RESTRUCTURING STATUS OF POWER INDUSTRY

Mrs Lim Hwee Hua asked the Minister for Trade and Industry if he will give an update on the status of the restructuring of the local power industry, particularly with regard to the introduction of competition to both electricity generation and supply, and whether there is any intention to limit the number of players in each segment.

BG George Yong-Boon Yeo: Mr Speaker, Sir, since 1995, the Government had taken several steps to restructure the electricity industry, starting with the corporatisation of the Electricity and Gas Departments of the Public Utilities Board (PUB) to form Singapore Power Ltd (SP) on 1st October 1995. To facilitate competition, Singapore Power was structured as a holding company with five separate subsidiaries, namely two generation companies (PowerSenoko and PowerSeraya), a transmission & distribution company (PowerGrid), a supply company (Power Supply) and a piped-gas company (PowerGas).

Another 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. To facilitate competition in the generation and supply sectors, the Singapore Electricity Pool (SEP) was established as an exchange for trading electricity.

The Government decided in March 1999 that the next step in restructuring the electricity industry was for Singapore Power to fully divest its generating companies to Temasek Holdings in 2001. This will bring about ownership separation of the generators, which are the contestable part of the market, from the transmission and distribution network, which is the non-contestable part. All generators will have a level playing field. The transmission and distribution network will be regulated tightly as a natural monopoly. In the year 2001, there will be four competing generation companies, PowerSenoko, PowerSeraya, Tuas Power and SembCorp Co-gen.

Review of Industry Structure

Many more countries have now liberalised their electricity services. As a result, electricity prices have dropped significantly. Consumers have benefited with greater choice, better product innovation and better service quality.

To ensure the competitiveness of our electricity sector, MTI will further liberalise the electricity market with the aim to put in place a fully competitive market. We have engaged a consultant to carry out a comprehensive review of the electricity industry and to recommend how competition in the sector could be further enhanced. The consultant has just completed its review and we are now evaluating the changes recommended by the consultant. We will announce the changes once we have obtained feedback from industry players.

Number of players

There is currently no limit on the number of players in the generation and retail sectors of the electricity industry. Companies that want to generate or supply electricity in Singapore can apply to the PUB, the Regulator, for a public licence. The PUB will evaluate the application to ensure that the proposed project complies with our technical requirements, rules and regulations to safeguard system security and that the applicant has the financial capability and technical expertise. A public licence will be granted if these requirements are met. There is no plan to impose any limit on the number of players in the future. With the liberalisation of our electricity market, the number of players in the generation and supply segments will be determined by market forces.

Mrs Lim Hwee Hua (Marine Parade): Sir, notwithstanding the experience of the other markets of falling prices, is there a philosophy that we would adopt with respect to pricing which will serve to preserve the interest of domestic consumers as well as from the perspective of the overall cost competitiveness of Singapore?

BG George Yong-Boon Yeo: Our intention is, within the next two years, to move towards as free a market as is possible and adopt an ideal framework with marginal pricing. We believe that the interests of consumers are best met by allowing market forces to put pressure on the generators to reduce prices.

Mr Simon S. C. Tay (Nominated Member): Sir, can I ask whether, in the review of the market, will the study include the desire for greater efficiency in order to curb excessive use of power and to encourage greater efficiency in the use by industry as well as households?

BG George Yong-Boon Yeo: I do not think we should put ourselves in the position of deciding who has a greater need for power. From our perspective, the best way is to use the market mechanism to decide who has a greater need for power according to what he is prepared to pay. In other words, to let the market mechanism operate rather than to impose additional considerations as to who should get power at what prices, depending on whether they undertake activities which are socially worthy.

Mr Simon Tay: Perhaps I was misunderstood. What I mean is that Singapore has one of the highest climate-change gases already and that in creating a market for energy generation, we run the danger of creating a market where you use more power, you get more profits. I am wondering whether these dangers will overall affect Singapore's standing in such community as well as our efficiency. Would these factors be taken into consideration in creating this market for competition?

BG George Yong-Boon Yeo: I am sorry. I did not quite catch what you said earlier.

Mr Simon Tay: May I clarify myself? In the generation of power, there would be release of climate-change gases and other pollutants which would affect both the global climate as well as our local environment.

BG George Yong-Boon Yeo: You are referring to greenhouse gases?

Mr Simon Tay: Yes, greenhouse gases.

BG George Yong-Boon Yeo: We observe all international regulations on this and whatever we do, we will conform to international standards and we will play our part as part of our international responsibility but within those constraints, let the market operate.

Mr Chng Hee Kok: I wish to declare my interest as a director of Singapore Power. My question to the Minister is: will he allow Genco's to supply power to the Grid from outside Singapore, for example, Malaysian independent power supplier?

BG George Yong-Boon Yeo: I think we should allow the importation of power on a selective basis by taking into account the needs of energy security in Singapore. We are already connected to the Malaysian Grid, but not as if we were part of the same grid, but in an emergency, we supply to them, they can supply to us. We should be able to do the same with Indonesia too one day, depending on the economics. But at all times, we must take into account the fact that energy security is our own responsibility which we must safeguard.

Mr Chng Hee Kok: If we free up the market completely, it is going to be hard to be selective about who should supply and how much to supply, is it not?

BG George Yong-Boon Yeo: Cross-boundary electricity flows are completely within our powers to regulate and control. Is that your question? I am not sure.

Mr Chng Hee Kok: No. My question really is that if they are prepared to supply power at a much lower price, how do you determine that the Singapore consumers should not benefit and at the same time keeping in mind the long-term interest of Singapore?

BG George Yong-Boon Yeo: We will take these factors into account. If power is available very cheaply from Malaysia and the quality of that supply can be assured, then we should surely in our own interest consider it.

Dr S. Vasoo (Tanjong Pagar): Sir, can I ask the Minister whether a watchdog body, which comprises consumers and operators, could be set up to ensure that consumers are protected, like in Hong Kong where they have a watchdog body?

BG George Yong-Boon Yeo: The agency having principal responsibility for this would be the Public Utilities Board.