal lump sum” approach still resulted in a financial deficit of HKD2.8bn to HK

However, such water-saving measures have not fundamentally resolved the waste of financial resources in the water purchase agreement. Under the “package deal lump sum” approach, Hong Kong is still required to make a lump-sum payment for securing its annual allotment regardless of how much water the city actually imports. Specifically, from 2006 to 2012, the agreement permitted Hong Kong a quota of 5.74 billion cubic meters of water, but the actual amount of importation was only about 4.9 billion cubic meters. Such a difference in water usage results in a financial deficit of HKD2.8 billion to Hong Kong.

HK is in a weak negotiating position with Guangdong because the water rights are controlled by the project carrier, GD Holdings…

…this executive-led, commercial contract led to HK’s unprotected water rights

Hong Kong is incapable of changing the weak position in the negotiation with Guangdong because the water rights are controlled by the project carrier, GD Holdings, not HK directly. The administrative license from the government of Guangdong only permits GD Holdings the right to intake water for a limited period of 30 years, which does not equal the full property rights of owning the water in Dongjiang. The commercial contract stands with no transaction of the water rights from GD Holdings to Hong Kong because it may violate the Water Law in China.

Thus, the executive-led, commercial contract led to Hong Kong’s unprotected water rights, and it can be argued that the transboundary water supply project for Hong Kong is entirely a seller’s market dominated by Guangdong.

The Singaporean Experience

Singapore holds a much more aggressive attitude in dealing with the water disputes with the upstream state than Hong Kong.

Singapore and Malaysia have signed four agreements regarding the supply of water from across the Causeway. The first signed in 1927 is no longer in force. According to Singapore Infopedia, the water imported from Malaysia under the other three agreements – signed in 1961, 1962 and 1990 – meets about half of Singapore’s water demand. From 1998 to 2003, the two parties were engaged in a series of difficult negotiations over the water price Malaysia received for the water sold to Singapore. Malaysia claimed the price was set in the early 1960s, and therefore it should be adjusted to match with the updated price.

Singapore is much more aggresive: arguing that Malaysia cannot breach or change water agreements without questioning Singapore’s independence

However, the critical issue for Singapore in the negotiation is not how much to pay, but more importantly, how any price revision arrives at the conversation. Singapore argued that Malaysia is not qualified to propose any changes to the water agreements because the Separation Agreement signed between Singapore and Malaysia states that the validity of these water agreements is predicated on Singapore’s independence and existence.

Speaking of this in mind, former Singapore Prime Minister Goh Chok Tong once commented that there is no room to raise any conversations about this topic because “any breach of the water agreements would also call into question the separation agreement and undermine our very existence”. The government of Singapore described the two water agreements as “legal-binding documents” and should be enacted in every condition.

UN filed these bilateral water agreements as the treaties agreed by sovereign states, & thus they are not commercial contracts

In the second point, the United Nations filed these bilateral water agreements as the treaties agreed by sovereign states, and thus they are not commercial contracts. This feature makes the water agreements lay in the jurisdiction of the international law for disputes resolution. Per the Vienna Convention on the Law of Treaties, the validity of international treaties should be respected and protected in the spirit of the rule of law, and the International Court of Justice is the recommended judicial organ responsible for settling disputes submitted by states.

Water Risks for Hong Kong in the Future

Although receiving cheap water from Johor is convenient and constitutionally guaranteed for 100 years, water security has long been a top priority for Singapore as it is a critical issue to the national security of the state.

In practice, the national water agency PUB, under the guidance from the Ministry of the Environment and Water Resources, is responsible for the collection, production, distribution, and reclamation of water in Singapore. The agency is in charge of implementing the ‘Four National Taps’ strategy to diversify the water supply, which includes water from the local catchment, imported water, highly-purified reclaimed water known as NEWater, and desalinated water.

SG plans to use NEWater & desalination to supply 85% of domestic demand

When the 1962 Water Agreement expires in 2061, the country plans to reduce its water dependence by using NEWater and desalination to supply 85% of Singapore’s water demand.

In the coming years, development in the GBA may mean increased water needs…

…e.g. in 2012, Shenzhen exceeded its annual water quota by >300mn m3

The uncertainty of the water supply via DWSP should be regarded as a top risk to the water security of Hong Kong because the economic development along the Dongjiang Basin may boost regional water consumption. In the coming years, the economic and social development in the Greater Bay Area may increase the water needs in support of the livelihood and economic activities in Guangdong. In 2012, the actual water consumption in Shenzhen and Heyuan had already exceeded their annual quota; Shenzhen exceeded by 300+ million cubic meters.

The increasing competition for water access in the region may increasingly threaten Hong Kong’s water security. Instead of joining the regional competition, the Hong Kong government should imitate the Singaporean model to develop a long-term water development plan to achieve self-sufficiency in the water supply at a point of time in the future.

Further Reading

  • Hong Kong’s Pricey Water Deal With China – Much is made of the DongShen Agreement’s price tag but discussions need to move onto more complex issues such as the city’s rampant overuse & leakage. Hear from Civic Exchange on HK’s ‘illusion of plenty’
  • Map to HK & Guangdong Water Governance – Amongst rising concerns over the supply of Hong Kong’s principal water source, the Dong River, Kris Hartley proposes a new collaboration framework for HK-Guangdong water governance
  • Hot, Thirsty, Sweaty & Wet: HK’s Future Down The Drain? – China Water Risk’s Woody Chan & Debra Tan look beyond current tensions and see very real threats to Hong Kong’s future from climate change. Get ready for a hot, thirsty, sweaty & wet future
  • Thirsty And Underwater: Rising Risks In Greater Bay Area – How will water & climate risks, including rising sea levels & droughts, threaten the already water-stressed Greater Bay Area (GBA)? CWR’s Tan & Mirando explain in their latest CLSA report and highlight companies’ failure in climate risk disclosures
  • Learning From Singapore’s Circular Water Economy – Hong Kong is facing an imminent water crisis yet Singapore’s novel circular water economy approach may offer solutions from which HK can learn. Utrecht University’s Julian Kirchherr & Circular Economy Academy’s Ralf van Santen explore

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Chenlin Zhao
Author: Chenlin Zhao
Mr. ZHAO Chenlin is a Ph.D. Candidate in the Department of Public Policy, City University of Hong Kong. His current research develops qualitative and quantitative approaches that assessing the impacts of procedural and institutional arrangements on collaborative governance. His research interests cover the infrastructure project management in the Belt and Road Initiative, the collaboration and integration of the Guangdong – Hong Kong – Macau Greater Bay Area, and the development of the political institutions in Asia and North America. Before started his PhD study, Chenlin received a B.A in Political Economy from the University of California, Berkeley, and an MPA from City University of Hong Kong. From 2011 to 2013, Mr. ZHAO was a member of the advisory team to re-election campaign of the mayor of Cupertino, and the founding vice-president of the Finance and Entrepreneurship Club in Berkeley. Then, he came to Hong Kong and served as a senior research assistant to the government-funded research project, “Institutional Development and Budgetary Decision Making – the Case of Hong Kong”. His research on collaborative governance was awarded the honor of “Outstanding Research Paper” by the Journal of Public Administration in early 2019. 
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