GAS (AMENDMENT) BILL

GAS (AMENDMENT) BILL: Order for Second Reading read.

The Minister of State for Trade and Industry (Mr S Iswaran): Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time."

Objective

Sir, in March 2000, my Ministry announced that the gas industry would be restructured, similar to the electricity industry, by separating the contestable sectors of the gas industry from the ownership of the gas transportation business. To facilitate the liberalisation of the gas industry, my Ministry decided that the gas distribution and transmission network will be owned by a gas grid company which will allow all players open and non-discriminatory access to the entire gas pipeline network.

Subsequently, the Gas Act was passed by this House in March 2001, providing a legal framework for the governance of the gas market in support of a liberalised electricity market. It establishes a competitive architecture for the gas market, and a regulatory regime to ensure the security and reliability of the supply of gas to industry and the public.

Sir, the question has been asked: why is it important to have an open access regime in our gas market? Let me

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elaborate. Natural gas is a key source of fuel for our power generation. About four-fifths of our electricity is fuelled by natural gas. Today, we import piped natural gas from our immediate neighbours. In future, we will also import liquefied natural gas (LNG) from other parts of the world. We must, therefore, ensure fair competition in our gas market, by allowing all players to have open and non-discriminatory access to the entire gas pipeline network and other relevant gas infrastructure in Singapore.

A competitive gas market will further enhance competition in the electricity market. Sir, we have already seen the benefits of competition since we liberalised, in stages, our electricity generation and retail market from 2001. Greater competition in the electricity market has led to downward pressure on price, and has helped to cushion the impact of high oil prices on our electricity tariffs. For example, although fuel oil prices have increased by 71% over the six years from April 2001 to April 2007, our household electricity tariffs have decreased by 5% over the same period. This is despite the fact that fuel accounts for about 70% of the total cost of electricity generation. This is why it is crucial that we put in place an open access regime to support a competitive market for gas which is a key input for our electricity market.

Sir, my Ministry is proposing to amend the Gas Act to improve its effectiveness in relation to the open access policy. It also wants to cater to the changes in the structure of the gas market since 2001, and to enhance the safeguards for our critical gas infrastructure and our gas supply.

In reviewing the Gas Act, the Energy Market Authority of Singapore (EMA) has sought feedback from the public and industry players through two rounds of public consultation - first in February

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2006, and later from December 2006 to January 2007. Let me now outline the key amendments to the Gas Act.

Ensuring market access

The first set of amendments covers issues relating to the policy of open access to gas infrastructure.

Sir, currently, section 38 of the Gas Act empowers EMA to direct the owner of gas infrastructure, such as a gas pipeline network, to grant access to a new entrant. Clause 16 of the Bill extends section 38 to Onshore Receiving Facilities (ORFs). To enhance the effectiveness of the existing provisions on open access, clause 16 of the Bill also enables EMA to direct an owner of gas infrastructure to grant an applicant access to the infrastructure, even if the direction may prejudice the performance of any contractual obligation of the owner.

Under the proposed amendment, it will be an offence if the directed party does not comply with EMA’s direction. It will also be an offence for anyone to do anything, such as threatening to institute or, in fact, instituting legal proceedings, which has or is likely to have the effect of obstructing, hindering or preventing the directed party from complying with EMA’s direction.

These provisions are necessary given the substantial public interest at stake. Nevertheless, I would like to assure the House that EMA will be judicious in the exercise of its authority and it will give all affected parties the opportunity to be heard before issuing such directions on open access. More importantly, EMA’s preferred modality is for the relevant parties to come together and arrive at an agreement on their own. If the concerned parties cannot reach an agreement, and access to the gas infrastructure is, in fact, blocked, then EMA is prepared to

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intervene to ensure that the larger public interest is served by allowing open access to our gas network. Indeed, EMA would welcome, and facilitate, efforts by the parties concerned to come together and negotiate a deal to enable the gas to flow through the pipes.

Sir, the Act will also be amended to grant immunity to the directed party from legal proceedings in relation to any breach of an existing contract, if the breach is solely attributable to, or caused by, its compliance with EMA’s direction. This is to protect the directed party in the event that EMA’s direction on open access places the directed party in conflict with its existing contractual obligations. Let me emphasise that the immunity is confined to existing contracts. A directed party will not enjoy any immunity in relation to a contract which is made after clause 16 comes into force, as the party is expected to enter into contracts that comply with the open access regime. Immunity is also not conferred on any party other than a directed party.

The principle underlying the immunity provision, and indeed other provisions, in the Gas Bill, is to ensure that existing commercial considerations amongst the industry players would not have the effect of frustrating the public policy intent of having open access to our gas infrastructure. My Ministry believes that these amendments will send a clear signal to the industry of the Government’s commitment to its policy of promoting competition in our gas and electricity markets.

In an open access regime, multiple parties using a gas pipeline will also require an arrangement for the allocation of gas in that pipeline. Gas allocation in an onshore pipeline will be dealt with under the Gas Network Code. In the case of an offshore pipeline, it is common practice in many countries that such

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allocation is arranged on a commercial basis between the parties who use the gas infrastructure. Moving forward, as we implement the open access policy, EMA will also encourage the industry players to negotiate and arrive at an allocation agreement on a commercial basis. However, if a commercial agreement cannot be achieved, new users of the pipeline would be denied access to the pipeline.

To prevent such a situation which will hinder competition in our gas market, clause 17 of the Bill will enable EMA to direct new entrants and existing users of an offshore pipeline to enter into a gas allocation arrangement. Similar to clause 16, clause 17 confers immunity from legal proceedings on directed parties in relation to contracts which are made before clause 17 comes into force. EMA will not invoke this power if the parties can negotiate an allocation arrangement amongst themselves. If the directed parties are able to subsequently arrive at an arrangement amongst themselves, the provision in the Act allows for the new arrangement to supercede EMA’s direction.

For effective open access, we also need rules to ensure that gas shippers have untrammelled access to our onshore gas pipeline network. Consequently, clause 25 of the Bill empowers EMA to issue a Gas Network Code on the use and operation of an onshore gas pipeline network. The Code is adapted from the UK Gas Network Code and EMA has consulted extensively with the industry to ensure its robustness.

Regulating market structure

Sir, I will now cover the amendments relating to the regulation of the gas market structure.

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To cater to the changes in the structure of the gas industry since the Gas Act was passed by this House in March 2001, clauses 5 and 6 of the Bill expand the list of licensable activities to include the following:

(a) Firstly, the import of natural gas, whether in gaseous or liquefied form. This will enhance the security of gas supply to Singapore;

(b) Secondly, the management or operation of the LNG terminals and Onshore Receiving Facilities. This will enable EMA to have adequate regulatory oversight to ensure the safety and reliability of such infrastructure which are critical to our gas supply, and, consequently, to our electricity supply; and

(c) Thirdly, the shipping of natural gas. This will give EMA regulatory oversight of gas shippers to ensure that they abide by the gas transportation rules for reliable and secure operation of the gas pipeline network.

Safeguarding Critical Infrastructure

Security safeguards

Sir, let me now cover the amendments which are intended to safeguard our critical gas infrastructure.

Section 33 of the Gas Act currently empowers the Minister to issue a Special Administration Order against a gas transporter in specific situations where the security or reliability of gas supply is at risk. Clause 15 of the Bill extends the ambit of the Special Administration Order to include the LNG terminal operator. A Special Administration Order could be imposed if it is found that the security and reliability of the gas network or LNG terminal is or is likely to be compromised. When a Special Administration Order is in force, the affairs, business and property

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of the respective operator will be managed directly or indirectly by EMA.

The gas pipeline network is the only means by which gas is transported to key end users, like the power generation companies and pharmaceutical companies. Any failure of the gas pipeline network, therefore, will have an adverse impact on our economy. To safeguard the gas pipeline network, clause 25 of the Bill introduces a new Part VIIB to the Gas Act under which EMA will be able to monitor and control changes in shareholdings or other such interests in gas licensees and other entities involved in the gas pipeline network business. The provisions also cover passive increases in the shareholdings or other interests. In addition, any business relating to a gas pipeline network cannot be acquired without the approval of EMA. These entities will also be required to obtain EMA’s approval for the appointment of persons to key management positions. These provisions in their totality are intended to ensure effective regulatory oversight and control of the gas pipeline network which is a critical part of our national infrastructure.

Prevention of damages to gas pipes

Sir, turning to the provisions on the prevention of damage to our gas pipes and gas plants, such damage can have catastrophic consequences to human lives, property and our economy. Clause 14 of the Bill strengthens the protection of the gas pipes and gas plants by specifying the precautions to be taken before and during excavation works by persons involved in the works, providing for additional offences when damage is caused and increasing the penalties for existing offences.

Enhanced penalties

Amendments have also been proposed to strengthen the penalty framework in

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the Gas Act for effective regulation of the gas industry. Penalties have been introduced for the new provisions in the Bill. Existing penalties in relation to offences such as carrying out licensable activities without a licence, and causing damage to gas pipes, have been increased to reflect the severity of such offences.

Appeal process

Sir, now, on the appeal process. EMA has received industry feedback on the potential impact on businesses if a stay on EMA’s decisions were not provided for. Hence, clauses 28 and 31 of the Bill provide for the Minister, at his discretion, to stay a decision or direction of EMA when it is the subject of an appeal. In exercising his discretion to do so, the Minister will take into consideration the implications for the open access policy, and the security and reliability of gas supply and gas infrastructure. In addition, there will be an automatic stay against EMA’s decision or direction if the appeal is against the imposition of a financial penalty or its quantum.

There may also be situations where an appeal relates to matters which require certain technical or specialised knowledge. Hence, clause 31 of the Bill enables the Minister to establish an Appeal Panel to hear such an appeal.

Mr Speaker, Sir, the proposed amendments to the Gas Act are necessary on two counts. Firstly, they enable my Ministry to continue to ensure the security and reliability of our gas infrastructure and gas supply, which are critical to our electricity generation. Secondly, the amendments will enable EMA to implement more effectively the open access policy which is an essential aspect to the liberalisation of our gas market. This, in turn, will enable all consumers of electricity, households and enterprises alike, to benefit from competitive gas and electricity markets.

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Sir, I beg to move.

Question proposed.

4.30 pm

Mr Inderjit Singh: Mr Speaker, Sir, I support the amendments proposed in the Gas (Amendment) Bill. In fact, it has taken too long for the Gas Bill to be correctly structured. Since 2001, the Gas Act has not been able to effectively allow market competition as originally intended.

In fact, the weakness in the Gas Act has kept out new entrants into our energy market. I read from press reports that Island Power which is building a new power plant on Jurong Island has seen a two-year delay in their $1 billion project. If we have been successful, we would have seen the mergence of a new private sector energy company and I believe the consumers would have been the main beneficiaries of the new player, resulting in cheaper electricity charges.

The main obstacle to the proper functioning of the Gas Act has been the control and access of the gas pipeline network. It is quite amazing that because of the protective behaviour of some incumbent players, the Government has not been able to make the Gas Act work the way it was intended to, which leads me to ask if the new changes will indeed result in changes which will effectively allow new players to utilise the gas pipeline as intended.

Clause 16 amends section 38 of the Act and clause 17 of the Bill adds the new sections 38 and 39 to allow the Energy Market Authority or EMA to direct the parties to enter into an agreement for the allocation of gas in offshore pipelines. This is a good move. But how effective will EMA be this time when in the past, it failed to effectively help resolve the issues when after two years, PowerGas could not sort out the gas transport agreement

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with the incumbent user? I hope that, this time, EMA will be able to exercise its authority to speed up the open access of the gas pipeline network.

Sir, I welcome the inclusion of the Gas Network Code or GNC as per clause 25 of the Bill, by adding the new Part VII, sections 61A to 61F. Section 61D makes the GNC a binding contract between the designated transporter and each gas shipper. Then section 61E spells out the limitations of the GNC which effectively says some parties can still delay the open access of the gas pipeline network. My question to the Minister is: will this allow the current issue that PowerGas is facing with the incumbent to be further prolonged and hence making the GNC not immediately implementable?

I also have the same issue with clauses 33 to 35 of the Bill on what it intends to do. While I understand that this provision is for the transition period, and for the Minister to help manage the transfer, the flexibility given could also mean that EMA may not be able to effectively direct the free access of the pipelines as desired, if the appeal process takes too long to complete. This could also be a loophole used to further delay the process of free access. I hope that the Minister will give a time limit for such a process.

Sir, I am in full support of the spirit of what is being proposed in the Bill but, as I have spelt out, my worry is in the implementation. I hope that the EMA will be able to effectively implement the Gas Act and allow more competition into our energy market.

With that, I support the Bill.

4.33 pm

Mr Liang Eng Hwa (Holland-Bukit Timah): Mr Speaker, Sir, first and foremost, allow me to declare my interest

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that in my professional work in the financial industry, I do work with companies in the power sector from time to time.

This amendment to the Gas Act is a much anticipated Bill, if we read the recent media reports. For example, according to the Business Times' report on 10th May, this Bill, and I quote, "should help new players like Island Power, whose S$1 billion power station project here has been delayed for years because of its inability to access the pipeline, to bring its own Indonesia natural gas for its project".

The Dow Jones Newswires went so far as to say, and I quote, "a piped gas deal between Island Power and US-based ConocoPhillips hinges on the passing of an amendment by the Singapore Parliament, which will also pave the way for the construction of a state-of-the-art gas-fired power plant". It even said that this Gas (Amendment) Bill is the last remaining major milestone before Island Power can gain access to the Sumatra-Singapore gas pipeline. There are also reports that mentioned of a June deadline for Island Power from the Indonesian authorities on the supply of gas.

In the light of all these news reports, would the Minister clarify on this perception that this Amendment Bill is tailor-made to pave the way for the entry of Island Power, as reported by the media?

I applaud the Government's resolve to further restructure the gas market and to enhance the security of Singapore's energy supply. And I support the Government's decision to separate the ownership of gas transportation business, which is a natural monopoly, from the contestable segment. PowerGas, which will be the eventual owner of Singapore's

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gas infrastructure, will be regulated by EMA, in terms of price and, among others, shareholding control, as stated in clause 25. This shareholding controls is particularly important as EMA will be empowered to reject potential ownership transfer of critical gas infrastructure that is assessed to be detrimental to national security.

For the new structure to work, all competitive players, existing or new, need to have open access to the common gas grid on a non-discriminatory basis. These amendments would widen the powers of EMA significantly, giving the Authority the teeth to push through these changes.

While I support the intent of this amendment, I would also want to raise a few related points as well:

Firstly, on the supply and demand imbalance. Our generation capacity has grown steadily and I understand that the current excess capacity is way above the optimal 30% reserve capacity. With this amendment removing the impairment to open access, one more player would enter the market. Island Power is not covered under the moratorium to control piped natural gas coming to Singapore and hence would mean adding new capacity when they start operations. Even with this eventuality, how would the supply and demand imbalance situation be like from now to, say, 2012 when the new LNG gas starts kicking in? The LNG terminal is expected to be ready by 2012. How would the capacity versus the projected demand situation be like beyond 2012 as well?

We also have another situation. On the one hand, we want new player to enter the market to intensify the competition, but, on the other hand, there are currently still about 25% of the demand, mainly from the household consumers, that are not subjected to

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competition. Have we been consistent in this area?

More competition as a result of more players is of course good, especially to the end consumers. There are currently about five to six power generation companies (Gencos) in Singapore, supplying power in the contestable and non-contestable segment of the market. While we want even higher intensity of competition, EMA has to be mindful that competition remains healthy and sustainable, given our relatively small market.

The power generation business is capital intensive, with high sunken costs and very little product differentiation. So, these five to six players compete mainly on prices in the contestable segment. Besides the competition, the gencos also take on the fuel price volatility and volume risk. If the gencos are too caught up in the competition for short-term market share, we may see gencos being less willing to invest in long-term efficiency. This would not be in the long-term interest of consumers. Like any sectors, our energy industry needs to yield a reasonable return so as to continue to attract long-term capital and investments to sustain our future capacity.

My next point is on the legacy issues that have arisen because of the access. This amendment gives EMA wide powers to manage the market. For example, in section 38(4), EMA is given the powers to dictate to the facility owner how to charge existing users of the facility. The amendment also enables EMA to direct parties to enter into an agreement for the allocation of gas in offshore pipelines on terms specified by EMA. When the Authority issues a direction to the owner of a gas infrastructure to provide open access, the directed party will be provided immunity against any legal action, or in

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relation to any breach of an existing contract as a result of complying with EMA's direction.

I am all for open access and for it to be expedited and for EMA to be given the additional powers to rectify some of the legacy problems as it restructures the market. However, existing contractual interests with the incumbent players which were entered into on bona fide commercial basis earlier should not be completely disregarded. Singapore prides itself as a hub of excellence in many fields. Our reputation as a jurisdiction where long-term business commercial agreements will be honoured and the sanctity of contracts will be upheld, should be safeguarded. Businesses and industries look to this certainty and confidence to plan and make long-term investments. EMA should seek to settle these legacy issues amicably with the existing stakeholders and should only use or exercise the new powers as a last resort after exhausting all other avenues.

My next point is on the liquefied natural gas (LNG). The decision to import LNG by 2012 as another alternative source of gas import is a reassuring one. Given our recent problems with the import of sand and granite as well as the piped gas dispute we saw between Russia and Ukraine, it makes very good sense to open up another source of gas supply via the LNG. By its nature, LNG imports are less captive than the piped natural gas (PNG) and therefore are also more price flexible.

As the PNG contracts with our neighbouring countries will end somewhere around 2022, what would be the Ministry's strategies ahead to secure long-term energy supply for Singapore? Are LNG imports the way to go to strengthen our energy resilience?

The economics of importing gas currently still favours the piped natural

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gas. Hence, the Government has imposed import controls on PNG so as to build up demand for LNG to a sufficient base load for the terminal.

Beyond this import moratorium, we should also consider other ways to reduce the investment risks of LNG terminals, including possible tax breaks and even a possible reserve off-take from the Government.

My last point on this Bill: with this amendment and in the light of this restructuring in the gas markets as well as the entry of new player, is the divestment of gencos that was talked about some time ago still on the cards? How have all these developments impacted the financial ratings and valuations of these incumbent gencos?

Sir, I support the Bill.

4.40 pm

Mr Iswaran: Mr Speaker, Sir, I would like to thank Mr Inderjit Singh and Mr Liang Eng Hwa for their comments and support for the Bill. They have raised a variety of issues on various aspects of the Bill and the industry. Let me attempt to try and categorise them in a way that makes for a bit more cogent response. One set of questions pertains to the whole issue of the Gas Act. Mr Inderjit Singh opines that the Gas Act has taken a long time to reach an effective structure. Both Mr Inderjit Singh and Mr Liang have raised the point about the Island Power Company (IPC). In fact, Mr Liang is quite pointed about whether this amendment is in response specifically to Island Power's problems.

Sir, I think it is important to clarify at the outset the fundamental intent of this amendment in this Bill. The policy of wanting to establish an open competitive gas market was articulated, in fact, in the year 2000 and subsequently when the

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Gas Act was passed in this House in the year 2001. So that policy intent has been very clear. However, in managing and overseeing such a market, there have been significant changes, including the possibility of LNG and the implications of that, and for our regulator, EMA, it has also been an experience in learning how to manage the dynamics of a competitive electricity market and, by implication, in a competitive gas market. So there has been a very deliberate process to assess what needs to be done in the market by way of regulations to govern it.

This amendment here covers various aspects and, in particular, there are three elements. The first governs security and reliability of our gas supply. This is important to ensure the critical aspect of our national infrastructure remains viable. The second element is the part on open access. This is critical to the competitive nature of our gas market, and this is part of the discussion that Mr Inderjit Singh and Mr Liang are alluding to. But we also want to make sure that our gas market remains relevant.

The amendments are in response to the developments in the market and in the industry. EMA has studied the trends and has proposed various ways of opening and further developing the gas market in Singapore, and the amendments here are in response to that.

Sir, I want to stress once again that it is a response to the market, to the developments in the industry and part of an over-arching objective which was stated six years ago, not a response to any specific transaction or commercial issue that happens to be in the market at this point in time. Having said that, Mr Inderjit Singh and Mr Liang have both raised the IPC case and I think it is worth talking a little bit about that.

Interestingly, Mr Inderjit Singh and Mr Liang have quite different perspectives on the matter. Mr Singh is urging that EMA

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should in fact be willing to exert its authority quickly in order to allow new entrants to come into the market. Mr Liang, on the other hand, is concerned about the reputation as a jurisdiction where long-term business commercial agreements would be honoured and the sanctity of contracts would be upheld. So he suggested that EMA should seek all avenues to allow for an amicable resolution of matters amongst the players before EMA resorts to its legislative powers as a last resort. Both perspectives are correct, and it is quite helpful because the path that EMA wishes to take is a middle one. What I mean by that quite simply is that EMA's preferred modality is in fact to bring about a market-based commercial resolution of these issues. Indeed, it is in the interest of all the industry players to come together, given this policy intent, to say what makes sense commercially for us to arrive at a settlement.

EMA is prepared to even play the role of a facilitator to bring the parties to the table in order to have a productive discussion of this nature. However, when a commercial arrangement cannot be arrived at, then EMA has an obligation, especially when, as a result of the lack of agreement, access to the gas infrastructure is blocked, then EMA is prepared to intervene because the public interest far outweighs any private considerations. Therefore, this Bill empowers EMA to act in that manner for the benefit of the larger good in Singapore. So I want to assure Mr Inderjit Singh that we have, with this amendment, all the wherewithal for EMA to act in the best interest. But, at the same time, I want to assure Mr Liang that this is not an excuse to ride roughshod over private contractual interest. It is to ensure that, in extremis , when these efforts have failed to find an amicable resolution, then the Act, and the powers

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through it that are given to EMA, will be exercised.

Mr Inderjit Singh has raised some concerns over the limitations in the gas network code that may allow parties to delay a process. He refers, I think, to the provision in section 61E about arbitration, and so on. I want to make it very clear - and Mr Inderjit Singh, as a commercial entrepreneur, will appreciate this - that the Gas Network Code (GNC) provisions will buy in parties to open access. It is a contractually binding code. But like any good agreement, there is a dispute resolution mechanism. What section 61E merely says is that it provides for a particular dispute resolution mechanism, and all parties are obliged to conform to that, should a dispute arise. And I think that is good because it means there is a certainty that, in the event that there is a dispute, it will be resolved, and it will be resolved in the prescribed manner. So I think there is no cause for concern from that perspective.

I would also like to clarify this, because I think Mr Singh raised this point about sections 93 and 94 on appeals on decisions. Just to be very clear, clauses 33 to 35, which apply to the transfer of assets, relate to the Minister making a decision on issues relating to the separation of gas transporting and retailing business arising from our plans to restructure the gas industry. This is a decision of the Minister, and that is not subject to an appeal under the Gas Act. There is no provision for that. The appeal provision here is for decisions made by the EMA. When the EMA makes a decision or a direction, then there are two ways. If it is something to do with financial matters, eg, a penalty, once there is an appeal, there is an automatic stay. On the other hand, if it is on a matter of substantive policy, then the Minister can grant a stay of the decision. But, in evaluating it, the Minister will obviously take into account the broader

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public policy objective, ie, whether open access through the gas infrastructure is in fact preserved, and whether we are able to also ensure that the competitive environment we are trying to keep in our gas market is maintained. So the Minister will take all those factors into account in deciding whether, in the first instance, a stay should be granted.

Mr Liang Eng Hwa raised a couple of points on the short-term and long-term supply-demand imbalances, and I thought I should address that. Mr Liang is correct. The current generation capacity is in excess of the 30% reserve margin in our system. Our current peak electricity demand is about 5,000 megawatts, and the current installed capacity is more, around 10,000 megawatts. And this is an interesting point: a large part of our excess capacity is actually due to the fact that many of the players, especially the incumbents, installed more cost-efficient gas plants to replace the old steam plants. So the question is whether a competitive market will allow for more efficient decision making which is in the interest of consumers, and I think this is evident that it works, because all the power gencos have chosen to have cost-efficient plants, gas-piped plants, in order to be competitive by keeping their cost structures lower. So it is driven by their need to stay cost-competitive and it does produce outcomes that are aligned with our broader policy interest.

I would also like to say that this excess capacity is not really going to be a permanent feature of our system. Why? Because our electricity demand grows by about 4% to 5% a year. That is about 300 megawatts a year or slightly more. Over the next 10 years, we would expect that this excess capacity will be absorbed in part by this growth in demand. At the same time, some of the older steam plants will be retired. That will also reduce the supply side. So you will find that there will be a gradual balancing off

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of the supply and demand side of the equation here without the excess supply concerns that Mr Liang has expressed.

Mr Liang is correct that the power generation business is capital-intensive and this is exactly why the investors will be very careful in doing their long-term calculations before putting money in. When you invest in a power plant, you are thinking 20 or 25 years, not five years.

I just want to make one point. The import control that Mr Liang referred to also covers IPC, because IPC's licence was issued on the assumption of piped natural gas before this control was announced in August 2006. So, that is covered under the control. Having said that, our preference is to leave it to the market to make its judgment on whether to invest, how much to invest, how much capacity to put into the system, what kind of technology, and so on. What the regulator and the Government policy attempt to achieve is a competitive framework so that barriers to entry are low, if not zero, that our market signals are transparent, so that the investors can make their calculations based on the price signals in the electricity pool, they know what the long-term projected demand is going to be, and they also know what are the different supply plans of the various players in the market. On that basis, our investors can make their calculations and decide.

Can this competition be destructive? This is a concern that Mr Liang raised. Destructive competition really is the result of irrational economic behaviour. We would assume that whoever is prepared to sink in hundreds of millions, if not billions of dollars, into these plants, would be very rational in their calculations and work out what is the best way to participate in this market to ensure returns that are reasonable for their shareholders and, at the same time, their ability to maintain their competitiveness in the market. So we are fairly confident that if

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we create the environmental conditions for a competitive market, both in the upstream gas as well as in the retail and the electricity side, then I think the investors will make appropriate rational decisions.

On the long-term energy supply, the Ministry of Trade and Industry has recognised what Mr Liang has said, ie, there is a need to diversify our fuel sources. Hence, the emphasis on LNG, something that we are working on with the view to bringing it onstream by 2012 or so. Why is that important? It will help us diversify from our reliance substantially on piped natural gas. At the same time, it also allows us to tap into a different kind of market, because the LNG market does have its own dynamic, in terms of supply and demand, and, therefore, price, compared to piped natural gas. So we will continue to work on this. EMA will be driving the project. The key point is that, in doing so, we have been and will be closely consulting the private sector. This is because, at the end of the day, this is a substantial investment, and we want to make sure that we create the conditions for this to be successful commercially. So it has to address both our market requirements and, if potential investors can see other ways, it can be enhanced as a value proposition, we would welcome that. Is there a role for the Government to play? It would depend on what potential investors tell us and, if it is assessed that there is a need for the Government to be involved, then, as Minister Lim has mentioned earlier, we would seriously consider that as part of the overall equation for this to happen.

Finally, on the question of divestment of gencos, Mr Liang asked if the genco divestment is still on the cards. As Temasek Holdings hold all the cards on this, the hon. Member would have to ask them. But what I can say is that I would

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imagine that Temasek Holdings would be seriously looking at this, and they have been on record previously saying that they will assess the market conditions and, at the appropriate time, consider a divestment.

Sir, I believe I have substantially answered all the queries raised.

Question put, and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House.

The House immediately resolved itself into a Committee on the Bill. - [Mr S. Iswaran].

Bill considered in Committee; reported without amendment; read a Third time and passed.