SINGAPORE (Reuters) - For over half a century, island-state Singapore has been getting half its fresh water from northern neighbor Malaysia - a deal that could be up for review as the new prime minister in Kuala Lumpur seeks to cut down on the country’s ballooning debt.

FILE PHOTO: Tourists watch a demonstration of how the Marina Barrage dam works at a gallery in the Marina Barrage facility in Singapore May 29, 2013. REUTERS/Edgar Su/File Photo

Singapore was once part of Malaysia but they separated acrimoniously in 1965, clouding diplomatic and economic dealings for years. Relations remain volatile.

In his first few weeks back in office, Malaysian Prime Minister Mahathir Mohamad has put the brakes on projects and cut ministers’ salaries to tackle about 1 trillion ringgit ($249.19 billion) of national debt he blames on past corruption.

Now, he has his guns trained on the price of water sold to Singapore.

“I think it is manifestly ridiculous,” Mahathir said in an interview with Channel NewsAsia published on Monday, referring to the water deal. “That was okay way back in the 1990s or 1930s,” he added, saying he wanted to renegotiate the terms.

Asked about the water issue at a news conference later on Monday, Mahathir brushed it aside saying it “was not pressing”.

Singapore’s foreign ministry said in an e-mailed statement on Monday that “both sides must comply fully with all the provisions of these agreements.”

Tensions between Singapore and Malaysia were high during Mahathir’s previous tenure from 1981 to 2003, and the water row contributed to the difficult ties. Since returning to power in May, the 92-year-old has said he will halt a high-speed rail project linking Kuala Lumpur with Singapore and would develop some offshore rocks that were the subject of a territorial dispute.

Some analysts say Mahathir’s revival of the water dispute could be posturing. Malaysia faces financial penalties from Singapore if it pulls out of the high-speed rail agreement as Mahathir has suggested it will.

“It is not just about money. He (Mahathir) is a very canny statesman,” said Nicholas Fang, director of security and global affairs at think tank the Singapore Institute of International Affairs. “He knows how to put into place different levers that he can then pull to effect certain things.”

BACK AND FORTH

Under a deal penned in 1962, Singapore can import up to 250 million gallons of water from the Johor River every day from Malaysia - around 58 percent of its current daily water needs - at a cost of 0.03 ringgit per 1,000 gallons. It is obliged to sell a small portion of treated water back to Malaysia at preferential rates.

If fully drawn, that imported water would cost Singapore around 2.7 million ringgit ($670,000) annually.

The water agreement was guaranteed by both governments when they separated in 1965, and Singapore has said it equates the sanctity of the deal with its survival as a nation state.

“Every other policy had to bend at the knees for our water survival,” Singapore’s founding father Lee Kuan Yew once said. Lee died in 2015 and his son, Lee Hsien Loong, is the current Singapore prime minister.

Mahathir, who had a famously testy relationship with Lee Kuan Yew, has previously pointed to Hong Kong’s agreement with China as evidence it is getting a raw deal.

Hong Kong paid a fixed sum of HK$4.78 billion ($608 million) to import more than two thirds of its fresh water needs - around 480 million gallons a day - from China last year, official data shows.

However, Singapore says the relatively low price it pays for Malaysian water is because it has to bear the full cost of treating the water as well as building, operating and maintaining the pumps and pipelines from Malaysia.

Malaysia previously asked for a price revision in 2000 and Singapore countered with a request to fix water supply rates beyond 2061.

After a series of exchanges, the talks disbanded with Malaysia saying Singapore was being unreasonable and legalistic.

Singapore blamed Malaysia for the collapse, saying it was looking for a 200-fold increase in current water prices and that it became clear it had “no intention of striking a deal on future water after 2061.”

In 2011, a separate deal for Singapore to draw some water from elsewhere in Malaysia expired.

Singapore has recently been building up its domestic water sources - which include rain catchment and desalination - and pushing water recycling initiatives to become more self-reliant by the time the 2061 deal expires.

But the resurgence of the water dispute with Malaysia comes at an awkward time for the city-state.

Hyflux, a private company which has built desalination plants supplying up to a quarter of Singapore’s water, is in dire financial straits and to keep creditors at bay it is looking to sell its Tuaspring plant in the west of the city-state.

Singapore’s national water agency PUB said it is “monitoring the developments closely and there are measures in place to keep the Tuaspring plant in continued operation”.

Water prices have become a spiky issue in Singapore, which is due to hold elections by early 2021. A price hike last year - the first in nearly two decades - led to a rare public protest against a government that enjoys strong popular support.

($1 = 7.8472 Hong Kong dollars)

($1 = 4.0130 ringgit)