State of Bilateral Relationship with Malaysia After Last Election

1 Mr Christopher de Souza asked the Minister for Foreign Affairs what is the state of our bilateral relationship with Malaysia and how will Singapore continue a collaborative and mutually beneficial relationship between the two countries.

The Minister for Foreign Affairs (Dr Vivian Balakrishnan): Mr Speaker, Malaysia will always remain our closest neighbour. This is a geographical fact. Our long-term relationship will always be bound by the ties of kinship, culture, history and economic interdependence. Following Malaysia's 14th General Election (GE14) on 9 May 2018, the country's ruling coalition changed. We will, of course, work with the elected government of the day. A stable and prosperous Malaysia is good for Singapore and for our region. We have generally enjoyed a positive and constructive relationship with successive Malaysian governments and leaders, and we believe there is still much for us to achieve together.

There has been a high tempo of bilateral exchanges since GE14 in Malaysia. Prime Minister Lee and I visited Malaysia on 19 May 2018. We had a good meeting with Prime Minister Dr Mahathir Mohamad. Dr Mahathir updated us on his immediate domestic preoccupations. Prime Minister Lee emphasised that Singapore wanted to continue cooperating with Malaysia for mutual benefit and that we hoped to keep up our bilateral exchanges, including the annual Leaders’ Retreat.

We have also invited the new Malaysian leaders to visit Singapore. Several of their Ministers have visited Singapore recently, including Defence Minister Mohamad Sabu who was here for the Shangri-La Dialogue in June 2018, the Communications and Multimedia Minister Gobind Singh Deo for the Smart Nation conference on 7 June 2018, and Housing and Local Government Minister Zuraida Kamaruddin who made a working visit earlier this month. I look forward to welcoming my counterpart Foreign Minister Saifuddin Abdullah at the end of this month for the Association of Southeast Asian Nations (ASEAN) Ministerial Meetings.

But Members may have heard or read various reports on the new Malaysian government’s investigations into the 1Malaysia Development Berhad (1MDB)-linked financial flows, Members may have heard of their intentions to cancel or postpone the Kuala Lumpur-Singapore High Speed Rail (HSR) Project, and some Members would also have heard – in fact, I think all of us would have heard – of their expressions to revise the price of water sold to Singapore under the 1962 Water Agreement. I think it is quite appropriate that Members of this House, citizens of Singapore, would be wondering about these issues, and wondering, as Mr Christopher de Souza has said, how they will affect our bilateral ties.

Before I address these specific issues, I want to highlight three fundamental principles of Singapore’s foreign policy that are especially salient for our relationship with Malaysia.

First, upholding international law and respecting the sanctity of international agreements. This is a critical principle for a small state like Singapore. Our very existence as a sovereign independent state is derived from the Separation Agreement of 1965. International agreements, solemnly entered into by countries, are sacrosanct and underpin relationships between sovereign states. They make it possible for countries to co-exist peacefully, build trust and work together for the long-term good of our citizens, regardless of changes of governments or circumstances. The alternative, in which countries can unilaterally revise or abandon terms of agreements, is manifestly a recipe for disaster.

The second principle is that any disputes – here, I must add – in the nature of all relationships, from time to time, disputes will arise, but the principle is that these disputes, if and when they arise, should be resolved in accordance with international law. The recent Pedra Branca cases are illustrative of this principle. The previous Malaysian government had requested the International Court of Justice (ICJ) to revise its original 2008 judgment, and separately to interpret the 2008 ICJ judgment. On the Singapore side, we were confident of the correctness of the original 2008 ICJ judgment, and we were confident of our case. We were fully prepared to argue our case at the ICJ. However, the new Malaysian government requested to discontinue their applications to the ICJ. We agreed. The key point is that both sides followed due legal processes, handled this issue in accordance with international law, and put the matter to rest amicably, as it should be.

The third principle is that we must uphold Singapore's reputation as a credible, trusted and consistent partner, a country that abides fully by our international obligations. This reputation for Singapore, developed over decades, is crucial for our political and economic space, is crucial for Singapore and Singaporeans, and all the more crucial because we are an international financial centre.

These are three fundamental principles that undergird the way we conduct diplomacy and the way we deal with foreign policy issues as and when they arise.

With these in mind, let me turn to the three current specific bilateral issues.

First, 1MDB. Malaysia’s investigations into this issue have intensified following their general election. Members will recall that Singapore has, in fact, been thoroughly investigating 1MDB-related offences that were committed in Singapore since 2015. We have taken firm action against both institutions and individuals who have broken our laws, including pursuing criminal prosecutions. We have shut down two banks and levied fines on other banks for regulatory breaches, and we have jailed and fined individuals who have been convicted on 1MDB-related charges. So far, we are the only jurisdiction in the world to have done so.

We have, in addition, cooperated fully with Malaysia’s official requests for information on 1MDB-related transactions. We received numerous requests for information from Malaysian authorities between March 2015 and August 2016. We responded to each and every single request fully. We have also proactively provided the Malaysian authorities with additional information on 1MDB-related fund flows on multiple occasions. In total, we provided 1MDB-related information in over 30 exchanges with Malaysia during the period, as was, indeed, acknowledged by Malaysia. Further, since the change of government in Malaysia, over the past few months, Singaporean and Malaysian agencies have met on several occasions on 1MDB matters. In fact, the Malaysian authorities have expressed appreciation to Singapore for our cooperation.

We took these investigations and enforcement and regulatory actions not for political calculations, but because it is in our own enlightened national interest to reaffirm and protect Singapore's reputation as a clean, transparent and trusted international financial centre. We do not tolerate the misuse of our financial system as a refuge or conduit for illicit funds. We will continue to assist the Malaysian government in its own investigations. We have also informed the Malaysian government that it can avail itself of due legal processes through our Courts to establish ownership and recover any assets seized in Singapore that can be traced to 1MDB.

Second, the HSR. Members have asked several questions on this, and the Minister for Transport, Minister for National Development and Minister for Finance will all address them in detail. But here, I just want to emphasise that the crux of the issue is the sanctity of international law and agreements. I am heartened to note Malaysian Finance Minister Lim Guan Eng's comments on another project that his Ministry had undertaken with a foreign commercial party. He said that should the foreign commercial party not adhere to the terms of the agreement within the specified period, his Ministry would be entitled to take certain actions. To quote Mr Lim: "I think we should look at the agreement. We are bound by the agreement". So, the point is, Minister Lim Guan Eng, himself, recognises the importance of maintaining the sanctity of agreements.

When Malaysia proposed the HSR in 2013, Singapore studied the proposal carefully, all the more so because of its very large financial commitments. Subsequently, after due diligence and study, we agreed to pursue the HSR because we were convinced of its benefits to Singapore and Singaporeans. We signed the legally binding HSR Bilateral Agreement in 2016 in good faith, after both sides had carefully, painstakingly, meticulously negotiated and agreed to all the provisions, including those pertaining to the implementation of the project, as well as those dealing with the eventuality that the project is terminated.

In recent weeks, however, Members would have seen a range of news reports and quotes from Malaysian leaders about the Malaysian government’s position on HSR. These include announcements that a “final decision” had been made to terminate the project, subject to discussions with Singapore, and yet other statements that the project has been "postponed" or "deferred".

We have sent the Malaysian government a Third Person Note (TPN) requesting clarification of Malaysia’s position. However, the Malaysian government has not yet replied to our TPN. In the meantime, Singapore is continuing to incur costs on this project as we continue to meet our obligations under the bilateral agreement, whilst awaiting Malaysia’s clarification. We look forward to a prompt official response to our TPN from the Malaysian government. Should Malaysia cause the HSR project to be terminated, we will deal with the question of compensation from Malaysia for costs incurred in accordance with the bilateral agreement and with international law. I am sure Members of this House will agree with me that the Singapore Government has a duty to safeguard public funds by recovering these costs.

This brings me to the third bilateral issue, the price of raw water imported by Singapore from Malaysia under the 1962 Water Agreement, a fundamental agreement. Let me reiterate Singapore’s clear and consistent position. We have stated this publicly many times before, including in this very Chamber, and our position is well-known to everyone, including to Malaysia.

The 1962 Water Agreement is not an ordinary agreement. The 1962 Water Agreement was guaranteed by both Malaysia and Singapore. This guarantee is in the 1965 Separation Agreement, which, in turn, was registered with the United Nations. Any breach of the 1962 Water Agreement would call into question the Separation Agreement, and Members would remember that the Separation Agreement is the basis for Singapore's very existence as an independent sovereign state. Singapore will fully honour the terms of the 1962 Water Agreement, including the price of water that is stipulated in that agreement, and we expect Malaysia to do so.

Members will recall that then-Foreign Minister Prof S Jayakumar and then-Foreign Minister K Shanmugam had stated our position on this issue comprehensively on 25 January 2003 and on 6 March 2014, respectively. Their key points remain as valid today as when they were first articulated. As was stated then, the core issue is "not how much we pay, but how any price revision is decided upon". It is worth reiterating this point. The core issue is "not how much we pay, but how any price revision is decided upon". Neither Malaysia nor Singapore can unilaterally change the terms of agreement between our two countries.

Malaysia lost its right to review the price of water under the 1962 Water Agreement in 1987. Again, this is not a new point. We have made this point publicly on multiple occasions. In fact, Malaysia has previously acknowledged that they themselves chose not to ask for a review in 1987 because they benefited from the pricing arrangement under the 1962 Water Agreement. Johor currently buys treated water from Singapore at 50 Malaysian sen per 1,000 gallons. This price and, in fact, even the volume, are provided for under the 1962 Water Agreement. Members of this House will know that 50 Malaysian sen per 1,000 gallons is a fraction of the true cost of treating the water. Hence, in 2002, then-Prime Minister Dr Mahathir, in his first incarnation, said that Malaysia did not ask for a review when it was due as Malaysia knew that any revision would also affect the price of treated water sold by Singapore to Malaysia.

The then-Johor State Assembly Speaker Zainalabidin Mohd Zain also said, and I quote: "There was no point in [pressing for a review of the water price in 1986] because Johor was dependent on Singapore for its treated water supply, and Singapore would have also increased its price of treated water sold to Johor". The reason why I am taking pains to recite all these to Members is to make the point that Malaysia took a conscious decision not to review the price when they had the opportunity to do so. And this is why, in fact, even to this date, Johor buys more treated water than it is entitled to, strictly under the 1962 Water Agreement. These additional supplies of treated water that we have been selling to Johor, at Johor's request, are sold at the same rate stipulated by the 1962 Water Agreement. This sale is made on a goodwill basis, and without prejudice to our rights under the 1962 Water Agreement.

In addition, if in 1987, Malaysia had exercised the right to review the price of water, Singapore would have made quite different investment decisions on developing the Johor River and its water catchment areas. One example of this is the Linggiu Reservoir.

In 1990, PUB and Johor signed an agreement to construct the Linggiu Dam to increase the yield of the Johor River in order to enable reliable abstraction of PUB's full entitlement of 250 million gallons (mgd) of water per day. Johor owns the Linggiu Dam, but Singapore paid for its construction and continues to pay for its operation. These sums incurred are on top of the RM320 million – S$208 million at 1990 rates – that we paid to Johor in 1990, as compensation for the land used for the Linggiu Reservoir project and for the potential loss of revenue from logging activities, and as a one-time payment for the lease of that land for the remaining tenure of the 1962 Water Agreement.

Mr Speaker, Sir, Singapore and Malaysia will always be closely intertwined and interdependent. We are committed to engaging and cooperating with the new Malaysian government. But we must work with each other on the basis that both sides will fully respect the sanctity of international agreements, and that any disputes will be resolved peacefully in accordance with international law. Provided this condition is met, I am confident that our bilateral relations will prosper, for the mutual benefit of citizens of both countries.