Speech by Mr Raymond Lim, Minister for Prime Minister's Office, 2nd Minister for Finance and Foreign Affairs, at The Ulu Pandan Newater Factory Foundation Laying Ceremony, 12 July 2005

Dr Yaacob Ibrahim, Minister for the Environment and Water Resources,

Mr Lim Chee Onn, Executive Chairman, Keppel Corporation,

Mr Tan Yong Soon, Permanent Secretary, Ministry of the Environment and Water Resources

Mr Tan Gee Paw, Chairman, PUB,

Distinguished guests,

Ladies and gentlemen,

Introduction

1. I am pleased to be here with all of you today at the foundation laying ceremony for the Ulu Pandan NEWater Factory.

2. Today's ceremony marks an important chapter in the history of NEWater. When completed in 2006, the Ulu Pandan NEWater Factory will be the fourth and largest NEWater factory in Singapore, supplying more than half of the total NEWater supply for Singapore's use.

3. NEWater is one of Singapore's Four National Taps, together with local catchment water, imported water and desalinated water. This third National Tap is currently supplying NEWater to commercial and industrial users located in Bedok, Tampines, Woodlands, Serangoon and Ang Mo Kio for direct non-potable use. With the completion of the Ulu Pandan NEWater factory, PUB will be supplying NEWater and Industrial Water to industries in Jurong, Tuas and Jurong Island. The Ulu Pandan NEWater Factory will also supply NEWater for air-con cooling to the commercial buildings in the Central Business District.

4. Our Four National Taps Strategy has ensured a diversified and sustainable supply of water for Singapore. However, ensuring ample supply is just part of the water sustainability story. Another important component of water sustainability is keeping the cost of water affordable. By expanding the production capacity of NEWater and leveraging on the experience acquired from operating NEWater factories at Bedok, Kranji and Seletar, PUB has been able to bring down the cost of NEWater production through economies of scale, productivity gains, and more competitive membrane technologies. To pass on these cost savings to customers, PUB has lowered the price of NEWater to all existing NEWater customers supplied by the Bedok, Seletar and Kranji factories from $ 1.30 per cubic metre to $1.15 per cubic metre since the beginning of this year.

5. Today's ceremony is also very special because it demonstrates the beginning of yet another constructive working partnership between the public and private sectors. While the existing NEWater factories in Bedok, Kranji and Seletar are owned and operated by PUB, the Ulu Pandan NEWater Factory will be developed using a Public Private Partnership (PPP) approach.

6. PPPs are long-term contracts where the private sector provides services and facilities to the Government, instead of Government building and operating its own facilities. Under the PPP arrangement, Keppel Integrated Engineering (KIE), the environmental technology and engineering division of Keppel Corporation, will design, build, own and operate the Ulu Pandan NEWater factory. KIE will supply NEWater to PUB for a period of 20 years from 2006 to 2026. With PPP, the Government can focus on acquiring services at the level of quality that it requires and at the most cost-effective basis, rather than directly owning and operating the assets. This will also encourage greater innovation and competition in the private sector, which in this case will help to ensure the sustainability of Singapore's water supply.

7. Why PPP? Fundamentally, PPP is about improving the delivery of public services, both in terms of cost and quality. The PPP approach allows closer partnership between the private and public sector. PPPs represent a new way to work with the private sector, and differ from conventional Government procurement in several ways.

8. Firstly, the private sector is involved in delivering a wider range of services. Let's take this Ulu Pandan NEWater Factory as an example. Under traditional procurement, PUB would have contracted with private sector firms to design and construct the factory. PUB itself would then operate the factory with its own staff. With the PPP, PUB will be able to leverage on the expertise and experience of KIE in the water treatment and recycling industry to not just design and build, but also operate and maintain the factory. PPP therefore creates new business opportunities for the private sector to be involved in delivering services which were previously provided only by the public sector.

9. Secondly, the longer contract period under PPPs allows both the public agency and the private partner to take a long term view when designing, building, and subsequently operating and maintaining the facility. Under PPP, there is a strong incentive for private sector firms that design and build the NEWater factory to also optimise the operating and maintenance costs of the factory. Under traditional procurement, the firms that design and build the facility are not necessarily the ones which will subsequently operate and maintain the facility. Again using the Ulu Pandan Newater Factory as the example, KIE as the provider will design and build the NEWater factory in a manner that will allow the factory to be operated and maintained most economically over the contract life of 20 years.

10. Finally, PPP provides the private sector with greater opportunity to introduce innovative ideas and add value to its service. This is because the Government will specify its service requirements in terms of outputs, such as the quality and quantity of water needed, instead of prescribing the inputs that the private sector should use to deliver a service. In the case of this NEWater plant, KIE thus has the flexibility to innovate and improve on the way NEWater is produced, as long as it satisfies PUB's output requirements. We can expect efficiency gains and a lower cost of production from this NEWater Factory, which will then allow PUB to give further price reductions to NEWater customers when the Ulu Pandan NEWater Factory comes into operation.

11. The differences between PPP and traditional procurement that I have just mentioned can be summarized in a nutshell: PPP allows the project to be subject to a greater degree of market rigors, which gives rise to value-for-money gains. This translates into benefits, in terms of service improvements or cost savings that will be passed on to the public.

12. In short, PPP brings together the expertise of the Government and the private sector to meet the needs of the public effectively and efficiently. The PUB-Keppel partnership is a good example of how we leverage on the synergy gained from marrying the expertise and resources of the public and private sectors to deliver public services in a cost-effective manner. Such collaborations offer the private sector business opportunities and help them to blossom. Through their participation in these contracts, private sector companies can build up their track record. At the same time, it also allows PUB to acquire services cost-effectively with less capital outlay. Over time, this will help Singapore's water industry mature into a more vibrant, innovative and export-oriented service industry.

13. For some members of the public, there may be concerns that the quality of public services may suffer due to PPP. Rest assured that this is not the case. Under PPP, the Government remains accountable for the delivery of the services. The Government will purchase the service on behalf of the public from the private sector PPP provider. The public will continue to obtain the service from the Government. Therefore, for the Ulu Pandan NEWater Factory project, PUB remains accountable for the supply of NEWater. PUB will buy NEWater from KIE on behalf of the public. PUB is working with KIE to ensure that its operations, maintenance and water quality are of the same high standard as that of the other three existing NEWater factories. The Ulu Pandan NEWater Factory will use the same stringent purification and multiple barrier treatment process as the existing three NEWater factories. They will also undergo the same tests and will be audited in the same way as the other NEWater factories.

14. PUB will work with private sector partners to ensure that the quality of water, whether produced by itself or the private sector, is of the same excellent standard that Singaporeans have always been enjoying.

15. With a new approach like PPP, both the public and private sectors will need to learn how to work in partnership together. It is in both parties' mutual interests to ensure that this partnership works. This learning, as in any relationship, will understandably take time to build and develop.

Conclusion

16.Not every Government project can adopt the PPP approach. However, I believe that for those projects for which PPP is feasible, the PPP option should be seriously considered. Since its launch, PPP arrangements have also been adopted in other government contracts. In addition to the Ulu Pandan NEWater Factory, PUB had earlier awarded a contract to Singspring in January 2003 to design, build, own and operate Singapore's first desalination plant in Tuas. Two other PPP projects are also currently in the tender phase: an incineration plant, and TradeXchange, which is a national integrated IT platform for the trade and logistics community. We are also exploring PPP for the Sports Hub and the development of student housing with ancillary facilities by the National University of Singapore (NUS).

17. With greater participation from the private sector, we can expect more competition, innovation and value for money in the delivery of public services.

18. Finally, I would like to extend my best wishes to Keppel Integrated Engineering and PUB on a fruitful partnership and the successful implementation of the Ulu Pandan NEWater Factory.

19. Thank you.