Penang's interests protected under water supply deal with Perak

GEORGE TOWN: Penang's conditional bulk water pact with Perak fairly distributes multi-billion-ringgit financial risks while securing crucial water reserves, state authorities said.

State Infrastructure Committee chairman Zairil Khir Johari said examining isolated clauses of the conditional Bulk Water Supply Agreement (BWSA) created a false impression of a one-sided deal.

The agreement between Penang Water Supply Corporation (PBAPP) and Prasarana Air dan Irigasi Perak Sdn Bhd (PAIP) aims to supply 300 to 500 million litres of treated water daily (MLD) for at least 40 years.

Zairil said the RM8.4 billion capacity charge over 40 years, averaging RM210 million annually, served as a deferred availability payment for a dedicated 500 MLD plant built entirely for Penang.

"PAIP is responsible for raising the financing and carries the construction risk. PBAPP makes no upfront payment or capital contribution," Zairil said, adding that building a 300 MLD desalination plant as an alternative would cost more than RM25 billion for only half the operational lifespan.

Addressing concerns raised by five dissenting directors on PBA Holdings Bhd's board, Zairil said supply charges, amounting to RM16.2 billion of the overall RM24.6 billion agreement, would only apply to water actually delivered and meeting quality standards.

"Where PAIP delivers less than agreed or fails quality benchmarks, it must pay PBAPP liquidated damages for every short cubic metre," he said.

He said that exceptions, such as Perak's "state interest clause", mirrored standard petroleum production-sharing contracts to safeguard the host state's reserves during severe crises.

Prolonged supply interruptions exceeding three months would trigger mandatory renegotiations rather than immediate liabilities, while PBAPP retained the right to terminate the agreement and claim damages if breaches remained unrectified.

Signed on July 17, 2026, with PAIP under the North Perak Water Supply Scheme (NPWSS), the 40-year agreement, which runs from 2032 to 2072, includes stringent early termination clauses.