DEREGULATION IN ELECTRICITY INDUSTRY (Divestment of Tuas Power)

[Mr Speaker in the Chair]

Mr Inderjit Singh asked the Minister for Trade and Industry if he will give an update on the progress of deregulation in the electricity industry; and what is the current status of the divestment of Tuas Power.

The Minister for Trade and Industry (Mr Lee Yock Suan): Sir, in 1995, the Government decided to restructure the electricity industry to make it a competitive market, but to achieve the final outcome in several steps over a period of time. As a first step, it corporatised the electricity and gas undertakings of the Public Utilities Board (PUB) on 1st October 1995 to form Singapore Power Ltd (SP). To facilitate further measures to introduce competition, SP was structured as a holding company with five separate subsidiaries. These are two generation companies (PowerSeraya and PowerSenoko), a transmission and distribution company (PowerGrid), a supply company (Power Supply) and a piped-gas company (PowerGas), each with its own board of directors and independent management. A new power station being built in Tuas was put under a separate company, Tuas Power Ltd (TP) owned directly by Temasek Holdings, so that it could compete against the SP generation companies.

Since corporatisation, SP has performed well. SP has ventured overseas, while maintaining an excellent utility system in Singapore. Productivity has increased sharply. This has been achieved through the joint efforts of management and employees, and has enabled SP to offer $720 million in tariff rebates as part of the off-budget cost-cutting package in November last year.

On 1st April 1998, we set up the Singapore Electricity Pool (SEP), which is an exchange for trading electricity. Since then, PowerSeraya and PowerSenoko have been competing to sell electricity through the Pool. More recently, Tuas Power Ltd has begun bidding to sell electricity into the Pool. TP's first 600 MW unit was commissioned on 1st March 1999. The second unit (also 600 MW) is expected to commence operation in January 2000. TP will begin constructing its second stage power plants soon, to be operational from year 2001 onwards.

Besides TP, SembCorp Cogen has also been issued with a licence to generate electricity. The SembCorp Cogen power plant, when operational in year 2001, will generate 650 MW of electricity for sale into the Singapore Electricity Pool.

After reviewing the progress of restructuring in the electricity industry, the Government has decided that as the next step, SP should fully divest its two generation companies in year 2001. SP will retain the transmission, supply and gas operations, which together form the large part of SP's business. PowerSenoko and PowerSeraya will be transferred to Temasek Holdings, the parent company of SP. Temasek Holdings may bring other suitable shareholders into one or both of the generation companies.

This will separate the ownership of generators from the ownership of the transmission and distribution network. The generators are the contestable part of the industry. Competition between different generators is possible and should be encouraged, whereas the transmission grid is non-contestable, because it is a natural monopoly. This split between the contestable and the non-contestable parts of the industry will assure all generators of a level playing field and enhance competition in the industry.

In view of this change in the structure of the power industry, Temasek Holdings is reviewing the divestment process of Tuas Power.

In making this decision to hive off PowerSenoko and PowerSeraya from SP, my Ministry has been mindful of its impact on SP and its staff. Government's intention to list SP and to structure the public listing as an asset enhancement programme remains unchanged. SP's regionalisation effort will also not be affected, as SP can still leverage on the expertise of generation companies within the Temasek group for overseas ventures.

The restructuring will directly affect the employees of the two generation companies. SP management has therefore explained the plans to the union, which is the Union of Power and Gas Employees (UPAGE). The union has expressed to management workers' concerns, including job security, status of employment, and the terms and conditions of service. SP has assisted the union in getting the reassurance that this transfer is not a down-sizing exercise but a planned evolution of the power industry. Hence, there will be no change in the terms and conditions of the employment contracts, and no retrenchment at the time of ownership change. Employees of the generation companies will be treated fairly and will be no worse off as a result of the transfer. SP will work closely with the union to carry out the restructuring smoothly and with minimum disruption.