INCREASE IN ELECTRICITY TARIFFS

Mr Tay Beng Chuan asked the Minister for Trade and Industry (a) whether Singapore Power Ltd, in increasing the electricity tariffs by an average of 5.4% from 1st February 1998, has taken into consideration the difficulties faced by the local industries in their attempt to reduce operating costs to ride out the regional financial turmoil; (b) what is the basis of such a high rate of increase in the electricity tariffs; (c) whether the cost savings resulting from increased productivity and operational efficiency of Singapore Power Ltd can be passed on to the local industries in this difficult period; and (d) what is the mechanism in place to prevent any unjustifiable or untimely increase in the electricity and gas tariffs.

Mr Lee Yock Suan: Electricity tariff comprises two components: fuel and non-fuel costs. Fuel cost, which is passed on to consumers, is adjusted quarterly to reflect changes in the market price for fuel oil. There is a time lag between the dates of fuel purchases and usage. The fuel cost for this quarter is determined by the prices paid over the previous months.

Fuel oil prices in US dollars increased by 11 % from June 1997 to October 1997. In addition, over the same period, the US dollar appreciated by about 9% against the Singapore dollar. As a result, the fuel price in Singapore dollars increased by about 21%. The tariff increase of 0.7 cents/kWh for the quarter February to April 1998 is mainly to offset the higher-than-expected fuel cost in the previous quarters.

Since October 1997, fuel oil prices in US dollars have fallen but the US dollar has continued to appreciate against the Singapore dollar. The net effect of these changes will be reflected in the tariff review for the next quarter. If the downward price trend persists and the exchange rate remains favourable, tariffs will be lowered for the next quarter.

Non-fuel costs refer to labour, depreciation, maintenance and other operating costs. Singapore Power has frozen the non-fuel cost of electricity tariff for the past 12 months despite increases in operating expenses. It has been able to do so through productivity improvements.

The non-fuel cost component of the electricity tariff is regulated by the CPI-X formula. Singapore Power will not be allowed to increase this tariff component by more than the percentage change in the Consumer Price Index less the efficiency gain X. The X factor has been set at 1% for three years from 1st April 1997 in the first instance.

Electricity and gas tariffs have to be approved by the Public Utilities Board, the regulating authority. My Ministry and the PUB are mindful of the need to keep our electricity and gas tariffs competitive.