PUBLIC UTILITIES BOARD (Downward revision of tariffs)

Dr Wang Kai Yuen asked the Minister for Trade and Industry and Minister for Education whether the utility rates of the Public Utilities Board will be revised downwards in view of the significant increases in the various PUB reserves and funds as given in the Balance Sheet in the Board's 1984 Annual Report.

The Minister of State for Defence and Trade and Industry (BG Lee Hsien Loong) (for the Minister for Trade and Industry and Minister for Education): Mr Deputy Speaker, Sir, the question assumes that because PUB's reserves have increased, PUB can reduce its utility rates. This assumption is incorrect. The increased reserves do not represent accumulated profits. PUB has two main reserve funds, the "General Reserve" and the "Other Reserve". These reserves are generated for specific purposes, The General Reserve, which stood at $88 million as at the end of 1984, was used as working capital for PUB. The Other Reserve of $120 million is used to finance the fuel stocks held by PUB.

PUB has to collect enough revenue to break even. It must not only meet its operating expenses, but must also finance part of its development expenditure. In the last decade, PUB has been able to finance only 55% of its development expenditure. It had to borrow the balance from the World Bank and the Asian Development Bank, among other sources. On these loans, it had to pay market interest rates. To remain creditworthy, PUB must stay solvent.

To understand PUB's financial position more clearly, we should look at its Revenue Account rather than its Balance Sheet. In 1984, PUB collected $1.7 billion in revenue and paid $1.5 billion in operating expenses, leaving a gross operating surplus of $215 million. Out of this operating surplus, it had to pay non-operating expenses of $44 million, loan repayments of $141 million, and development expenditures of $21 million, leaving a balance of net income of only $8 million. The figures do not quite add up because of rounding. This $8 million represents a margin of less than 0.5% of the total revenue of $1.7 billion. With this negligible margin, it is clear that, unless there is a further drop in the price of fuel oil, there is no basis for the PUB to reduce its tariffs.