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Cablegate: Macau Water Security: Policies Evolving to Lessen

VZCZCXRO9883
PP RUEHAST RUEHCN RUEHDH RUEHGH RUEHHM RUEHLN RUEHMA RUEHPB RUEHPOD
RUEHSL RUEHTM RUEHTRO
DE RUEHHK #0007/01 0040342
ZNR UUUUU ZZH
P 040342Z JAN 10
FM AMCONSUL HONG KONG
TO RUEHC/SECSTATE WASHDC PRIORITY 9308
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEHZN/ENVIRONMENT SCIENCE AND TECHNOLOGY COLLECTIVE
RUEHBK/AMEMBASSY BANGKOK 1329
RUEAEPA/HQ EPA WASHDC
RHMFIUU/DEPT OF HOMELAND SECURITY WASHINGTON DC

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

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