PUBLIC UTILITIES BILL

[Mr Speaker in the Chair]

Order for Second Reading read.

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

During the Committee of Supply debate in March this year, I informed the House that the PUB's Electricity and Gas Departments would be corporatised by September this year, as Singapore Power and Gas. The remaining PUB will continue to manage the Water Department, and be the regulator responsible for licensing and regulating the privatised electricity and piped gas industries.

The new company's name has now been finalised, and will be known as Singapore Power Pte Ltd (SP). SP will be a holding company, with five operating subsidiaries, viz, two power generating companies, a transmission and distribution company, an electricity supply company that will be responsible for buying electricity from the power generators and selling it to the customers, and a gas company.

The Government plans to list SP on the Singapore Stock Exchange around the middle of next year. This 5-subsidiary structure will allow the Government to introduce competition in electricity generation and supply progressively over the next few years while, at the same time, enabling SP to tap the combined resources of its subsidiaries for projects overseas.

As I informed the House then, the PUB privatisation is part of the Government's plan to enhance the assets of Singaporeans and give them a stake in the country's wealth. As in the Singapore Telecom flotation, we will have a scheme to encourage Singaporeans to buy the shares of SP, and hold on to them. As a privatised company, SP will have the operational flexibility to be more market-oriented in tailoring its services to better meet the needs of its customers.

Mr Speaker, Sir, PUB is now both a regulator and an operator of electricity services in Singapore. It has done well in giving Singaporeans a reliable and efficient service at prices which are very competitive by international standards. However, this present structure is workable so long as PUB remains as a statutory board.

After privatisation, the Board of Directors of SP will have the fiduciary responsibility to maximise profits and to look after the interests of SP's shareholders. The degree of SP's monopoly power will undoubtedly influence its ability to maximise profits. This is an economic fact, and does not in any way reflect on the professionalism of SP's present or future management. PUB will therefore need to regulate the privatised utility companies and safeguard the interests of consumers.

Another safeguard will be the introduction of competition. In planning for the privatisation of PUB, the Ministry of Trade and Industry studied the experience of the UK when it privatised its electricity and gas services. The key lesson from the UK experience was that regulatory and competition policies should be carefully thought through and settled before privatisation.

Singapore's present power generating capacity is about 4.5 GW, and is expected to more than double to 10 GW in 10 years' time. This enlarged generating capacity is sufficient to accommodate competition, as shown by the experience in various countries. For example, Northern Ireland, with a capacity of only 2.2 GW, has already introduced competition. Hong Kong, with a total generating capacity of 10.1 GW, has had two power generating companies for many years. And both New Zealand and the Australian state of Victoria, with a generating capacity of 7 GW each, are currently restructuring their electricity services to introduce competition.

Having more than one power generating company will encourage them to compete by being more innovative and efficient, and keep each other in check. By structuring SP's current power generating operations into two separate companies, we will be able to achieve some degree of competition immediately.

Sir, the completion of Stage 1 of the new Tuas Power Station (TPS) in 1999 will give us an opportunity to introduce additional competition into the electricity generation business. TPS will be built in two stages, each with a generating capacity of 1.2 GW. With the completion of Stage 2 by the year 2001, TPS will be about the same size as each of the two SP power generating subsidiaries.

The Government has kept the Tuas power project separate from SP, under the ownership of Temasek Holdings. SP will manage the construction and commissioning of the Tuas project on behalf of Temasek. When TPS is completed, the Government will then have the flexibility to sell TPS to a non-SP group, if it so decides, without affecting the structure of SP.

We will not be able to introduce competition in transmission and distribution, as these are natural monopolies. Nor will we need to introduce competition in piped gas services, as there is already competition from bottled LPG.

Let me now go into the key provisions of the Bill.

Clause 3 of the Bill re-constitutes the PUB as a statutory board.

Clause 6 sets out the functions, duties and powers of the re-constituted PUB. It empowers the PUB to manage and operate the Water Department. The PUB will promote competition and exercise licensing and regulatory functions over the electricity and piped gas industries.

Clause 61 provides for the corporatisation of PUB's Electricity and Gas Departments. The Government will wholly own the shares of the corporatised SP. PUB will transfer the necessary properties, rights and liabilities to SP, and its five subsidiary companies, for them to operate the electricity and piped gas businesses.

Clause 66 provides for the existing staff to be transferred to the successor companies on terms which are no less favourable than those enjoyed by them before the transfer. This is fair, and will enable the successor companies to continue operating without any disruption.

Clauses 64 and 65 of the Bill enable the Government to offer for sale to the public the shares or debentures of SP. As I mentioned earlier, the Government expects to list SP around the middle of next year.

Clause 38 provides for PUB, as the regulator, to grant licences for electricity generation, transmission and supply, and for the provision of utilities support services. The licences will contain conditions relating to service standards and reliability, public safety and other relevant matters.

The electricity transmission licensee, who will have a monopoly over the transmission and distribution network, will be required under clause 47(2)(b) of the Bill to make its network available to all generation and supply licensees on fair terms. This ensures that future power generation companies will enjoy terms and access into the power transmission and distribution system similar to that enjoyed by companies in the SP stable.

Clauses 38(5)(d) and 50(1) provide for PUB to regulate electricity tariff rates. PUB, as the regulator, will establish a formula which will set a limit for any increases in the electricity rates. This would be especially useful during the next few years when competition in the electricity industry remains limited.

However, large consumers whose maximum demand exceeds a certain level will be given the choice not to come under the regulated tariffs. They can enter into special agreements with any electricity supplier. The rationale is that large consumers will have the negotiating power to "shop around" for the supplier that can offer them the best deal in terms of prices and services. Clause 54 of the Bill provides for this flexibility.

Sir, one of Singapore's strength is that we have a secure and reliable supply of electricity. This not only enables us to lead our daily lives with minimal inconveniences but, more important, is critical for the smooth operation of our business and industry.

Hence, one of the duties of the re-constituted PUB is to ensure that this strength is not compromised. PUB will work closely with the power generators to forecast electricity demand and ensure that the additional generating capacity needed is secured in good time. This is to safeguard against any market failure should companies fail to respond quick enough to market signals to install new generation capacity.

To enable PUB to do this, clause 44 empowers PUB to give directions to licensees with respect to standards of performance and service, including ensuring the security and reliability of supply. If they fail to discharge their obligations and the security of electricity supply to the public is threatened, clauses 44, 58 and 59 empower PUB to fine them, suspend or cancel their licences and, ultimately, to assume control of their businesses if the need arises.

Let me now briefly explain the regulatory framework for the privatised piped gas industry.

As I have mentioned earlier in my speech, there is already an open gas market, with consumers choosing freely between PUB's piped gas where it is available, and the many bottled gas suppliers. Consequently, the regulatory framework for the privatised piped gas business will mainly address the safety aspects of gas production and transmission, the quality of the gas and the standard of performance of the licensed piped gas company.

Let me now move on to the supply of water. As the re-constituted PUB's role with regard to water supply has not changed, the Bill has retained basically the same provisions as in the existing Public Utilities Act.

PUB has done a commendable job in providing Singapore with a reliable and efficient electricity and piped gas supply. The passing of this Bill will launch PUB and its successor companies into a new phase of development.

It will provide Singaporeans the opportunity to have yet another tangible stake in our nation's wealth. At the same time, the successor companies will have greater management flexibility to innovate and meet the local demands for electricity and piped gas in an even more efficient manner. It will also have greater flexibility to compete and venture into the regional power market. I therefore hope Members will give their full support to this Bill.

Sir, I beg to move.

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 Yeo Cheow Tong].

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