ELECTRICITY TARIFFS (Lowering)

Mr Leong Horn Kee asked the Minister for Trade and Industry whether his Ministry will take immediate action to lower electricity tariffs for industrial, commercial and domestic consumers as international crude oil prices have fallen substantially in the recent months.

BG George Yong-Boon Yeo: Mr Speaker, Sir, in August last year, I explained in Parliament that our electricity tariffs are reviewed quarterly based on fuel oil price at the time of review. Changes in fuel oil prices are passed through to consumers. If oil price increases after the review, Power Supply would have under-collected. If, on the other hand, oil price decreases, Power Supply would then have over-collected. Power Supply is allowed to recover its under-collected revenue or, alternatively, is required to return over-collected revenue to consumers in subsequent quarters.

The last tariff adjustment was made in August last year based on fuel oil price of US$24 per barrel. To reduce the impact of last August's tariff increase, Power Supply had agreed to recover its under-collected revenue over a longer period than the usual three months. For large non-domestic consumers, the collection was made over five months, ie, by end of last year. For residential and small non-domestic consumers, it was made over eight months, ie, the recovery of the under-collection would only be completed by March this year. If Power Supply had been allowed to recover its under-collected revenue over the usual 3-month period, the tariff increases in August last year would have been much higher and more severe.

Fuel oil prices had subsequently increased to a high of US$28 per barrel in October 2000. Fuel price averaged US$25 per barrel in November 2000 before easing to US$21 per barrel in December 2000. As a result, Power Supply, which had kept the electricity tariffs unchanged since August 2000, has continued to under-collect. The revenue under-collected from residential and small non-domestic consumers is larger than that from large non-domestic consumers because the tariff increase in August 2000 was lower for residential and small non-domestic consumers. In other words, we had chosen to smoothen the volatility over a longer period.

In November last year, Power Supply had applied to raise the electricity tariffs further based on the high fuel oil price in October 2000 which was US$28 per barrel. Power Supply subsequently revised the tariff adjustment with the easing fuel price. PUB has assessed and accepted the revised adjustment. With effect from February 2001, electricity tariffs for large non-domestic consumers will be reduced by 0.15 cents per kilowatt hour on average. However, in view of Power Supply's substantial under-collection from domestic and small non-domestic consumers, there is still a need for an upward adjustment of 1.41 cts/kwh for these consumers until April this year. If not for the easing of fuel oil price, this increase for them would have been even more. But if fuel oil price continues to fall, electricity tariffs will eventually fall.

Mr Leong Horn Kee (Bishan-Toa Payoh): Mr Speaker, Sir, I wish to thank the Minister for the very detailed answer but I have a few queries. Firstly, will the present formula of having a quarterly review be reviewed because it seems like a long stretch to wait for three months to do an adjustment and, especially in the environment now where we are seeing a falling of oil prices, there should be a more frequent review?

Sir, secondly, this formula that the Minister explained seems to be causing a lot of lumpiness in the calculation and computation of trying to recover the past losses. I want to ask whether this formula can also be reviewed and whether the Government actually imputes into it a profit element for the power companies because, if that is so, it means the Government is actually protecting these companies.

My last question is, in view of this situation, will the Government introduce more competition in the industry, as he mentioned earlier, to allow for private electricity producers?

BG George Yong-Boon Yeo: Mr Speaker, Sir, Mr Leong has raised a very fundamental question of how we overcome the problem of price volatility. The stock market goes up and down, day by day, and we do not want the day-by-day volatility to be passed on directly to consumers. So we try to even them out. In the case of petrol pumps, the evening out is over such a long period that when prices do not respond immediately to price drop in crude prices, members of the public are upset. But we also recognise that if we pass all the volatility, you also create great disturbance in the market. If you look at the public transport companies, they have fuel equalisation funds. In theory, Power Supply can go into the futures market. But they can also guess wrong. There is no simple solution to this. And what we are working towards is letting the market settle the price structure. In other words, if you are a company which is very dependent on energy and you want stable electricity prices, you negotiate for that. You go into a long-term contract. If you are comfortable with month-by-month volatility, then that is what you get. We will be able to do this once the electricity market in Singapore is deregulated which we intend to do for big consumers later this year and for everybody in one or two years' time.