STATUTORY CORPORATIONS (CAPITAL CONTRIBUTION) BILL

Order for Second Reading read. 12.55 pm

The Deputy Prime Minister and Minister for Finance (Mr Lee Hsien Loong): Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time."

The Bill before the House seeks to amend the Financial Procedure Act and various other written laws to enable the Government to fund statutory boards through the injection of capital, instead of being restricted to funding them only through grants. The injection will be made out of capital contributions appropriated by Parliament.

Rationale

Currently, statutory corporations are given direct capital grants, funded out of Government revenue to finance their development projects. They are not charged for the capital provided to them. As a result of this "free" endowment of capital, some agencies might not fully economise on the use of capital or make effective choices between capital and other financial resources. The best way to bring about proper accountability for the use of capital is to introduce a debt-equity financing structure in statutory corporations as in the case of companies. This Bill will help to bring about such a market-based financing structure by making it possible for all statutory corporations to receive "equity" or capital injection from the Government.

Besides capital injection, statutory corporations should also be allowed to more freely take up debt financing options, such as loans and bonds. This funding approach is also in line with the recommendation by the ERP Sub-committee on Policies Related to Taxation, CPF System, Wages and Land, for the Government to use the capital markets more extensively to finance bankable projects.

Capital grants to statutory corporations are currently given in the form of a single upfront cash outlay. This results in lumpy Government spending. With the new funding framework, payment for capital assets would be spread out as annual operating subventions over the useful life of the assets. This is no different from the Government renting or leasing the asset. It gives a proper matching between the use of the assets and the costing of services.

Some statutory corporations have developmental objectives. Capital injections into such statutory corporations would be funded out of the Developmental Investment Fund as some returns would be expected from them. However, there are other statutory corporations which are purely regulatory in nature. For these, the capital injections would be funded out of the annual budget voted by Parliament.

I shall now proceed to explain the specific provisions of the Bill which are:

Firstly, the amendment of the Financial Procedure Act. The Financial Procedure Act is amended by inserting, immediately after section 7, a new section 7A. The new section will empower the Minister for Finance to invest by way of capital injection in any statutory corporation out of a capital contribution appropriated by Parliament from the Consolidated Fund. The Minister for Finance, after consultation with the Minister charged with the responsibility for the statutory corporation concerned, will determine the terms and conditions under which the capital injection under the section shall be made.

Consequential amendments to other written laws

Forty-seven Acts would be amended to allow the statutory corporations constituted under the relevant Acts to receive capital injections from the Government, in return for shares or other securities issued to the Minister for Finance.

Sir, I beg to move.

Question proposed.

Mr Inderjit Singh: Sir, I rise in support of the Bill.

Sir, in the last two weeks of debates, I gave my views about the Government's involvement in business; particularly when statutory boards get into businesses which in turn compete with the private sector, it creates a very unfair situation simply because, as a regulator and a facilitator, the statutory boards will no doubt favour its own companies or companies owned by other statutory boards. This situation of an unlevel playing field is further worsened by the easy access to cheap funds by statutory boards, especially when the funds come from the Government's budget. Because of an easier than market-practice advantage, it is easily understandable why such statutory-board-operated businesses or GLCs can easily defeat companies from the private sector when they compete with them.

With the proposed changes, statutory boards will be compelled to make decisions along market-accepted practices and will force them to make assessments of projects along commercial terms. I believe, in the long term, it will make the statutory boards much stronger and much more efficient, because they will no longer have a well-cushioned environment and will no longer have access to easy money and, therefore, will have to sharpen their competencies.

I have one concern and two questions for the Minister. The first concern is that, as the statutory boards will now be required to raise funds commercially in some cases, I am concerned that some statutory boards may take the opportunity to increase Government charges and fees, which are already a cause for concern. I would expect that, in the long term, with commercial financing, the statutory boards will become much more efficient, and this should result in lower and not higher costs and, therefore, lower charges. I hope the Minister can assure the House that this change will not result in a round of increases, resulting in higher Government fees and charges.

The questions I have are: first of all, can the Minister elaborate on how the equity structure will work, perhaps by way of some examples? Will the statutory boards now look like GLCs? Secondly, for the debt financing option, will each statutory board be required to go to commercial banks or will there be a special channel for them? In other words, will they be treated like any commercial entity?

Sir, the Bill is a good start to how the Government should be repositioning itself, as we try to create a level playing field and a more entrepreneurial Singapore.

Sir, I support the Bill.

Dr Wang Kai Yuen (Bukit Timah): Mr Speaker, Sir, thank you for allowing me to join in the debate. I support the Bill and I understand the rationale mentioned by the Minister for Finance. However, I notice that in the Schedule, some of the statutory boards, such as the universities, the polytechnics and the People's Association, are also provided for. So, I wonder whether these statutory boards will also be given shares or capital grants, as proposed by him, and whether they will, in turn, be subject to financial pressures, especially those educational institutions.

Mr Lee Hsien Loong: Mr Speaker, Sir, may I address the concern expressed by Mr Inderjit Singh as well as Dr Wang Kai Yuen whether, as a result of this change, fees will increase.

I think these are two separate questions: the degree to which we want to subsidise an activity and how we want to fund the activity. We can fund the statutory board by a grant but, if we do not subsidise the activity, the statutory board still has to recover the cost of providing the service in order to repay the Government, or we can fund it by equity, which is an option we will now have. But if we decide to subsidise the activity, we can subsidise it as the activity is provided.

The universities, the polytechnics and the People's Association (PA), which are mentioned by Dr Wang Kai Yuen, are a good example where, if we decide to give them equity that has nothing to do with how much we decide we want to recover from tertiary education or whether the PA is meant to break even, because these are institutions with educational and social missions, and the subsidy policy there is something which is separate and which is not going to change as a result of this funding arrangement. It does not mean we have decided that we are going to put equity into the universities or the polytechnics, but it gives us the flexibility to do so should we need to do so.

So there may be occasions in some cases where, as a result of going to an equity framework, we may discover in fact that the statutory board has been receiving an indirect subsidy or an implicit subsidy because it had not been costing its services properly. In which case, we will have to ask ourselves do we now want to make it explicit and we subsidise it, or do we think it is not justified and, therefore, we will stop subsidising it over a period of time. I am speaking hypothetically. I do not have any specific examples, but these are issues which we will have to address explicitly, and the more transparent we can be, the better it is.

Over time, as Mr Inderjit Singh has pointed out, with an equity framework, it is more likely that all the costs will be laid bare, it is more likely that the statutory boards will have an incentive to operate efficiently like a commercial company and, therefore, provide services at minimum cost and maximum value to Singaporeans.

Mr Inderjit Singh asked also for some examples of how the equity structure would work. I can give him one example, which is the Civil Service College which was set up as a self-financing statutory board last year, because it is not just running courses in-house, but it is also providing courses externally. Even when it runs courses in-house, it is charging Ministries and statutory boards for the courses which it provides. So it is a self-financing statutory board.

Under the new funding framework, the Civil Service College can either use equity or debt to raise funds for its development projects. For example, if it needs a new set of college buildings, the college buildings will be held on its books as its assets and against liabilities, and the liabilities will be equity which has been injected into the statutory board. It will no longer receive capital grants from the Government because, previously, if we gave it a capital grant, it bought the building, the building did not appear in anybody's balance sheet, and we are not accounting according to proper commercial principles.

If the Civil Service College chooses to raise funds through equity, then it would have to apply to the Ministry of Finance for capital injection. The capital injection would be funded out of the Developmental Investment Fund and would be subject to the provisions of the DIF Act which requires "the Minister or a responsible Minister to establish and adhere to investment policies and adopt standards and procedures that a reasonable, prudent person would apply to a portfolio of investments to avoid undue risk of loss and to obtain a reasonable return." The Civil Service College, after receiving the equity injection, would be required to issue share certificates to the Government in return for this injection.

Mr Inderjit Singh also asked the question as to whether statutory boards will now have to go to commercial banks and will there be a special channel for them. The answer is that the statutory boards that want to raise funds through debt financing can do so by taking up commercial bank loans or by issuing bonds, just like any corporate entity, or they can approach the Ministry of Finance for loans, but such loans will be charged interest rates comparable to commercial rates.

Raising debt financing from the market or borrowing from banks is not a new option for statutory boards. JTC, HDB and LTA have been raising bonds regularly to finance their operations. In fact, we encourage the statutory boards, where possible, to raise financing commercially rather than falling back on the Government, because then we can be quite sure that when they say it is a commercial rate, that is the rate which is offered by some lender, whereas, if they come back to the Government, we will have to estimate the rate and we may get it wrong.

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 Lee Hsien Loong].

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