PUBLIC UTILITIES BOARD (Privatization)

Dr Ow Chin Hock asked the Minister for Trade and Industry if a decision has been made to privatise the Public Utilities Board and, if so, whether any problems will be encountered and how he proposes to deal with them.

The Minister for Trade and Industry (BG Lee Hsien Loong): Mr Speaker, Sir, the Government is considering privatizing selected statutory boards in order to:

(a) Broaden the stock market;

(b) Provide quality investments to enable more Singaporeans to own stocks in good local companies; and

(c) Give the companies greater freedom to operate, and to become more market oriented in their provision of services.

The privatizing exercise is not to:

(a) Raise money; or

(b) to get rid of inefficient and loss-making organizations by turning them over to the private sector.

There is no need to privatize statutory boards hastily. Statutory boards should be privatized at the opportune time and floated in the market at a pace that the market can absorb.

The PUB engaged consultants to study the privatization of its electicity and gas operations. It did not consider privatizing the water operations, because of the sensitive and strategic nature of Singapore's water supply.

The consultants have reported that it is feasible to privatize PUB's electricity and gas operations. Since the PUB, unlike government-owned utilities in some other countries, does not suffer from the gross inefficiencies, privatization is unlikely to yield immediate gains in performance or efficiency. It will, however, give us the general advantages of privatization mentioned above.

The new utility company will have greater flexibility in managing its affairs and serving consumers' needs. As it will be a monopoly, it will have to be regulated, like other utility companies over- seas, and like the bus and MRT services in Singapore.

The Government has therefore decided, in principle, to privatize the electricity and gas operations of the PUB. The key question is timing. There are several considerations:

(i) The utility company will be large. It could be worth some $10 billion or more, and it cannot be sold off in a hurry. The Government will probably retain a substantial portion of the shares even after the company has been floated, as it did in the case of SIA.

(ii) The PUB is presently conducting negotiations to purchase natural gas from Malaysia. It is preferable to settle these negotiations first.

(iii) The Government prefers to hive off statutory boards one by one, in an orderly manner. Several boards are possible candidates for privatization. Depending on the outcomes of ongoing studies, other statutory boards, for example, Singapore Telecom, may be ready sooner than the PUB.

The position will be clearer after a few months. At present it seems likely that the PUB will not be the first statutory board to be privatized. However, we can begin to privatize PUB within the next five years.

Dr Ow Chin Hock (Leng Kee): Sir, two supplementary questions. First, would foreign ownership be allowed and, if so, would there be a maximum on the percentage? The second question is: who will appoint the directors, and who will safeguard the accumulated reserves and assets of this proposed utilities company?

BG Lee Hsien Loong: Mr Speaker, Sir, these are all issues which will have to be resolved before we proceed to privatize the company. I think that is one reason why we want to take some time.

Dr Lee Siew-Choh: Sir, who does the Minister think will benefit from privatization of the PUB electricity and gas, and has he heard of the experience of the privatization of electricity and gas in the UK?

BG Lee Hsien Loong: Mr Speaker, Sir, the beneficiaries of any Government policy are intended to be the people of Singapore. By privatizing the electricity and gas company, in due course we hope that it will be able to run more efficiently, that it will be able to meet consumers' needs more responsibly, and that consumers will have a better, more reliable supply of electricity and gas at lower prices. These prices should still not be subsidized, but should be achieved, because the company is efficient and productivity, knows what people need, and provides it to them. I see no reason why in principle this should be impossible. The British have recently privatized electricity and gas. It will take some time for their situation to settle. In America, electricity and gas are routinely supplied by private companies, and their utilities are not more expensive than in Singapore.

Dr Lee Siew-Choh: When the Minister says "people" whom does he mean - only those people who could afford to buy the shares?

BG Lee Hsien Loong: Mr Speaker, Sir, everybody who uses utilities in Singapore, which includes every household in Singapore, will benefit from this. Of course, for those who buy the shares, we will make sure it is a good investment. It will be, provided the company is well-run, and yields a reasonable economic return, the same way in which SBS yields a good return for people who hold SBS shares. When we privatize a company, one of our objectives should be to spread as widely as possible among Singaporean, so that there will be maximum incentive for that company to look after these investments and to operate effectively without making a loss.

Dr Lee Siew-Choh: Can the Minister assure the House that consumers in future will not have to pay more for their gas and electricity?

BG Lee Hsien Loong: Mr Speaker, Sir, how much a consumer pays for gas and electricity depends on how much PUB pays for the gas when it has negotiated an agreement with Malaysia, and how much it has to pay for fuel oil, which is not negotiated with anybody but settled by OPEC.