PSA CORPORATION LTD

Mr Tay Beng Chuan asked the Minister for Communications, in respect of PSA Corporation Ltd, (a) what are its return on assets, return on equity and net profit margin for 1997 given its pre-tax profit of $1,124 million and how these figures compare with the targets set for its flotation; (b) how it prices its services; (c) how the drive to list it on the Stock Exchange of Singapore impacts on its service pricing; and (d) whether the Corporation will consider passing on the huge pre-tax profit to the industry by lowering various port tariffs and charges.

Mr Mah Bow Tan: (a) The financial figures requested are as follows: Return on Total Asset : 11.8% Return on Equity : 14.6% Return on Sales : 39.0%

Return on Sales figure excludes non-operating income accumulated when PSA was a statutory board.

These figures are for PSA, the statutory board, from January to September 1997 and PSA Corporation, the company, from October to December 1997. If we applied the corporate tax of 26% for the first 9 months when PSA was a statutory board, the figures would be lower at 11.1%, 13.8% and 37%, respectively. These figures would be lower for PSA Corporation in future years because upon corporatisation on 1st October 1997, PSA's assets were revalued to market prices, and as a company, PSA Corporation will be subjected to a higher corporate tax regime.

PSA was corporatised less than 1 year ago - in October 1997. The date for PSA's privatisation has not been fixed. Similarly, details such as financial targets or extent of share placement have not been decided yet.

(b and c) The bulk of PSA's container business is in transhipment cargo. In this area of business, PSA faces keen competition from other ports in the region. Therefore, the Government does not regulate the charges for transhipment cargo. PSA as a corporatised entity is fully aware that its prices must be competitive and relevant to the needs and requirements of its customers, otherwise they will have no hesitation to use other regional ports.

However, for local cargo, the Government does regulate the tariffs through the Maritime and Port Authority. This is to ensure they remain competitive and safeguard the interest of local exporters.

PSA's pricing strategy is not influenced by plans for its listing on the Stock Exchange.

(d) The port industry is a highly competitive international business. It is also very capital intensive. For example, Phases I and II of the new Pasir Panjang Terminal will cost about $7000 million. Setting the correct level of tariffs is critical to its viability. It must provide customers with value-for-money. It must also allow PSA to make a reasonable return on its investment so that it can reward its shareholders, its staff and re-invest in the business. Therefore, PSA has always set the prices for its services very competitively. Over the years, PSA has focused on reducing cost and improving the productivity of its operations. The productivity gains are shared with its customers in the form of discounts, rebates and lower tariff rates. PSA will continue to look into ways to further lower costs or increase cost effectiveness of its services, and pass on these savings to its customers.