Governments around the world are expected to spend billions of dollars on reducing pollution and easing a global water shortage.

Analysts said Keppel's environment technology arm could contribute as much as a quarter of the group's earnings in the next 10 years, up from 3-5 percent currently.

"The potential is huge," said Stanley Tan, an analyst at BNP Paribas, referring to the waste- and water-management businesses. Tan said that Keppel's revenues from waste- and water-treatment could "easily hit 25 to 30 percent" of the group's total in the next 10 years.

"It's a race of who gets the most cost-effective technology to offer the solution," he said.

China plans to spend US$125 billion in the next five years to deal with its water problems.

Currently, Keppel's offshore and marine business make up 76 percent of the firm's revenues, and while demand for oil rigs is expected to remain healthy in the next three years, analysts said demand may slow thereafter.

Keppel controlled by state investment firm Temasek Holdings [TEM.UL], said on Thursday at the opening of Singapore's fourth recycled water plant that it is investing S$50 million (US$32.7 million) in the research and development of water- and waste-treatment technologies.

The plant, built by Keppel, is the largest recycled water plant in the Southeast Asian city-state. Singapore plans to use more recycled water, which will account for 30 percent of its total water needs by 2011, compared with 15 percent currently.

The plan, announced by Prime Minister Lee Hsien Loong on Thursday, will reduce Singapore's reliance on Malaysia for water.

Singapore depends on four sources of water -- catchments, recycled water, treated sea water, and supplies piped in from Malaysia.

However, it is eager to reduce its reliance on Malaysia for water, as the two neighbouring countries have had frequent disputes over the price of water, with Malaysia even threatening to cut off the supply.

Lee said that from April, the price of recycling water will fall to S$1.00 per cubic metre from S$1.15.

Recycled water, known as NEWater in Singapore, is used water that has been treated and purified using membranes and ultraviolet technologies.

It is mostly used for commercial purposes such as in wafer fabrication processes and air-conditioners in buildings. Australia, which is battling its sixth year of drought, is also looking at water recycling.