CERTIFICATE OF ENTITLEMENT (Quota allocations and pay-as-you-bid system)

Mr Imram bin Mohamed asked the Minister for Communications (a) how the Certificate of Entitlement (COE) quota allocations are made among the various categories of vehicles; (b) whether the COE system contributes to a steady increase in the population of bigger capacity cars in proportion to those of smaller engine capacities and, if so, whether this is a desirable trend; and (c) whether his Ministry intends to try out the-pay-as-you-bid system for COE which was proposed long ago.

The Minister for Communications (Mr Mah Bow Tan): Mr Speaker, Sir, the COE quota every year is made up of two components:

(i) Additional COEs representing the allowable increase in the vehicle population which is then distributed among the different vehicle categories according to their respective proportion in the vehicle population; and

(ii) Replacement COEs from vehicles which are deregistered in the previous year, 75% of which are put back into their respective vehicle categories. The remaining 25% are pooled into the Open Category, which can be used to register any type of vehicle.

The Open Category is to ensure that the relative proportions of different vehicles in the total vehicle population is not fixed for all time. By allocating some COEs which can be used to register any type of vehicle, the Open Category allows market forces to determine the vehicle mix. This way, the vehicle population truly reflects what the market wants.

The method of allocating COEs among the different vehicle categories has remained unchanged since the COE system was introduced in May 1990. From 1990 to 1995, the population of cars above 1600 cc grew by 72% while the population of cars of 1600 cc and below grew by 13%. This shows an increasing demand for bigger capacity cars during this period. This trend is also reflected by the higher number of "open" category COEs being used for registering bigger capacity cars.

The higher growth in the number of bigger capacity cars is simply market forces at work. It shows that more and more people are able to afford bigger and better cars. This is a result of a healthy economy over the last five years and reflects how some people choose to spend their money. Whether this is a desirable trend or not is not for me to comment.

As for the "Pay-As-You-Bid" system, this matter was considered by the Committee to Discourage Double Transfers, chaired by Mr Heng Chiang Meng. If the Member may recall, in March 1994, the Government accepted the recommendations of the Committee and implemented, on a trial basis, measures to curb the practice of double transfers. To allow the Committee to assess the impact of the measures more accurately over the next one year, the Government then decided to consider "Pay-As-You-Bid" only after the completion of the double transfers trial.

The Committee studied the results of the one-year trial and found no conclusive evidence to show that the measures to curb double transfers had any impact on COE prices. The stabilised COE prices over the past year was likely due to other factors, such as the MAS's restrictions on car loans and slower stock market which affected demand.

Sir, the number of Singaporeans that can own cars is ultimately determined by how many COEs are issued. Curbing double transfers or implementing "Pay-As-You-Bid" does not change the number of COEs or the number of people owning cars. So our immediate tasks are to regulate the demand for driving and to improve public transport for those who do not drive. Our traffic conditions will then improve, and we will have scope to release more COEs, which in turn will stabilise COE prices.

Mr Chiam See Tong (Potong Pasir): Sir, I thought that the COE was part of the quota system. Now the Minister has said that additional COEs are allowed. In other words, this will be breaching the quota. Can the Minister explain further?

Mr Mah Bow Tan: Sir, the additional COEs that I referred to are the COEs that are allowed under the quota system. Based on the increase in our road space and based on the increase in the number of new roads and expressways that we have built, we have set a figure of about 3% a year to be the allowable increase. So when I referred to the additional COEs, I am referring to this additional 3%. But on top of that, in addition to this 3% increase, we also recycle COEs. We recycle the COEs from those cars which are deregistered and these are also included in the COEs. So this is why I tried to explain that there is a quota. But this quota is made up of two components, the additional 3% plus the replacement or recycled COEs. The recycled COEs do not breach the quota because it is a one-for-one replacement.

Mr Chiam See Tong: This 3% allowable COE is based on what figure? Is it for that month or what?

Mr Mah Bow Tan: The Ministry sets the quota at the beginning of each quota year which is May. There is a 3% increase which is based on the vehicle population as at that point in time.

Mr Chiam See Tong: Do you vary the 3% figure and give a further increase after May?

Mr Mah Bow Tan: When the quota is set for each quota year, that quota is fixed for the whole year. However, as a result of changes in the transportation conditions and perhaps because of further restrictions on the usage of vehicles, the 3% figure is varied from time to time. I will give the Member an example. When we introduced the Whole Day Area Licensing Scheme which further restricted the usage of vehicles and as a result of which the roads were freer, the number of COEs allowed was increased slightly from, say, 3% to something like 3 1/2%.

Mr Imram bin Mohamed (Nominated Member): Would the Minister agree that the COE system now favours the bigger cars since the Open Category is mainly used to purchase bigger cars? This is also reflected by the lopsided value of the COE at the moment where the COEs for bigger cars are lower and the trend is actually going up for Category 2. Would the Minister agree that the COE system now favours the bigger cars, ie, the larger capacity cars?

Mr Mah Bow Tan: Sir, this question of equity has been addressed when we first designed the COE system in that we segmented the total COEs into four categories: Category 1 for cars below 1000 cc, ranging to Category 4 for cars above 2000 cc, the so-called big cars. Within each category, we have endeavoured to try and put in the number of COEs which reflects more or less, at that particular point in time, the number of vehicles of that category in the population. That is the supply of COEs in each category. The demand for COEs and the prices in each category will then, in turn, depend on how many people are in the market for cars in that category. So the fact that COE prices in a particular category are high or low is simply a reflection of how many people are in the market for cars in that category. For example, if COE prices for the large cars are low, it simply means that there are less people bidding for COEs in that category, and vice versa. So the COE system per se, in itself, does not favour any particular category of cars, whether big or small.

We have tried to build in some equity considerations, in that we do not have all the COEs in one category. If we were to do so, then I would agree with the Member that while this is a more correct, more economically rational solution, it would pit the small car buyer against the large car buyer, and the small car buyer inevitably loses out. But we have endeavoured to segment the car population in such a way that we try and minimise this. But within each category, as the Member may allude to, for example, within category 2, there is a range of cars from 1000 cc to 1600 cc. Some people will still favour buying a bigger car with a category 2 COE, but that is the market. That is what he chooses to do. Similarly, in the large category, if he chooses to buy the biggest car in that category, so be it. That is his choice and if he is able to afford it and he wants to spend his money that way, then so be it. But the COE system in itself does not try to favour the big car owners, as the Member has suggested.

Mr Chiam See Tong: Can the Minister give concrete examples of actual bids and actual numbers given for COE licences for last month?

Mr Mah Bow Tan: Sir, if the Member will file a Question, I will provide him with the answers.

Mr Low Thia Khiang: Sir, I would like to know how does the Ministry allocate the number of COEs for the different categories that will be available for bidding? Is it on an equal number basis?

Mr Mah Bow Tan: As I explained in my answer to Mr Imram just now, the COE categories are made up of two components. The recycled COEs come from the cars that have been scrapped or deregistered. So there is no relationship to the existing proportion. If there are many big cars that are replaced, there will be many big car COEs in the system. That is one component. The second component is the additional COEs - 3%, 3 l/2% or whatever number for each particular year. This number is then distributed among the different vehicle categories according to their respective proportion in the vehicle population at that point in time when we allocate the COEs, which we do once a year.

Mr Low Thia Khiang: What is the proportion and ratio for the different COE categories?

Mr Mah Bow Tan: That is determined based on the different proportions of the four categories as at the start of the quota year. I do not have the figures offhand, but I will be able to give the Member the answer very easily. There is a registration table of all the vehicles of each category. So it is a very transparent system in that respect.

Mr Chiam See Tong: Sir, can I get a clarification from the Minister? He mentioned recycled COEs. The life of a COE is 10 years. What does he mean by "recycled" COEs? If a person has used his COE for three years and gives up his car, does it mean that the balance of seven years is recycled?

Mr Mah Bow Tan: Sir, another word for "recycled" will be replacement. For cars that are replaced or scrapped and sent to National Iron and Steel Mills or exported, a scrap certificate is given and is delivered to the Land Transport Authority (LTA). The LTA will take that particular vehicle off the vehicle register and, in return, issue one more COE to be put into the pool. This is the replacement part. The increase in the vehicle population will come from the 3% and this is where every year we have got COEs which are more than the 3%.

Mr Chng Hee Kok (Tampines GRC): Sir, perhaps the Minister may like to explain why the recycled COEs are not included in the total pool and are allocated based on the vehicle population, which may be easier for the general public to understand.

Mr Mah Bow Tan: Sir, it would be logical to do that. But if we did that and if we started on that premise in 1990, today we will be having a vehicle population mix which is exactly the same as that in 1990, and similarly further down the road. So the replacement COEs, as I have explained to Mr Chiam, are not all put into the existing categories, but 25% of them are used for the Open Category. However, not all of them are put in the Open Category. Ideally, we should put all the recycled or replacement COEs into the Open Category and let the market decide for itself what it wants. However, again, we come back to this question of equity and trying to protect the small car owners from the big car owners. So we have put 25% of them into the Open Category. Of course, at this stage, the Open Category is more popular with the larger car owners, but it does not necessarily follow that this will always be so.

Mr Imram bin Mohamed: Sir, the Minister clarified just now that there are two portions to the allocation. The first portion is based on the population of the cars. Should the allocation not be based on the demand rather than the vehicle population?

Mr Mah Bow Tan: Yes, ideally, that should be the case. If we wanted to do that, we will be putting all the COEs into the Open Category and let the market decide what it wants. But if we were to do that, I think there will be a big hue and cry because then all the small car buyers would have to bid against the luxury car buyers. So we have decided that it is equitable or fair for us to try and protect the various categories of car owners. Hence, the segmentation. But the Member is right. Strictly speaking, there should be one class of COEs, whether it is additional COEs or replacement COEs. All the COEs should go into a pool. Everybody bids and then everybody decides what car he or she wants. Is that the system that the Member is proposing?

Mr Imram bin Mohamed: Sir, I do not mean bidding in the Open Category. We could gauge the demand of the various categories and then allocate the first portion according to the demand of each category, rather than on the vehicle population.

Mr Mah Bow Tan: As a close proxy to what the Member is suggesting, we take that demand to be what is the proportion of the vehicle population as at 1st May or 30th April before that quota year. That is the first approximation. Anything other than that, I think, would be a guesstimate. It would be trying to second guess what the market is and, more importantly, trying to second guess what the economy is going to be like. I do not think anybody in the Ministry is capable of doing that.

Dr Kanwaljit Soin: Sir, would the Minister consider encouraging the use of small cars for the sake of pollution control and therefore allocate more COEs in the small car category and fewer COEs for cars above 1600 cc?

Mr Mah Bow Tan: Sir, the question of pollution control is a separate matter. We are always very conscious about keeping our air quality at its highest level. And this is the reason why the Ministry of Communications and the Ministry of the Environment introduced compulsory catalytic converters, introduced frequent inspections, checks and so on, to make sure that our vehicle population does not contribute to air pollution. Whether it is big or small cars, there is no strong correlation to justify the proposal that the Member has made earlier. Small cars without catalytic converters, which are not well maintained and do not go for regular maintenance and check-ups, may be more pollutive than large cars. So I think there is more to the question of pollution than just the size of the car.