ENERGY MARKET AUTHORITY OF SINGAPORE BILL

Order for Second Reading read.

The Acting Minister for Trade and Industry (Mr Peter Chen): Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time."

Sir, during the Second Reading of the Public Utilities Bill, I had informed the House that a new statutory board, known as the Energy Market Authority of Singapore, or EMA, will be established under my Ministry to regulate the electricity and gas industries and other energy-related matters, when the current PUB is restructured to deal only with water on 1st April.

Restructuring the Electricity and Gas Industry

In March 2000, Minister George Yeo announced in this House, the Government's decision to further liberalise the electricity and gas industries by separating at the ownership level, the contestable and non-contestable parts of the industries. I will explain the restructuring of these two industries in greater detail during the Second Readings of the Electricity and Gas Bills.

The purpose of this Bill is to establish the EMA as the Regulator of the electricity and gas industries, as well as other energy sectors that it is designated to regulate.

Role of the Regulator, EMA

Sir, when the restructuring is completed in the second half of this year, our electricity and gas industries will be quite different from the status quo. We can expect more local and foreign industry players to participate in the competitive generation and retail sectors. It will become a more dynamic and vibrant market with generation companies competing to sell electricity into the wholesale market, and retailers bidding to purchase electricity from the generators and supplying it to the consumers. Consumers can expect greater choice of electricity suppliers.

In this new competitive environment, the regulator has a critical role in ensuring the smooth and efficient operation of the markets. Like the referee of a soccer match, the regulator has to ensure that the players compete fairly and abide by the rules and regulations. He has to blow the whistle and show the yellow card on players who breach the rules; on certain occasions, he may even have to show the red card. A good soccer match is the result of the confluence of three important factors: a clear set of rules of the game, a team of strong players and a fair and alert referee. It is not unknown for a poor soccer match to be blamed on bad refereeing.

Our electricity and gas sectors are being restructured into a more competitive one. The role of the regulator has therefore to evolve from one of regulating monopolies to that of regulating competitive markets. In the new regime, EMA will focus on ensuring that there is a good framework for vibrant competitive markets whilst still regulating the monopoly functions of transmission and distribution of electricity and gas.

Bringing back the soccer game analogy, EMA has to be a good referee as well as a good rule maker. As referee, EMA is in the soccer field with the players, running with them, watching their play constantly and closely. The referee has to make fair and timely decisions in the soccer field to allow the game to continue uninterrupted. But EMA's role goes beyond just being a good referee. The EMA has to ensure that the rules remain relevant and fair. As the rule maker, the EMA has to be independent, open and transparent in its decision-making. Its rules must be clear and unambiguous. Its approach would be one of active consultation with consumers and industry. It justifies its policies not just on sound legal grounds but also on rigorous economic analysis. The job of the Regulator will become more complex.

The EMA has four key roles. First, it must promote a competitive and well-functioning electricity and gas market, restricting market power, while at the same time, ensuring the security and reliability of the electricity and gas supply. It will need to carry out the balanced role of ensuring that market forces work in a competitive environment and yet maintaining an element of control for security and reliability of supply. It has to foster a stable market environment that will promote competition, encourage timely investment in generation and transmission capacity, and instil investor confidence.

To ensure the security and reliability of power supply, the EMA will take over responsibility for controlling and operating the electricity system network from Singapore Power. This will ensure that the security of our electricity system which can potentially influence competition in the electricity market, is not affected by commercial considerations.

Second, EMA will safeguard the interests of consumers, to ensure that they are provided with electricity and gas services at competitive prices and of adequate standards. Through a comprehensive licensing framework and a set of well-established market rules and codes of practices, the EMA will be empowered to act against errant companies if performance and service fall below specified levels. It can also use incentives to motivate market players to higher levels of performance and service.

An important area for the EMA is the close monitoring of market behaviour to guard against the concentration of market power, abuse of dominance and exercise of anti-competitive behaviours, such as collusion and capacity withdrawal to drive up prices. We have therefore included strong competition provisions into the Electricity and Gas Bills to empower the EMA to act against anti-competitive behaviours and practices. I will elaborate on these provisions in the Second Reading of the Electricity Bill.

Third, the EMA will promote the efficient use of energy utilities. As Singapore has to import all our energy requirements, we must encourage and educate the public to use energy sensibly and conserve as much as possible. The EMA will work closely with industry, consumers and other regulatory agencies, like the Building Control Authority (BCA), to encourage the adoption of conservation measures like energy audits and energy-efficient equipment and devices.

Finally, the EMA will represent Singapore's interest in regional and international energy forums, such as ASEAN and APEC. This is to ensure that we will continue to have free and non-discriminatory access to global sources of energy, especially oil and natural gas. Members would be aware of the two important projects being pursued under ASEAN co-operation, that is, the ASEAN Power Grid and the Trans-ASEAN Gas Pipeline. These projects when completed will give us access to more competitive energy sources and further enhance the security of our energy supply.

The success of EMA in carrying out these roles will be measured by how well the market is performing in delivering reliable electricity and gas supply to consumers at competitive prices with the best level of service. Consumers will have a host of suppliers providing electricity and gas services tailored according to their needs. There will be timely and adequate investment in new generation and transmission capacity to meet the needs of the growing economy and electricity demand.

In order to perform its role effectively, the EMA has to be given adequate resources. The EMA will absorb the existing staff of the Regulation Department of the current PUB and the System Control Unit of PowerGrid, which is a subsidiary of Singapore Power. In addition, the EMA will progressively build up a pool of economists with expertise and knowledge in economic regulation, micro-economic analysis and competition policies.

Key Features of the Bill

Mr Speaker, Sir, this Bill serves as an umbrella Act that empowers EMA to administer the industry-specific legislation, namely, the Electricity Act 2001, the Gas Act 2001 and the District Cooling Act 2001. These legislation spell out the details for the regulation of the respective industry. I will be moving them for the Second Reading following the EMA Bill.

Clause 6 of the Bill sets out the functions and duties of the EMA which I have enunciated earlier. Clauses 21 to 23 provide for the transfer of properties, assets and liabilities of the Regulation Department of the PUB to the EMA. It also provides for the transfer of employees from the PUB to the EMA and the protection of their terms and conditions of service on transfer.

Conclusion

Sir, energy is an important factor of production in any economy. It is also an essential utility service. Within the broader framework of keeping our business costs competitive, we have to keep our energy market internationally competitive. With this Bill, the EMA will be able to effectively oversee the development of a competitive market for our energy utilities, ensure the reliable and secure supply of electricity and gas and safeguard the interests of consumers.

Sir, I beg to move.

Question proposed.

Mr Leong Horn Kee (Bishan-Toa Payoh): Mr Speaker, Sir, I support this Bill as this new Energy Market Authority of Singapore Bill sets to liberalise the entire electricity and gas sectors. When the Bill becomes law, it will enable the Government to gradually break up the generation and production from the sale and distribution so that there will be more competition, leading to more efficiency and lower prices.

Sir, the Energy Market Authority (called EMA in short) will regulate the gas, electricity and other energy-related matters. Overall, I feel that the concept and intentions are laudable and will lead to benefits to the end consumers, which are the industries, businesses and homes. It is like the liberalisation of the commercial sectors, as in banking and finance. In banking, this is called the "Big Bang". Although the concept is the same, in the energy sector, if we are liberalising this sector, we better not call it the "Big Bang". Because in a sensitive area, like energy, we have to be very careful. If wrongly ignited, a "Big Bang" of the energy sector may lead to a big explosion!

Sir, I am indeed concerned that if this is not done properly, the liberalisation exercise will indeed explode in our face. I do have a worry that, if not managed properly, the breaking up of the sector could turn into a mess.

Adequate Market Size

Mr Speaker, Sir, allow me to explain my concerns. First, adequate market size. I have a worry as to whether Singapore is too small a market for the proper competitive environment for this energy sector to operate. Is there sufficient market size to allow several players to enter the market and remain viable and sustainable? Is there enough room for several power generation companies, each of sufficient economy of scale? Naturally, the large Government-linked Companies (GLCs) will be entering the sector. But will there be other interested parties, like the private companies and foreign MNCs?

If there is insufficient number of players to become power generation companies (called Gencos in short) will it lead to inefficiencies? Will it lead to more efficiency, or in fact to the contrary, more confusion? If the number of players is small, would there, in fact, be a risk of cartelisation?

Impact on Prices and Service Standards

Electricity and gas coming out of the copper wire or copper pipe will be the same, since they are all pumped through a common grid. Unlike other consumer products, there is really no product differentiation for electricity and gas. Therefore, my second question is: will there be a wider number of options and choices? What will be the impact on prices and service levels?

Sir, the issues and potential problems mentioned above are also applicable to the suppliers, who will on-sell the electricity or gas to the end-users. How would the EMA ensure that the suppliers give better prices and provide good service standards? If the number of players is limited, how is the EMA able to ensure that fair practices are maintained by the suppliers?

Difficulty of Regulation of Several Participants

Sir, the third issue is that with the sector sub-divided into several parts, would there be more difficulty in the regulation and supervision of the many participants? In the past, there was just one body, which was the former PUB, to monitor and manage. Now, the new EMA has to watch over several players. As the Senior Minister of State has said, can the EMA be a good referee? How would the EMA be able to ensure reliability of supply? And what if the players play foul? Can the EMA act fast enough? In the event of power failures, what are the fallback or urgent recovery measures? How would the EMA ensure technical competency of the power generation companies? Any power failure will not only cause inconvenience, but can also cause hazards to lives and high economic loss to industries, in terms of production and output. We are reminded of the total power loss problems encountered in places like Malaysia, California, New Zealand and other places.

Public Dissemination and Explanation

This fourth area is on public dissemination and understanding of the new structure. Here, I would like to urge MTI and the new referee, EMA, to conduct extensive public forums and publicity, to explain the structure of the new energy sector. For industries, it is important that they understand the mechanics of the new structure so that they can make the right decisions and select the right choices.

As for small businesses and households, I would like to suggest that the transition be conducted in a more gradual manner. For these users, the need for clear and wide public explanation is even more important. For example, in some households, we may have old folks living in very small flats, or residents who are illiterate, who cannot understand the choices given to them and, therefore, are unable to understand the whole new structure.

Learning from Others' Experiences

My fifth point is whether there will be examples around the world where the new approach has been successfully implemented. If the new concept has been tried and tested elsewhere, can we not learn from them and avoid their mistakes?

In conclusion, I would like to congratulate the Ministry of Trade and Industry for taking this bold move of revamping the entire energy sector. I support the Bill as the objectives are noble, which are to generate competition, leading to better efficiency, better service and, hopefully, lower prices for the end consumers. Sir, let us hope that it will work as planned.

Mrs Lim Hwee Hua (Marine Parade): Sir, I rise to support the Bill relating to the establishment of the Energy Market Authority in conjunction with the regulation of the electricity and gas industries upon liberalisation and deregulation of activity. Sir, I wish, however, to raise several issues from the perspective of the domestic consumer of electricity.

Firstly, the principle of complete pass-through of costs. Sir, as I have raised earlier during the Budget debate, the intended extension of liberalisation to the domestic segment would mean free market forces will be allowed to work. Currently, owing to the monopolistic situation and the quarterly review of tariffs, household consumers are not really exposed to the volatility of, say, the fuel oil price cycle, such as the one seen recently. As such, a substantial amount of public education should be undertaken to acquaint households with this principle, that there will no longer be price regulation nor any review. Notwithstanding this, I would also like to ask the Minister separately what measures will be taken to help preserve price stability as far as possible. Also, in practice, how would EMA determine whether prices are indeed competitively set?

Secondly, infrastructural costs. When the retailing function is liberalised, presumably, there will be scope for product differentiation, even on just price alone, eg, offering peak and off-peak rates. As such, there are very likely to be some changes to the supply infrastructure, eg, a change in meters. Unlike big corporate customers, individual households will not wield the same amount of bargaining power. In the light of this, can the Minister assure the House that households will not have to bear these infrastructure-related costs unfairly?

Thirdly, choice available to households. Sir, the Minister has said that consumers would enjoy greater choice. But what choice would households really enjoy? As mentioned earlier, unlike big corporate customers, households, on their own, do not have strong bargaining power. Is there, therefore, a possibility of, say, Town Councils or, for that matter, the Housing and Development Board itself, functioning as a retail supplier to HDB dwellers? In this way, the aggregate buying power will be greatly enhanced.

Sir, ultimately, from the domestic consumers' perspective, liberalisation or deregulation must bring forth some tangible benefits. These could be either lower tariffs on average, or more choice through the bundling of services by suppliers.

Mr Noris Ong Chin Guan (Nominated Member): Sir, I rise to speak in support of the Government's privatisation plans to set up a regulatory authority for the energy utilities market. By injecting competition in the energy market, we are in fact allowing market forces to help ensure that the utilisation of resources will be better maximised. This is important for Singapore, as our resources are scarce. In the long run, having more players in the energy market should also benefit customers. Consumers will be given more choices. The competition should lead to better service and new products. Pricing for the use of energy utilities should also become more competitive.

Notwithstanding this, Sir, the road to privatisation is not without obstacles. There are some lessons that we can learn from our past privatisation experiences. There is a transitional period that needs to be managed before multiple players establish themselves in the energy market, before the market is fully liberalised, before free market forces can operate to the benefit of consumers.

There are some issues I would like the Minister to consider. We all know that energy utility is an essential service. By this, I mean that it is a service that is required by everyone. Residents of all income groups need the supply of electricity and gas to their homes. The level of consumption may be different, but energy utility is needed by the rich, the poor and the man-in-the-street. Sir, if the prices of energy utilities are not properly regulated, it will contribute to inflationary pressures and raise business costs. If services by energy companies are not up to the mark, if their infrastructural and capital investment in Singapore is inadequate, it can lead to unnecessary blackouts, inconvenience to households, and major disruptions to the economy. We may not plunge into a post-liberalisation scenario similar to the recent experiences of Californians. But we have had minor disruptions that warrant some concerns. For example, we know from experience that an upsurge of power disrupt automated banking service, wafer fab production and so on. What we must prevent at all cost is a post-liberalisation scenario where frequent glitches by energy companies lead to a crippling of investors' confidence. Glitches in energy supply should be exceptional.

But when they do happen, people will start to ask why did the Government want to opt for privatisation? For example, ask any man-in-the-street or those from the lower income group for their views on their experiences following the sale of POSBank, they will lament to us that it was more convenient in the past, as there used to be more POSBank branches. They will complain to us about the long queues and waiting time that they are now subject to. They will remember the administrative charges that were waived by the people's bank.

In short, Sir, some people are wary that privatised entities would be too focused on getting the best bottom line, to the extent that the basic and fundamental interests of the common people are sacrificed in the process. They are concerned that privatised entities might be too profit-driven, becoming more interested in striking up strategic alliances to be a key regional energy utilities player and forget about the average Singaporean, especially those from the lower income group. The lower income families are concerned that they may no longer be able to enjoy subsidies for energy utilities in future.

Hence the regulatory body has been given a huge responsibility. They must be proactive about ensuring the best service quality and competitive pricing, rather than take a passive approach of slapping the penalties after the problem has occurred. This is a role that I hope our regulatory authorities will adopt. We must learn from the recent experience of the Californians. We must ensure that energy utility companies coming into the local market must be willing to commit themselves to make sufficient infrastructural investments. I hope that the Energy Market Authority of Singapore does not assume that, by having more players in the market, it will result in competition and, therefore, naturally benefit the consumers. That is not always the case. After all, it was only quite recently that our motorists were quite unhappy that when oil prices were falling, the petroleum companies in Singapore maintained a cartel-like grip on the local petroleum market, and were reluctant to lower petrol prices until an issue was made out of it. Should we still allow market forces to prevail, even if there is collusion between the key service providers or suppliers in the market? Is the Energy Market Authority of Singapore empowered to intervene and regulate prices?

In the long run, consumers may exercise their discretion and rights by switching to another service provider. But, in the initial transitional stage of privatisation, before more players come in and establish themselves in the market, what choice do consumers have? How can the consumers' rights be protected from a privatised monopoly, duopoly or oligopoly?

Sir, I hope that the Energy Market Authority of Singapore will adopt a pro-active watchdog role to ensure that the interests of consumers, especially those from the lower income group, continue to be protected in terms of pricing and service quality. The last thing that we want to see out of this privatisation exercise is another post-POSBank debacle emerging.

With that, Sir, I support the Bill.

Mr Inderjit Singh (Ang Mo Kio): Sir, I am glad that the Government has finally decided to fully liberalise the energy market in Singapore. Like the telecommunications industry, the energy business is really a worldwide commodity and, therefore, there is little need for the Government to have such a strong control and monopoly over the market.

This Bill is the basis for the rest of the Bills that we will be debating today and, as I studied the rest of the Bills, I realised that the Government is making drastic changes to make almost everything contestable, and to privatise the whole value chain of activities in the electricity and gas industries. The one concern I have is that the EMA does not have very much control over even some strategic parts of the whole supply and distribution chain. I therefore urge the Minister to consider restructuring the plans, to allow EMA to own and manage the strategic infrastructure in both electricity and gas distribution. For electricity, I suggest that EMA take over the managing of the power grid and, for gas, it can take over the gas transportation infrastructures. The fact is that these two portions of the whole supply chain will not really change from the present infrastructure. I therefore think that EMA should be the neutral body owning these assets for the following reasons:

1. These infrastructures are strategic in nature and they directly affect the consumers, whether they are commercial, industrial or domestic. We should not allow any opportunity for any non-government agency to have too much of authority and control over national strategic infrastructure which could also affect our national security.

2. The infrastructure is already fully developed by the Government, and there is no real reason to spin off these assets as they will not directly affect the intent of liberalising the generation and retail of energy sources.

3. I do not see why there is a need for developing other alternative infrastructures for distribution of electricity and gas, as the Singapore market is too small for one or a few more infrastructure players.

4. If we let a private sector run these distribution channels, there may be problems for generators and retailers of energy sources when all of them compete to use the same infrastructure. It is not inconceivable that if a private company runs the infrastructure, it may lead to some form of preferential treatment for some generators or retailers, by virtue of some business relationships that may develop over time. It is, therefore, more appropriate for an independent entity, which has the interest of the country, to own and manage the infrastructure and the Government, or the EMA as the agency, to do this.

The second point I want to make on this Bill is the premise that the liberalisation of the energy sector will lead to cheaper energy sources. I hope that this will truly be the case and that all Singaporeans and Singapore-based companies will enjoy cost reductions for the utilities, which over the years, have been so high that we are paying even more than countries like the US and Japan. While we may think that the cost of utilities is small, compared to the overall cost of doing business in Singapore, the fact is that as we move to the higher technology type industries like water fab, petrochemical and pharmaceutical industries, it is a major cost component. It is, therefore, very important that we will successfully create a competitive environment that will, in the long-term, keep costs of energy low. In this respect, I hope that the Ministry will be able to create an environment that supports true market competition and not support only what seems to be a competitive landscape by licensing only Government-linked companies.

One last point on the Bill is the appointment of members of the Authority. The Bill provides for up to 10 members to be appointed by the Minister. I suggest that the Minister consider having a good mix of people from the private, public and people sectors to be members of this Authority, as this will give a diversified perspective of things and also give a good representation of everyone who will be affected by the changes to come.

With this, Sir, I support the Bill.

Mr Simon Tay: Sir, I support the Bill, subject to some questions which I hope the Acting Minister will answer.

Sir, in asking these questions, I also believe this is an important Bill. There is basically a growing belief in markets throughout the world that privatisation has clear benefits. The benefits of privatisation are especially clear when things have been badly run by the Government in countries where either there is no power, no water or if some things are very bad, then you really see that markets and private companies must come in. Fortunately, or unfortunately in that sense, the benefits are not so clear in Singapore. The system is relatively good, the quality at present seems relatively assured, and, therefore, focus has tended to be on prices. A move to privatisation, therefore, has a lot to prove. Basically, we have to ask ourselves, whom do we trust. Do we trust the Government, as a provider, as well as the administrator, or do we provide trust in the markets?

Sir, other speakers before me have already talked about cartels. I think there are some bad stories. There are concerns about petrol companies, as well as things like the DBS Bank consolidation with POSBank. But I would like to point out that competition and choice for consumers have worked in some other cases of note recently. Telecommunications is one clear case; similarly, supermarkets. We have gained from having foreign entrants and I would say, perhaps flippantly, on bookstores too. Borders bookstore has made a tremendous difference over Time and MPH before. In this sense, there is both a cautious optimism about allowing in foreigners and allowing more competition.

Sir, this caution has to be weighed against the needs. I think if we look at the region and the future, we have concerns about energy security, not just our internal grid, but the long-term demand and supply in the region and in the world generally. If the region does go up economically, as we hope, energy needs will go up and supply may go short. Therefore, we have taken steps in the last few months to secure fixed supplies, such as the natural gas from Indonesia. Regional needs and cross-border supply and generation, I think, are the ways of the future. This would require companies in this sector to be both big and think long-term. I wonder, Sir, whether privatisation will really create these companies, or whether Government has actually got the deep pockets and a long-term vision to lead the way.

Secondly, on the question of deregulation and restructuring markets, we have to be concerned about efficiencies. The crisis recently in California has been mentioned several times. I would just like to quickly share my view on why this happened. Basically, this is because consumer prices were fixed by the law. As such, when demand rose and prices rose, there was over-demand, which could not be alleviated by rising prices. Obviously, this should be avoided. We should have a market with enough players and consumers, and a sufficient flexibility in prices that will match the supply and demand.

However, while I would encourage not having fixed prices, I must recognise there is a concern over rising costs, especially for households. In this light, I would like to point out one shortcoming of the drafting of clause 6 in the Bill. Looking at clause 6, the closest I can get to the question of price is that in clause 6(e). Here, it is proposed that the Bill will protect the interests of the public, in respect of the supply and use of electricity and gas and the provision of district cooling services. Sir, there is no statement about reasonable prices. In contrast, if you look at clause 6(c) of the Public Utilities Bill, which we have just passed, there is a clear statement here that one of the duties of the statutory board would be to provide supply at reasonable cost. I think this is something that the Ministry should address to assuage public concerns about cost.

Basically, I have got a few points, if I may move on quickly. First, I would like to see a lower threshold for entry by suppliers to bring sufficient players to the market. Many of us have talked about the large players. Additionally, we have got to make accommodation in the grid for micro-power and micro-power suppliers. Every time I pass by the incineration plant or the refinery and I see the flare, I think that is energy we could have tapped.

Secondly, the consumer choice is a concern. If we have flexible prices and competitors, this only makes any difference if households know about the differences in price and can switch. I would like to ask the Minister what would be the mechanism for alerting consumers, who is the cheapest producer, supplier, or what are the cheapest times in allowing them to switch between one supplier and another in real time, not just month to month or year to year?

The third element I would like to point out is competition policy. Clause 6(1) creates and imposes upon the Authority the duty to regulate the market, make it fair and efficient, that will have effective competition and prevent the misuse of monopoly or market power. Clearly, Sir, this is going to be a difficult and a new area for Singapore law. It must be tried. Recently, in this House, we have heard that there are international trends that pressure Singapore to take on competition policy. It is a very good attempt, especially to address competition policy from a new and preferably narrow segment of the market, such as the supply of energy.

But the question of how is something I hope the Acting Minister will elaborate upon. Who can complain to the Authority if he feels that there is a monopoly or an inefficient market? Is it consumers or only rival power companies? Second, will the duty be questionable in courts that the Authority has not adjudicated properly or will it only be by the Authority? And will there be public hearings?

Sir, if we have to have a regulatory authority over competition, there must be a clear structure for different competitors and stakeholders, like the consumers, to be heard on this issue. The fourth issue is on efficiency. The promotion of power energy efficiency is something many of us have emphasised and the move to market is certainly one that can potentially strengthen the link to efficiency. But this is only a possibility. There is the other possibility that competition and competitors may aim only for greater consumption and profit. What safeguards will we have against this danger?

The last point I would like to make is the question of consumer choice and rights, because this undergirds a lot of the things that we are doing in liberalisation and marketisation. This Government has been reluctant to give much more strength to consumer movement through a Fair Trading or other Act. If we do leave energy generation to others outside of the Government and, potentially, foreign companies, I think that this idea of consumer rights is the necessary balance we must bring into the creation of the market. The consumer must have a choice, the consumer must have rights. Only then will the markets that we are creating have much chance of being truly efficient.

Mr Low Thia Khiang: (In Mandarin): Sir, the setting up of the Energy Marketing Authority of Singapore is a prelude to the privatisation of electricity supply in Singapore. Soon, electricity supply entities which are hitherto solely owned by the Government would be split into three private companies.

Except for water supply, almost all the basic public services have been privatised. For a Government which is good at calculating profit and loss, the advantage of privatisation is that Government does not have to take on the responsibility of providing basic public services to the people. After privatisation, the Government is still the major shareholder. All the profits earned by these privatised companies will conveniently flow into the Government's pocket.

The rationale behind the Government's privatisation effort is that these companies will be governed by market forces and, therefore, be cost-effective and efficient. There will be less wastage and the cost would be lower, so that all the services provided would enjoy better economic benefits. But the real effect is that, after privatisation, the charges for all the services will get higher and higher. In the end, it is the people who suffer.

With the restructuring of the Government hospitals, health cost escalated, forcing the Government to provide the Medifund to assist Singaporeans who cannot afford the medical charges. The result of the privatisation of telecommunications is that consumers have to pay higher charges. The burden of life is getting heavier and heavier.

Another wonderful effect of privatisation is that once a Government corporation is privatised, shares are sold to the people. The Government even distributes some of the shares to the people to make it as "shares for everyone". If the charges go up, the Government could justly and forcefully say, "If the charges are not raised, the company will not make profits, how can we account to the shareholders?" Prices are raised so that the company can make profits. This argument has become acceptable to the shareholding people.

The Government's argument is that privatisation is a mechanism to introduce competition to the market, to make the charges for services more reasonable, and even lower. However, from the past experience of privatisation of the public services, it is apparent that the competition brought about by the so-called market mechanism is very limited.

For example, the privatisation of public transport service. The present situation is two bus companies each sharing one-half of the pie, with the same fare structure. Take a look at telecommunications. SingTel is still the main telephone service provider. Residential lines are all controlled by SingTel alone. Newcomers, M1 and Starhub, can only compete in mobile phones and international calls. Yet, the main cables and telecommunications are still in the hands of SingTel. Under this type of competition, the others can only be the "also-runs".

The privatisation of electricity supply is supposed to bring in more companies to enter the market competition. Just how many electricity supply companies can Singapore accommodate? Perhaps it is the major shareholders - the Government competing with itself. Then, with corporatisation, electricity tariffs are fixed with profit in mind. I doubt very much that the electricity tariffs will be really lowered in the long run to the benefit of the consumers.

In fact, the real purpose of privatisation is to go for investment returns, that is, how much profit. Basic public services such as public transport, residential telephone service and electricity supply are all added with the profit element. In the end, the consumers will have to pay higher charges, and the burden of life will surely be heavier.

Some people may think that I am asking the Government to subsidise public service. No! What I am asking for is that the Government does not earn the people's money from the public services. The Government should provide the basic public service to the people at its operational cost rather than profiteering from the privatisation of public services and adding on more burden to the people.

Mr Peter Chen: There have been many issues raised, and they are very complex issues. I would like to thank all Members, but one, who spoke in support of the Bill. From the issues raised, one basic question was: is our market too small to really support competition and how many players can there be to ensure there is real competition? I think our market is not too small. We are about the same size as New Zealand where privatisation there has been successful. We are also about the same size as a number of Australian states, so do not get away with the idea that we are too small for that.

Secondly, how many players can there be, and will there be a limit to the number of players? The answer is no. There could be as many players as they could come on. Another point that has been made is a caution on the speed. Speakers have expressed concern that we may be moving too fast. We are taking this step by step. What we would like to point out, first of all, is that although we do not want to move too fast and fall on our face, there is one very important sector of our market which will be opened up soon, ie, the industrial sector which already uses 70-80% of the electricity. There is already plenty of room for competition.

With regard to the consumers side, which occupies 20-30%, this would take a bit more time, because they will also need education on their choices, and there are a million accounts out there.

We have also been warned of some of the pitfalls of privatisation, and reference has been made to the DBS-POSBank merger. With regard to that reference, this has already been discussed in the House on other occasions. And DBS has reiterated its commitment to continue providing banking services that are accessible at affordable prices. I think it is not a very fair point to make. It has no intention of leaving the mass market and service, and it is facing teething problems. DBS perhaps may have been able to manage these transitional problems better, but we could not avoid the most basic imperative to rationalise retail banking services and make them economically viable.

Mr Inderjit Singh has questioned why do we not let EMA own and manage the electricity and gas distribution grids. He felt that the EMA should manage the electricity and gas infrastructure as well. This matter has been debated extensively when we corporatised the electricity and gas functions in 1995. There were two options. One, as indeed suggested by Mr Inderjit Singh, and the other being for the grids to be privatised. The experience in other countries shows that this infrastructure can be privately owned, but has to be tightly regulated. As private companies, they can operate more flexibly and efficiently, so that they can be as efficient as the private counterparts and be subject to a certain amount of commercial and financial discipline. And EMA will regulate this infrastructure companies.

Mr Inderjit Singh also mentioned the risk of infrastructure companies who deal with generators, retailers and so on. Indeed, this is why the EMA will be empowered to prevent the infrastructure companies from participating in generation and retail, and to prevent anti-competitive behaviours. I will say more of that when we explain the Electricity Bill.

To ensure security, I mentioned in my speech that the EMA will take over control of the operations of the electricity network from Singapore Power.

One refrain that we have heard among several speakers is: will competition bring about lower prices? I think we have to be careful not to confuse lower prices with competitive prices. Nobody can guarantee lower prices. What competition can bring about is to ensure a framework where there is competition, where there is enough competitiveness, so that it will bring about the prices that we would otherwise not be able to obtain under other conditions.

There is also concern that whatever the number of players, there could well be a situation, like some Members have referred to, a situation in retail petrol, where it is seen that despite the number of players, there appears to be some sort of arrangement. I think we cannot provide for everything but, as we have said, the EMA will have to be vigilant. As in the case of the unhappiness over what appears to be collusion among the petrol companies - this is not necessarily so, but it appears to be so - my Minister has already mentioned in the Committee of Supply debate that this is being looked at. I think one of the strong points of Singapore is that we are not rigid, and we are not governed by ideology. And where something appears not working, we will step in. And, of course, privatisation is not a panacea for everything. But where there is a need to put matters right, they will be put right.

I also thank Mr Simon Tay for pointing out some of the clauses that may require some looking at. He raised the point about who may appeal, and raised concerns of a grievance. There is no restriction there. But if, in practice, when we find that it is inadequate, then of course we will take a look at it again. There is no restriction of who may or may not raise issues, and make appeals.

Mr Low Thia Khiang, of course, has made his usual point concerning the cost of utilities. He made the same point that we must ensure that utilities do not become unaffordable. Again, I will give him the same answer that no amount of legislation can guarantee low cost or low price. But what is important is that competition and privatisation will bring about the financial and commercial discipline, so that everybody knows what the true cost is. If there are people who, in fact, experience hardship, then this Government has, on many occasions already, and in the most recent occasion, provided the help that is needed. It is only for those who need this help.

There are perhaps other points which I may not have answered at this stage, but which perhaps will become more apparent as we move on to the Electricity Bill, because many of them are a follow through.

Question put, and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House.

The House immediately resolved itself into a Committee on the Bill. - [Mr Peter Chen].

Bill considered in Committee; reported without amendment; read a Third time and passed.

Mr Speaker: Order. I suspend the Sitting and will take the Chair again at 3.50 pm.

Sitting accordingly suspended at 3.27 pm until 3.50 pm. Sitting resumed at 3.50 pm