NEW CHARTER OF GOVERNMENT-LINKED COMPANIES (Motion)

3.20 pm

Mr Leong Horn Kee (Bishan-Toa Payoh): Mr Speaker, Sir, I beg to move*,

That this House, taking into account the Report of the Entrepreneurship and Internationalisation Sub-Committee (EISC) of the Economic Review Committee and the press release by Temasek Holdings (Pte) Ltd on the new charter of the Government-linked companies (GLCs) and in view of the concerns of the private sector regarding GLCs, urges the Government to implement the recommendations of the EISC which define the new roles and positioning of the Government and GLCs in business and, in so doing, support the growth of private enterprise and entrepreneurship in Singapore.

Dialogues with industry

Sir, this topic of the role of GLCs has been raised and debated in Parliament numerous times in the past. The reason that my parliamentary colleague, Mr Inderjit Singh, and I wish to table this Motion is because the EISC has presented a report on its recommendations on Government in business. Temasek Holdings has responded with a press release on its new charter. Therefore, I

feel that it is a good time to take stock, and have a full debate in this House on the new roles of GLCs. The members of my GPC for Finance, Trade and Industry generally agreed to have this Motion tabled. They shall speak on this Motion airing their views. A thorough airing of the

*This motion also stood in the name of Mr Inderjit Singh views will enable the Government to present its position on the important issue of Government in business.

Sir, to gather views on GLCs, the GPC for Finance, Trade and Industry conducted two dialogue sessions with our Resource Panel members, representatives of the Chambers of Commerce, the Association of Small and Medium Enterprises (ASME), the Singapore Confederation of Industries (SCI) and other invited businessmen and professionals. They have given their valuable input and suggestions. I wish to thank them.

GLCs' divestment history

Sir, the first major review of GLCs was completed on 21st February 1987 by a committee chaired by Mr Michael Fam, called the Public Sector Divestment Committee. This was 15 years ago. The committee identified 15 GLCs for listing, nine GLCs for reduction of Government shareholding, and 17 GLCs for total privatisation, making a total of 41 GLCs recommended to be divested over a 10-year period. I regret to note that the actual divestment rate of GLCs has been painfully slow. A quick check will reveal that only about two-thirds of the GLCs recommended for listing have been done. In fact, on the contrary, several GLCs have continued to expand and became very sizeable companies. Contrary to shrinking and divesting, the GLCs had gone forth and multiply. There are now more GLCs in terms of size, number and coverage of the economy than before 1987. Has Mr Michael Fam's Report been totally forgotten?

Meanwhile, over these years, the cries of the private sector against GLCs got louder and louder. Most of the complaints were reflected by MPs in this House. This is a perennial topic raised during the annual Budget debate and the Committee of Supply.

The EISC report and Temasek's new charter for GLCs are therefore timely. They put in perspective the current stage of GLCs and what should be done in setting the policy forward for Government in business. Though not comprehensive documents by themselves, they serve as useful guide-posts to review and plan ahead. I shall delve further into these reports later in my speech.

Definition of GLCs

Mr Speaker, Sir, before I go on to set out the gripes of the private sector against GLCs, we should first define what we mean by a GLC. Generally, the public loosely considers a company to be a GLC if it has close ties to the Government, either in the form of direct or indirect shareholdings or having Government representation or control on the Board or management. A more precise definition has been commonly used nowadays. A GLC is defined as a company with more than 20% owned by the Government through Temasek Holdings of the Ministry of Finance, or by other Government Ministries, statutory boards and agencies.

Temasek Holdings now wants to call them TLCs, to differentiate TLCs which are Temasek's stable of companies, against Government-linked companies which are owned by other Government agencies. However, I feel that, to make the picture more complete, when we should refer to Government in business, we should also include GLCs owned by Temasek and other Government agencies. I would like to include companies under the ambit of NTUC and the Singapore Labour Foundation as well. I shall explain.

Let me coin a new acronym for NTUC and SLF-linked companies to be called NLCs. A Minister without Portfolio is head of the NTUC. The companies under the SLF are another NLC group headed by another Minister. Although NTUC and SLF-linked companies are technically not under Government shareholding influence, they are exerting the same nature of Government connections and clout like GLCs. Therefore, any policy rules or decisions on GLCs which are applicable to Temasek's TLCs, corporatised Government agencies, and subsidiaries of statutory boards, should also be applicable as well in form and spirit to the NTUC/SLF-affiliated companies, ie, the NLCs.

Concerns regarding GLCs

Sir, what are the concerns regarding GLCs? The concerns stem from the fundamental issue that GLCs have parentage that is linked to the Government. The Government, being a market regulator, is also the player, therefore, the Government is both referee and player. Therein lies the fundamental conflict of Government in business.

In most countries, in the US especially, the government's role is to assist businesses to grow. It is a firm belief that a businessman, with his personal money at stake, will make better business decisions than government officials. The Government's share of the fruits of success is in the corporate taxes levied. In fact, from the private businessmen's point of view, it is rather ironical that the Government collects taxes from their profits, which could then be used by the Government to invest in businesses which compete against them. This is a dichotomy of Government in business.

Essentially, the concerns regarding GLCs are three main aspects:

(1) Unlevel playing field;

(2) Crowding out of the private sector; and

(3) Transparency and trust.

Unlevel playing field

Private-sector companies are very concerned about the unlevel playing field. Their concerns are that the GLCs have strong connections. They have chairmen, directors and CEOs who are former Ministers, top civil servants, generals and admirals. Besides these clout and connections, GLCs have strong finances. Hence, because of their muscles, they can edge out any SMEs. A common mistaken perception is that "all things being equal, the award of a contract will invariably go to a GLC".

Sir, I recall that when I raised this perception of unlevel playing field to Deputy Prime Minister Lee Hsien Loong, in a debate in this House several years ago, his response was that the Government's policy was to lay out a level playing field. He suggested that we could measure it with a theodolite. The Government will make any playing field level for all players.

I do not think that there exist rules that deliberately favour GLCs. Nor are there any hidden subsidies for GLCs. Since the Government is always above-board, this is not permitted. But compared to a private company, a GLC enjoys certain advantages. Firstly, in terms of finance, a GLC is usually stable and stronger financially, with Government as the shareholder. Secondly, GLCs have connections and old-boys network of the civil service, which are a distinct advantage. Thirdly, GLCs are favoured just purely because they are GLCs, being of the right pedigree and parentage. Others want to do business with them.

In fact, Senior Minister Lee Kuan Yew said so himself in this House on 21st May 1996 during the debate on purchase of properties. Senior Minister, as usual, gave a long and commanding speech that day, six years ago. On a matter of perceived unlevel playing field, he said:

"So let us be a little realistic and do not expect that the Government can force private sector to give the professionals a level playing field. No. It is their business. They want to get the best customer that will help them to sell the product and add value."

SM went on to say:

"Ministers, Parliamentary Secretaries, MPs, you go to a hawker centre. If they give other customers one egg, they will give you two." He quipped: "I know because when in the 1950s, I used to go to Koek Road, the best char kway teow there, other people for 50 cents got one egg. I got two."

That was what SM said. SM also went on to cite examples of his shoemaker and tailor giving him special service.

So to be realistic, even if there is a level playing field in terms of the open rules, certain better, stronger and well-connected customers like GLCs will get favoured.

Let me quote my personal experience from the receiving end of it. In 1995, I was involved in a private sector company that entered into a joint venture with three GLCs to develop a piece of land in Shanghai. The joint venture partners agreed to borrow from the banks using the land as collateral and each giving corporate guarantees for their share of the loan. Compared to the GLCs, we were informed by the banks that our private sector company will have to be charged higher interest rates for our portion of the loan. The reason is that though the collateral is the same, the value of our corporate guarantee is not the same.

Crowding out of Private Sector

Mr Speaker, Sir, this second gripe concerning the crowding out is even more serious. The Department of Statistics (DOS) did a study in March 2001 on the "Contribution of GLCs to GDP". It sets a clear definition of GLCs as those wherein the Government and all its agencies own directly or indirectly effectively 20% or more. DOS concluded that GLCs accounted for 12.9% of the total GDP in 1998. This is a very interesting study that is not well-publicised.

Mr Speaker: Mr Leong, can you pause for a while so that the motion for exemption can be moved? Mr Mah.