MACAU WATER SECURITY: POLICIES EVOLVING TO LESSEN

UNCLAS SECTION 01 OF 03 HONG KONG 000007 SENSITIVE SIPDIS DEPT FOR EAP/CM, EAP/EP:MACFARLANE, OES/PCI:MIRZA, OES/EGC, OES/ENV:SALZBERG E.O. 12958: N/A TAGS: CM ECON ENRG HK PBTS SENV SOCI TPHY KGHG SUBJECT: MACAU WATER SECURITY: POLICIES EVOLVING TO LESSEN DEPENDENCE ON CHINA ¶1. (SBU) SUMMARY: Macau's over-reliance on the Mainland for its water supply has prompted the Special Administrative Region to adopt measures to secure long-term supplies with the aim of gaining greater autonomy over its water policy. These include conservation programs, tariffs, and new infrastructure projects. While the long-term need is real, current measures have been introduced partly out of political necessity to head off concerns in drought-stricken southern China that Macau is playing its part. Macau's recent establishment of a Working Group to coordinate policy with the Mainland, a new 15-year water plan, and several proposed infrastructure projects, however, mark a good start toward greater water independence and shared decision-making. END SUMMARY Macau Completely Dependent on Guangdong Water -------------- ¶2. (U) The severe drought in southern China has highlighted Macau's over-dependence on the Mainland for its water supplies. According to Macau officials, 95 percent of its water comes from Zhuhai in Guangdong at the rate of 185,000 cubic meters a day, most of which is from the Xijiang's (West River) Modaomen estuary. In late October, Macau media reported that Zhuhai's reservoirs had only 12 million cubic meters of water, the lowest level in 10 years. Media issued dire warnings that Macau could run out of water in a matter of weeks. One of the causes for the alarm was that Guangdong's rainfall in 2009 fell to an average of 1,400 millimeters, down around 13 percent compared to previous years. The head of Guangdong's Pearl River Water Resources Committee (PRWC) warned that, due to relatively lower precipitation over the summer months and falling reservoir levels, the Pearl River Delta (PRD) region might face severe water shortages in the winter and spring. ¶3. (U) Although the Pearl River is the third-longest river in China and ranks second in flow volume, its Xijiang tributary is home to intense competition along the Pearl River Basin where urbanization and industrialization continue to expand. This increasing competition for quality water is further impacted by agricultural, municipal, and industrial pollution, as well as flooding and droughts. Nevertheless, supply is not Macau's major worry. Issue is Salinity, Not Supply -------------- ¶4. (U) Macau officials explained that the crucial issue was not supply but the increasing salinity of its potable water. Water salinity occurs when reduced river flows are unable to prevent high tides from the South China Sea from flowing into the mouth of the fresh water river. To ameliorate concerns over salinity and the resulting loss of fresh water, Guangdong's PRWC has assured Macau that there would be no water shortages. They also pointed to pledges from Beijing that the PRWC would release water currently held in upstream dams if necessary. EconOff heard a similar message from senior executives of Macao Water Supply Co. Limited (Macao Water),a private joint venture between French conglomerate Suez Environnement and a subsidiary of Hong Kong-based New World Development Company Limited. Macao Water signed a long-term exclusive supply contract with Macau in 1985 under which Macao Water buys water from Zhuhai, treats it, and then distributes it to Macau. Macau Introduces Water Conservation Initiatives But No Rationing -------------- -------------- ¶5. (SBU) Water salinity has always been a recurring problem for Macau, but in recent years, salt levels have risen above historical norms. Water executives speculated to us that if there was no rain until spring, the situation would become "more difficult." They anticipated that, under such a scenario, Macau would have to reduce water usage by 20 percent through lowering water pressure and rationing, as well as greater use of water-saving devices. This, they noted, was just a starting point as more fundamental changes were needed. For example, Macau officials admitted that a goal of 10-30 percent reduction was a "solid" target but would require dramatic changes in social behavior. While it remains to be seen if dramatic changes will be needed, the public has already responded positively to new water HONG KONG 00000007 002 OF 003 conservation initiatives, such as a water fee rebate program to encourage households to reduce water usage by 10 percent or more. Macau officials, however, were insistent that it was too early to even consider a water rationing plan similar to that of neighboring Zhuhai. Conservation Efforts Are Politically Driven for Show -------------- -------------- ¶6. (SBU) Macau officials shared that their conservation efforts were in large part politically driven, given that Zhuhai would perceive downstream Macau as "wasting water" if it did not implement measures. Macau's water conservation initiatives, although environmentally sound, were mainly announced in reaction to complaints from Zhuhai officials. Our contacts reported Zhuhai was in the midst of mandatory water rationing, including banning all non-essential uses, such as street cleaning and watering of greenery, and forcing industrial, administrative, and service sectors to reduce water use by 20 percent. In addition, Zhuhai has reportedly imposed penalties and even threatened to cut off water to organizations and sectors that did not meet the new limits. ¶7. (SBU) In response, Macau officials have reached out to large enterprises, including casinos and hotels, to begin water conservation efforts, starting with water recycling and water saving devices. However, officials told us, these measures were primarily "for show, to counter perceptions of waste" and that there was no urgent concern over the water supply. The officials hoped that casinos and hotels, as the main points of interaction with tourists from mainland China and Hong Kong, could showcase Macau's conservation efforts to Chinese consumers and counter the perception of a wasteful and extravagant Macau. Water Tariffs Coming Soon -------------- ¶8. (SBU) Macau's lower water costs compared to the rest of Asia present an opportunity for the Macau government to raise tariffs. According to Macao Water, Macau's water tariffs are 4.39MOP (US$0.56) per 100 ml and have not changed since 1997 because of government subsidies, despite a 44.6 percent increase in the cost of water from the Mainland during the same period. In 2008, the average household consumed 174 cubic meters per year, or 14.5 cubic meters per month, at an average cost of MOP 40 (US$5.01) per month. Macau officials told EconOff that they were prepared to introduce financial measures, such as implementing new tariffs and providing economic incentives, to conserve water. As part of a new 15-year plan introduced on November 23, the Macau government intends to introduce varying tariff rates for residential and commercial water usage. Macau officials, however, noted they would not be ready to announce such a tariff change until mid- to late-2010. Macau Wants More Involvement in Decision Making -------------- -- ¶9. (U) Industry observers say Macau and the PRWC need a long-term water management strategy. Macau also needs to be integrated into decisions made upstream in order to effectively manage its own downstream water supply. In December 2008, Macau established the Working Group on the Development of a Water Conservation Society to deal with water issues. Since then, the Working Group has had several formal meetings with its Guangdong counterpart. Macao Water executives, however, want to see Macau more involved in decision-making. They also want a joint PRWC-Macau Working Group to coordinate the release of water from upstream dams. They expressed concern that such an effort was highly complex and required sophisticated mathematical methods to monitor and measure water quality at designated points along the Pearl River. Macau Implementing Counter-Measures, But Long-Term Solution Needed -------------- -------------- ¶10. (U) According to Macau officials, the Macau government and the PRWC were addressing the salinity issue by completing the new 43 million cubic meters Zhuyin reservoir and the Zhuzhoutou pumping station upstream from the Zhuhai border. Both should be operational at the end of 2010. In addition, HONG KONG 00000007 003 OF 003 Datengxia hydroelectric dam was expected to create a three billion cubic meter PRD-wide waterway system by 2015. The PRC's National Development and Reform Committee approved the project at a cost around 25 billion RMB (US$3.66 billion). Macau has calculated that it stands to gain 3-4 percent of the dam's benefits and will contribute 800 million RMB (US$117.16 million) towards the project. ¶11. (U) Macau's new 15-year water plan aims gradually to decrease Macau's dependency on the Mainland by 11 percent from 2008 levels in 2015, by 20.3 percent in 2020, and ultimately 29 percent in 2025. To achieve this, Macau needs new supply channels, such as expanding collection of rainfall and recycling water, as well as new water pricing structures. As a start, Macau recently announced plans to upgrade one of its sewage treatment plants by end of 2011. This plant will produce 4,800 cubic meters of recycled water a day for municipal use, e.g., street cleaning, watering greenery, and eventually for household toilet flushing. Macau also expects to upgrade its other four sewage treatment plants to produce recycled water by 2014. ¶12. (U) In a move for greater autonomy and control over its water supply, the Macau government announced on December 1 the signing of a new 20-year contract with Macao Water under which it, not Macao Water, would buy water directly from mainland China. Macao Water would continue to treat and distribute water but would now have to pay fees to the Macau government for the amount of water supplied. As a result, Macau would be able to make decisions on whether to absorb or pass on water price increases. Although the new contract does not explicitly limit Macao Water's profit, it effectively gives the Macau government control the company's profit margins. ¶13. (U) Lastly, Macau still needs to invest in sea water desalination facilities to secure its long-term water supply. However, because Macau's sea water quality is "muddy" and therefore harder to treat, the water intake port will have to be further offshore, making the project be more expensive. Nonetheless, Macau officials say they are investigating it as part of a long-term option. MARUT