NEW CHARTER OF GOVERNMENT-LINKED COMPANIES

Debate resumed. 3.51 pm

The Deputy Prime Minister and Minister for Finance (Mr Lee Hsien Loong): Mr Deputy Speaker, Sir, I thank all the Members who have spoken. It is now my pleasant task to summarise the arguments which they have very eloquently made. I do not feel like Darth Vader. I am trying to look like Yoda.

The story of how GLCs came about has been well told by all the MPs. So, I do not have to repeat the historical background.

But, today, the value-added of Temasek companies accounts for some 13% of Singapore's GDP. If the Government had not got involved in business, most of these companies would not exist today. If you allow for the fact that the Government itself consumes 9% of the GDP, then the non-GLC private sector, which means the local companies and the multi-nationals, makes up 78%, which is more than three-quarters.

Our objective is to expand this total pie, of which the larger part is the non-GLCs. And that means expanding the productive part of the economy, namely, the sum of both the GLCs and the non-GLCs, while keeping the Government share as small as possible, because the Government share really is a consumption. It is a necessary burden, but it should be kept small. The question is: do GLCs have a contribution to make in this process? Will growing the GLCs be at the expense of the non-GLCs? More importantly, and a different question, will growing the GLCs be at the expense of the overall economy? I think those are the questions we have to consider.

Everyone agrees that in our earlier phase of economic development, the GLCs made a contribution. But now that the GLCs have grown, now that they exist, what should we do with them? Should the Government exit from all the businesses? If so, how?

Hence, we have had a long debate in the EISC, chaired by Mr Raymond Lim, and also within the Government on the role of the Government as a shareholder in these companies, and what the Government hopes the GLCs will achieve. The result, after extensive debate, has been the Temasek Charter.

The Charter sets out Temasek's role - to nurture the companies with the potential to grow into successful international businesses. It defines the types of businesses which Temasek will hold and those that Temasek will exit and divest. Temasek will have no interest in companies that will only serve the domestic market, unless these are strategic industries, for example, broadcasting, the electricity grid or the port.

The GLCs are important players in the Singapore economy. There are very few non-GLCs with the size, organisational strength, or the technological depth of Singapore Telecom, SIA, Singapore Technologies or PSA. The closest would be the banks - UOB and OUB, or now UOB and OCBC, and the property companies, eg, CDL. But these are not technology companies. We can argue whether had the Government not built up these companies, more non-Government private enterprise would have grown, and the Singapore economy would have been more dynamic and entrepreneurial. But the Government decided on a strategy, and it worked. We are convinced it is right. Maybe you are right and we are wrong, but that is Monday-morning quarterbacking.

Now that the GLCs have been created, the Singapore Government has a responsibility to make sure that they are well run, grow their business, and contribute to the economy. This may mean tougher competition for the non-GLCs. But so long as the competition is fair, it is good competition, it is good for the economy, it is good for Singaporeans.

The policy question is whether GLCs should continue to go into new businesses. Mr Leong Horn Kee wants to curb the proliferation of GLCs. He asked that no new GLC be formed without the explicit consent of MOF. Mr Leong's question has to be addressed at two levels. For the listed companies, which Mr Iswaran has just discussed, the decision to enter into new businesses is for the respective board of directors to take. The board has to act in the interests of all the shareholders, including the minority shareholders. We cannot forbid a listed company from doing certain activities, just because the Government happens to own shares in it. It is wrong both legally, because the directors have a fiduciary responsibility to all the shareholders, and also from a policy point of view. GLCs, especially the listed GLCs, have to operate commercially. It does not mean that DBS will go into manufacturing semi-conductor chips, or PSA should start an airline business, or even a shipping business. The decisions must make business sense, and they must fit the companies' business strategy. But there is no original sin attached to being born a GLC, which taints a GLC from birth and prevents it from doing certain types of business.

As for investments by Temasek itself, we are in a different situation from the early days. There is now less need and, I think, fewer opportunities for the Government to go into new businesses on its own. We are not likely to start a new airline, or another bank. But we cannot completely rule out the possibility that the Government may need to invest directly in new businesses. These could be businesses which are exceptionally risky or which have long gestation periods, or where the private sector is not willing to go in. Most of the time, if the private sector is not willing to go in, I would say we should conclude that the business fails the market test, and should not be launched at all. But once in a while the Government may need to impose our judgment and override the verdict of the market.

One recent example is the Jurong Island project. The Government felt that it makes sense for us to reclaim seven islands, fill in the land, sell the land, develop a petrochemical complex, not by building the plants ourselves but by encouraging and persuading MNCs to come and build the plants. That is an entrepreneurial business decision, although in that case the decision was made by JTC, and it was done through JTC with the help of EDB, rather than by forming a new Temasek company, which we could have done. Hence, the clause in the Temasek Charter to allow Temasek, from time to time, to invest in new businesses, in order to nurture new industry clusters in Singapore.

There will be other occasions when Temasek will need to go in. On the one hand, Mr Leong Horn Kee wants the Government to stop forming new GLCs; on the other hand, he wants GLCs to help the SMEs by co-investing in them. Indeed, as Ms Indranee pointed out, there is a certain tension between these two arguments. Temasek will indeed invest in SMEs, where it makes business sense. But if we did this, please remember and accept that these SMEs, by definition, will become GLCs!

Another hot issue which MPs have pressed on is the divestment of GLCs. The Government will divest those which do not have the potential for international growth or serve no strategic purpose, and these are mostly the smaller ones. Michael Fam's Report in 1987 recommended divesting 41 GLCs over 10 years. Mr Leong Horn Kee said only two-thirds of these have been divested, fully or partially. That is true. But, at the same time, we also divested some 30 GLCs which were not listed in Michael Fam's Report. So, overall, since the mid-80s, we have divested some 60 Temasek companies, either completely or partially, more than what Michael Fam's Report recommended.

Temasek will continue to consolidate and rationalise its stable of companies. It will divest those that are no longer relevant to its mission, but this must be at the right time, at a fair price, in a way which does not unsettle the market and which ensures that the GLCs continue to be properly managed after divestment.

Mr Inderjit Singh and Mdm Ho Geok Choo urged the Government to consider management buy-out (MBO), as a method of divestment. An MBO is certainly one of the methods which the Government will consider and which, indeed, we have used on occasions to divest companies. But, as Mr Sin Boon Ann correctly pointed out, information is not symmetrical in an MBO. Management knows more about their company than the board or the shareholders. Indeed, if they did not know more about the company, something is wrong. But this causes a problem. So it is not so simple to ensure that the shareholders receive full and fair value for their shares in an MBO. The purpose of the MBO is not to sell the company cheap, but to derive full value for the shareholders and act in the best interest of the company. But we do not entirely rule out MBOs either, and each case will be evaluated on its merits.

There is no reason for the Government to sell off GLCs below their fair value, regardless of market conditions, by a specific deadline. Why should we do that? We do not need to raise revenue through asset sales. We are not selling off the family silver and the last Canaletto painting that MacMillan said about the British government asset sales. If we sold off the GLCs in a hurry, we will no doubt have a debate in the House and MPs would rightly criticise us for not safeguarding the interests of Singaporeans, and rightly so. Therefore, it would be unwise to publish a list of companies that would be divested within a fixed timeframe. The act itself would depress values, alarm customers, demoralise employees and cause viable businesses to run to seed.

Some people have argued that, since the GLCs are not doing well, we should divest them in order to improve their performance. We do not agree. Firstly, most GLCs are performing well. Over the long term, GLCs have amply returned the Government's initial investment. For example, DBS and SIA were transferred to Temasek in 1975. At that time, DBS was valued at $49 million, SIA at $91 million. Today, Temasek's share of DBS' and SIA's market capitalisation is $2.3 billion for DBS and $8.2 billion for SIA. So if we take a longer timeframe, the companies have done very well.

In the nature of things, not all GLCs will do well all the time. Where GLCs are not doing well, the management has to sort out the problems. If necessary, the board may need to make management changes, or the shareholders, including Temasek, may need to make board changes. Keeping businesses in good health requires tough decisions and clear mindedness, and Temasek has to have that, and do that.

Secondly, I agree with Mdm Ho Geok Choo that most fund managers do not take an active role in building up the companies which they hold shares in. They buy the shares as portfolio investments. They sell the shares when they see the company doing badly, or even when the shares are merely under performing. And if the company is doing well, they may also sell the shares to make a good profit. They are trading, they are not long-term shareholders. Therefore, selling GLCs off to some fund manager, or new shareholder, will not magically solve the problem. The way to upgrade a business is to assemble an experienced board, build a strong and cohesive management team and do the hard work of improving systems, changing management cultures, developing new capabilities, opening new markets. Having the Singapore Government as the shareholder does not stop companies from doing this, provided the Government takes a rigorous commercial approach, and entrusts the task to a capable team.

Others have argued that the Government should simply divest all its GLCs regardless, because as a matter of principle, the Government should not own companies. We do not agree. As Mr Raymond Lim highlighted yesterday, despite the recommendation of the World Bank and the IMF to privatise rapidly, the benefits of privatisation are not a given, especially if it is not done under the right conditions. For many of the GLCs, the Government is the major shareholder. If we are to let the companies go, as Prof. Koo Tsai Kee asked, to whom? Which private companies or individuals are in a position to take over SingTel, SIA or PSA? Not just financially, which is difficult enough, but in terms of management oversight. Can we really just distribute the shares to Singaporeans and expect the companies to naturally prosper?

Looking at the success stories of companies around the world, great companies are built by committed, long-term shareholders holding major or significant stakes. And this is especially the experience in Asia. But even in the US, after Enron, it is not so clear that having a diversified shareholding and no major shareholder effectively in charge at all is a good formula. Bill Gates still owns a big share of Microsoft. He makes sure it does well. A major shareholder has a substantial amount of his own money at stake. He will take the trouble to find the right people to run the businesses, set the directions, and make sure the business is run properly. Without a major and active shareholder, it is much harder for many small shareholders to get together to do this, as Mr Raymond Lim pointed out. Hence, the Government has the responsibility to promote and ensure good governance in the GLCs.

In Singapore, there are very few local individuals or companies with the resources and the capability to buy over and drive the performance of the large GLCs. In Hong Kong, there are tycoons, like Mr Li Ka Shing or Mr Robert Kuok, who own and run major companies. In fact, among the tycoons, they own and run a large part of the Hong Kong economy. Perhaps, over time, such people may merge in Singapore. But remember, a Singapore in which the commanding heights of the economy are controlled by powerful, private shareholders will be quite a different economy and quite a different society from one where the major companies are professionally-run GLCs, and the ownership ultimately comes back to all Singaporeans.

Let me reiterate that this does not mean that the status quo is frozen, and that the Government is not going to divest any GLC. We will restructure the GLCs, we will sell off the pieces which do not fit. We will consider mergers and acquisitions which make business and commercial sense. That is the way to make the most of a valuable asset and to realise the full value of the GLCs we have built up.

Next, let me address the question of crowding out. Mr Inderjit Singh and also Mr Leong Horn Kee had complained that the GLCs are entering businesses which the private sector is fully capable of doing. Let me assure them that we have no intention of doing that. For example, the famous roast duck company, again recited by Mr Inderjit Singh, had been acquired incidentally as part of a larger acquisition in 1991, and divested in 1994 purely as a business decision. It is an immortal duck! The Temasek Charter is oriented towards companies which have the potential to grow internationally, or are strategic to Singapore.

In the EISC, Mr Raymond Lim proposed a 'Yellow Pages' rule. Statutory boards should not set up companies to do things which can be found in the Yellow Pages. I agree in principle with this. If you can look it up in the book, why do you want to start a company to go and compete with the private sector?

However, applying the Yellow Pages rule will require judgement. We must expect times when the Ministry or statutory board judges the private sector not to be adequate, but the private sector disagrees. In fact, quite understandably, the more competitive the GLC is, the more unhappy the private sector is going to be. It is in the nature of things. And if the private sector is not up to the job, it is most unlikely that any of them will stand up and say, "Sorry, I am not up to it, please carry on." For example, PSB Corp which runs training programmes and certification for ISO 9000. Private training service providers protest at this. But the former PSB Corp, which is now SPRING Singapore, started the industry when there were no private providers. The industry did not exist then. PSB created the market because of the national reason that we wanted to promote training, upgrading, productivity. And the private service providers then entered the market. Now, the private service providers say, "PSB is competing unfairly." But now that there are private service providers, it is no longer necessary for SPRING Singapore to continue to do this. And so SPRING Singapore has hived off the function to PSB Corp. PSB Corp is a corporatised entity which will subsequently be privatised.

I will give you another example. Hdbay, also mentioned in the debate, was set up by a wholly-owned subsidiary of HDB - CESMA International - as a web portal for the renovation industry in January 2001. HDB did this to help raise the standards of the interior design and renovation industry. Because we get complaints, such as contractors making a hole in the ceiling, damaging the structural pillar, so HDB set up Hdbay to try to upgrade standards in the industry. HDB deals with Hdbay at arms length, but still the renovation industry questions whether HDB needed to create Hdbay at all. Well, maybe the renovation industry is right. It is arguable. But far better for us to have civil servants and officials who have the drive and enterprise to start new activities than for civil servants to sit back and do nothing. Of course, now Hdbay is up and running, HDB will consider divesting its interest in the company. But that is a different matter. At least, I have a company and there is something which we can talk about.

Mr Leong Horn Kee says bliss to a businessman is a business world in Singapore without GLCs, because there will be less competition and more room for the local businessman to build up his business. Would that be worse? If the local companies were not competing against GLCs, they would still be competing against powerful multinationals, or large local companies in private hands, which is what happens in Hong Kong. Life would not be easier. As Mdm Halimah pointed out yesterday, in many privately developed shopping malls, FairPrice does not get in because the private developers have brought in their own partners, their own private companies, their own friends, which are in the retail business, and not SMEs, nor FairPrice. So without GLCs, you would still have competition. And if we did succeed in reducing competition, which is what Mr Leong really wishes, this would result in a less competitive private sector, and fewer choices for consumers. It is worse for consumers. Far better to have keen competition in Singapore to build strong SMEs which are internationally competitive. And I think Mr Leong acknowledges this because, after his eloquent argument, finally he says he supports FairPrice. Whatever the argument, the conclusion was not wrong.

And related to crowding out is the issue of unfair competition. There are different ways in which you can interpret the word "unfair". It could be unfair market practices. It could be an insight track, an unlevel playing field. It could be cheap financing. It could be size. Let me take them one by one. On unfair market practices, which means cartels, predatory pricing, abuse of dominance, the Government does not condone these, whether by GLCs or by private companies. MTI intends to enact a competition law and all companies, including GLCs, will be subject to this law. There will be some sensitive activities which should be exempted from the law, as in all competition regimes around the world. Enterprises which feel that they are facing unfair competition can then take the matter to an independent Competition Commission and it will be adjudicated and there will be a redress.

As to whether GLCs enjoy an inside track, our policy is clear. The Government will not tolerate this, we do not do this. We expect GLCs to compete on a level playing field. Ministries and statutory boards will maintain an arms-length relationship with the GLCs, and the GLCs must operate commercially and efficiently, and not receive special subsidies or favours. Of course, the corollary of this is that we must also not expect GLCs to do "national service", whether it is to do a favour to SMEs, lower prices, or provide non-economic services. To favour GLCs at the expense of other companies is to do harm to the economy, and to encourage GLCs to be less competitive and efficient. For example, MAS supervises the banks. One of the banks is DBS. But if you ask DBS, they will tell you that they do not enjoy any special privileges or forbearance. They are treated just like any other local bank. In fact, DBS sometimes feel they are treated more than just like any other local bank. But that is how we have to deal with it.

So, Mr Inderjit Singh is mistaken that SMEs will similarly succeed if only the Government would give them the same special treatment it extends to GLCs. The truth is that GLCs enjoy no protectionist measures from the Government.

Sometimes, companies which have been spun off or set up by statutory boards still do business with their parent. For example, Ascendas with JTC. In such cases, the perception is harder to dispel, and we have got to make a special effort to be transparent and above-board in the dealings. For example, any asset transferred has to be properly priced, and if a company competes for business with the parent, then it should be through open bidding or tender.

Sometimes, we will need to corporatise a Government department or statutory board with a moratorium. For example, CPG Corp, which used to be called PWD Corp, or Jurong Consultants. The moratorium helps the corporatised entity make the transition into a private-sector player and, in cases where the corporatised entity was the sole supplier to the Government, it gives the Ministries time to adjust. I fully agree with Members that moratoriums are not desirable, and they should be avoided wherever possible. They are messy, circumstances change and you wished you had not done it. But a moratorium is no worse than the department or statutory board remaining a Government agency. To help make the transition, sometimes it cannot be avoided, because a cold turkey cut over may be neither practical nor wise to ensure the retention of expertise and the continuance of service to the Government in the transition. In other words, it is not just the company which may not be ready if you cut over cold turkey, but the customers, the clients or the Government departments may not be ready because, all of a sudden, instead of having a regular contractor, architect or engineer, they have got to prepare specifications, call for tenders, evaluate tenders, and supervise. That takes time to learn. Hence, what we did with PWD Corp.

Since the corporatisation of PWD in April 1999, CPG Corp has been awarded only about $250 million worth of new Government projects. In contrast, private-sector consultants received 118 Government projects worth $1.3 billion during the same period. Had PWD not been corporatised, these 118 projects would have been undertaken in-house by the Government. So, by corporatising, we have created business for the private sector. The part kept to facilitate this transition is a minority - one-quarter or one-fifth of the business. But because people do not notice this, they say PWD Corp, has a moratorium and an unfair advantage. The facts speak for themselves.

Mr Leong Horn Kee says that GLCs enjoy cheap funding because of their perceived links to the Government. The Government does not provide any guarantees to the GLCs. The banks and the markets have to make their own assessment of the credit worthiness of the companies they lend to, and the bigger and stronger companies will generally enjoy better credit ratings and better spreads. However, it is not automatic that GLCs will enjoy loans at lower rates. The lenders and analysts rate the companies, and their credit ratings vary from company to company and from time to time. For example, Moody's put a negative outlook on SingTel in June 2002, fairly or unfairly. SingTel considers it unfairly, but Moodys makes its assessment and it has implications on SingTel's borrowing costs. I do not know why the bankers in Mr Leong Horn Kee's project in China preferred to lend to the three GLCs and not to the one non-GLC which was there. But Mr Leong Horn Kee's explanation that the bankers were favouring the GLCs irrationally is not the only possible one.

Mr Inderjit Singh claimed that GLCs succeeded because of the huge investments the Government had made in them, and because they made use of their links to the Government to get ample cheap funding. This is simply not true. The GLCs were started with only seed capital. The rest was internally generated over the years through the GLCs' own efforts. I gave you the example of SIA and DBS just now. Let me cite another example - also recently mentioned in despatches - Singapore Technologies. Mr Inderjit Singh mentioned this as an example of a company with "murky beginnings" - I think it was his phrase. Cloak-and-dagger.

Mr Inderjit Singh: No. Not me.

Mr Lee Hsien Loong: Not you.

Mr Inderjit Singh: Someone else.

Mr Lee Hsien Loong: Someone else. He does not know the history of ST. ST, in fact, is an excellent example of how GLCs have grown and how we have pragmatically evolved our own solutions. We are not like the US, where the defence industries are largely private-sector firms. We also did not have economies of scale, especially at the beginning. Yet, we needed to build up our defence industries, for strategic reasons, to support the SAF. We did not do this by throwing money at the problem, or by using our muscles instead of our brains. I think this quote is from Mr Inderjit Singh.

MINDEF set up the defence industries as companies instead of as Government arsenals, so that they would be subject to market discipline and would be able to operate efficiently. The defence industries did not get a free ride. They had to tender for MINDEF projects against foreign competitors - often, subsidised foreign competitors - and match their prices. Over time, they built up their capabilities and scale. They made profits, which they reinvested in the business. They grew, using internally-generated funds, not cheap Government funding. They diversified into non-MINDEF business, most of it abroad. Today, many of them are listed, including ST Engineering and Chartered Semiconductor. Could ST companies and managers have done this, if indeed they had not used their brains or had been bereft of entrepreneurship? Could the private sector really have stepped forward and filled this role, if MINDEF had not set up CIS, ODE, Singapore Aerospace and so many other companies now in the ST Group?

Let me now turn to the question of size. In some industries, the advantage of size is, unfortunately, a fact of life. For example, in banking and telecoms, size is critical. Larger companies have more resources, more capacity for risk and more staying power. For Singapore companies in these industries to be competitive, they must build up their size to enjoy the economies of scale, build up the depth of management expertise, attract talent and grow the company. As Mr Iswaran has pointed out graphically with figures, our big companies are very small by international standards. Small companies will have a much tougher time competing against the large players. We cannot tilt the playing field in these industries in favour of the small players. In fact, on the contrary, sometimes we will need to encourage the small players, nudge and persuade them to merge and to become bigger and stronger.

In these industries, unhappiness with GLCs really is unhappiness at having to compete against a larger and more powerful player. But that is the way the world and the industries are evolving. On an international comparison, we know how small we are. So, we cannot solve this problem by shrinking the GLCs or divesting them.

Of course, this is not the case in every industry, and SMEs form an important part of our economy. In many businesses, the small companies enjoy a nimbleness and an entrepreneurial drive and flexibility which help them to develop new products and markets, and to exploit changing conditions faster than larger companies. For example, Microsoft started from scratch when IBM was already a giant, and swiftly overtook IBM. Dell and Compaq also started from scratch when IBM said the PC is a commodity business, and they have built themselves up into big Fortune 500 companies. So, I agree with Mr Wee Siew Kim that SMEs can act as "support firms" to GLCs in a cluster approach when pursuing overseas ventures. This is why Temasek and EDB have set aside some private equity funding to invest in promising local enterprises. For example, Temasek has a small stake in Osim International, and is represented on the board. When you rest in the Members' Room and sit on the Osim chair, please think of Temasek!

Moving forward, the issue for us, therefore, is not so much managing the competition between the big and small companies in our domestic economy but, as Ms Olivia Lum and several others point out, encouraging them to collaborate in competing internationally. That is why the Government set up the Local Industry Upgrading Programme (LIUP), as well as a whole series of assistance packages for SMEs offered through MTI, eg, the Local Enterprise Financing Scheme (LEFS), the Business Upgrading through Inter-Linkages Development (BUILD), and so forth. There are almost more schemes than there are SMEs.

The EISC has recommended that the Government oursource more Government functions to the private sector. We agree. Ministries and statutory boards already outsource certain services to the private sector. These include IT software development, systems and facilities maintenance, provision of medical services in prisons, provision of legal advice in certain specialised areas, such as international trade law. Our intention is to outsource as many functions as possible, provided it makes economic sense to outsource and the outsourcing arrangement is sustainable. However, remember that this does mean handing out cushy Government contracts to SMEs. It means fiercer competition for Government business, which will make suppliers more efficient, and save taxpayers money.

Public-sector agencies are already allowed to contract start-up companies with no company track record, for IT and technology projects of up to $5 million. This is to help the SMEs have a chance and build up their track record. In addition, we have got procurement guidelines which allow Ministries to decide, based on their assessment of the potential market and the attendant risk, to lower the tender evaluation criteria in terms of the financial status of tenderers. Then, SMEs can participate in larger Government tenders. We will continue to make it easy for SMEs to participate in Government contracts, but we should not give SMEs an explicit advantage over larger firms in Government business, or handicap large firms in order to give the SMEs business. Some countries do this, eg, Germany, Japan, but the result is inefficiency and higher cost for taxpayers. SMEs have to be competitive to survive and prosper, just as GLCs and MNCs have to be competitive. Otherwise, we will wake up one morning and say, "Who stole my cheese?" As Ms Olivia Lum said, SMEs want opportunities, not handouts. And there are opportunities and many successful SMEs. Examples include Qian Hu, started in 1985 from the conversion of a pig farm into a fish farm, which is now a major exporter of ornamental fish in Singapore, with customers in more than 45 countries, a turnover of $41 million, and net profits of $3.4 million last year. That is enterprise. They gave me two fish. I gave them to my children, they took a liking to the fish and bought dozens more, some of which probably from Qian Hu. There is Food Empire (Coffee) listed on the main board of SGX. It makes and markets more than 90 instant beverage products, frozen finger food and confectionery, eg, MacCoffee, Klassno and MacCandy amongst others. And they are in exciting parts of the world, not just the US, UK, China or Australia, but according to their website, also in Russia, Eastern Europe and Central Asia. They are not depending on Government hand-outs.

Old Chang Kee, a franchise owned by a Singapore firm, Ten & Han Trading, has outlets in eight countries, including Malaysia, India, South Africa and China. They started off selling 300 curry puffs per day in 1956. Now they sell 18,000 per day just in Singapore alone. It is now looking to export Singapore-made curry puffs to countries like the US and Britain. The problem is, if the SMEs are successful, they grow big, they are no longer SMEs, then you have to look at new SMEs and new champions, new entrepreneurs. But they are there, they will come.

Mr Leong Horn Kee suggested that the Government and Temasek publish an annual report of GLCs for greater transparency and to foster trust of the GLCs. I am not clear why he should distrust GLCs. GLCs do not operate under a cloak of secrecy. Most of the major companies which are held directly by Temasek are already listed, so their annual reports are readily available and, in fact, GLCs regularly win prizes for having the most comprehensive annual reports. ST Engineering, which holds many of our defence industries, is listed and so is subject to market demands for transparency. As for unlisted companies held directly by Temasek, such as PSA Corp, Singapore Power or MediaCorp, we have plans eventually to privatise them too. In fact, Singapore Power and PSA Corp already publish their annual reports. Accounts for the smaller statutory board companies are also available from the Registrar of Companies and Businesses. There is no need for a consolidated report by the Government.

Much of the public unhappiness has not been over the major GLCs, like SIA, DBS, but the small ones, mostly the statutory board companies. We have considered preventing statutory boards from starting companies without MOF's permission. My staff put it up, we have discussed it. We concluded that it was not practical. They may simply provide the service in-house, which is not better. Identifying out-of-bound areas a priori is also difficult because each statutory board's situation is different and the circumstances themselves change with time.

However, the Government will review and cull the list of statutory board companies regularly. We will particularly consider the need to separate the statutory board companies from their parent, especially where the parent is the regulator, while the statutory board companies are regulatees or are somehow related to the statutory board business, thereby giving the perception that the statutory board companies have an unfair advantage, like in the case of HDB.

Members will be happy to know that the Ministry of Finance will be issuing a set of guidelines to Ministries and statutory boards on the factors which they should take into account when they are thinking of setting up statutory boards. They should only form companies that serve a strategic role integral to the mission of the statutory board or that do not breach the 'Yellow Pages' rule. Companies should also not be given names that bear relation to the parent or predecessor, thus creating confusion. I used to know what PWD Corp was. Now, I have to remember CPG Corp and so will Members. But maybe that will be fairer. But overseas, where the names PWD Corp, HDB or JTC carry weight, they will be allowed to carry those brand names. And even when statutory boards set up companies which meet these criteria, they should do so with an ultimate view to divest them.

Let me now talk about talent, an important subject. Mr Leong Horn Kee attributed the dearth of entrepreneurs in Singapore to the monopoly of top talent by the Government. Unfortunately or fortunately, the Government does not monopolise top talent. Every year, the Government awards about 300 scholarships, which is less than one-third of the top students in the cohort with 4As. Many of these scholarships are intended for economic activities, such as those given out by EDB, A*STAR and IDA. They come in, they serve for a while with the statutory board, they go out to the industry. If we exclude them, then we are talking about even fewer scholarships, only about 200 out of 1,400-1,500 top students.

Of all the scholars who have returned to serve their bonds, only 40% remain in service today. Amongst them, about half are young officers in their first four years of service. Many of them will end up leaving the service before their bonds are up. Typically, a scholar these days leaves after 3-5 years of service. Those who come in expecting to serve till they retire are a minority. They will serve their bonds. They will fulfil their obligations but they do not see themselves serving one lifetime career in the Government. They want to go out and they do go out. So we let them go and we bring others in.

Therefore, there is no monopoly of top talent in the Government. If the Government stops giving scholarships, the impact on the private sector talent pool will not be enormous because we are talking about 300 people out of 1,500, not for life but for 5-10 years. In fact, not giving scholarships may make things worse. Without scholarships, either many of our young talented people cannot afford to study overseas, or if they pay their own way, they may decide not to come back at all. And the Government must get its fair share of able people, both in politics and in the civil service. Mr Leong Horn Kee suggested that Mr Lee Kuan Yew should have remained a lawyer, Mr Goh Chok Tong a shipping executive, Dr Tony Tan a banker and I too should not have been in Parliament and then Singapore would have a more vibrant private sector. We thank him for the compliments but let us ask: if we had all done this, who would then be the Government? Would we have a Singapore today? Ms Indranee said that perhaps PSA would today be called PTP. I would ask: think, who might be the Prime Minister? So, the "private sector not stupid".

The key issue here is not whom we should favour in a public and private sector fight for talent, but how to encourage a healthy circulation of talents between the public and private sectors. We need to develop our young, including through scholarships, to provide the education and the opportunities to fulfil their potential. We do not ban Government scholars from leaving the Government service for the private sector if that is their inclination. In fact, we have now introduced a gap-year programme, so scholars who complete their courses can hunt around for a 6-12 month attachment, either to a super-national, such as the UN, the World Bank, the IMF, or to a merchant bank like J P Morgan Investment, Morgan Stanley or to a multi-national such as Intel, British Telecoms. He spends 6-12 months to learn about the business world and come back and be a better Government officer. One day if he goes out, he will have business sense, honed at a young and impressionable age and he will be able to make a contribution. The challenge for the civil service is to attract private sector talent to contribute to the civil service, and at the same time, to adopt forward-looking policies to manage and groom all our talents so that a stint in the public service is a value-adding experience for the officers.

There are various private sector companies which also offer scholarships or sign-on bonuses at the point of graduation to attract talent. But the companies, having attracted talent, have to manage and develop them, test them out, give them opportunities and move them up as rapidly as they deserve. Unfortunately, this is far harder to do than just to bring in the talent and when it is not done, the scholars get discouraged, demoralised, leave, and the organisation stagnates. Sometimes, they also say that the Government took all their talent. But it is not a simple matter of giving fewer scholarships. It is a matter of managing the talent, bringing them in and keeping the organisation fresh and that is a top management or board responsibility.

The Temasek Charter and the Government's attitude towards divesting GLCs are fully consonant with the recommendations of the EISC on Government in business. The Government fully supports in principle all those recommendations.

Mr Leong Horn Kee went beyond the EISC proposals to make 10 recommendations of his own. I have already dealt with most of them but let me recap briefly:

(i) To curb proliferation of GLCs. I agree that the GLCs' growth should be disciplined but I cannot agree never to start or grow GLCs;

(ii) Government to set up a specific timeframe for divestment. We cannot agree;

(iii) Government to outsource any commercial requirements. I agree in principle;

(iv) Review of subsidiaries under the statutory boards and Government agencies. I agree;

(v) NTUC/SLF to review its stable of companies. This is for NTUC/SLF to decide. Mdm Halimah and Mr Heng Chee How have already explained eloquently NTUC's views. There is nothing much I can add except to make an appointment to visit Denticare;

(vi) Priority to enacting competition law. I agree;

(vii) GLCs to enlist more private sector persons in boards and management. GLCs need to seek the best talent, whether it is the private or public sector;

(viii) Encourage more MBOs and divestment to locals. MBO is one method of divestment to be considered, but whether it is the best approach depends on particular circumstances of the GLC and the specifics of the MBO proposals;

(ix) More GLCs and private sector cooperation as cluster or consortium. We agree in principle; and

(x) Regular study by the Department of Statistics (DOS) on GLCs' share of GDP. I agree.

Finally, I ought to thank Dr Wang Kai Yuen for giving us a historical perspective on this subject and reminding us that these same issues were debated 20 years ago and probably our successors will still be debating them 20 years from now. We need to try to rise above the situation. Do not assume that the problem for SMEs will go away if we do not have GLCs. As Assoc. Prof. Koo Tsai Kee and Mdm Halimah Yacob pointed out, without them, the vacuum would be filled by the large private companies or MNCs and the SMEs would still have to face fierce competition.

The EISC recommendations on the Government in business will help to define the Government's role, foster the growth of private enterprise and entrepreneurship. The Temasek Charter will guide the Temasek companies on what Government, as shareholder, expects of them. As for the private sector's concerns on the GLCs, the Government will tackle those problems whenever they arise. As I have said before, and I offer it again, if you know of specific problems, let me know, e-mail me, I will look into it, after removing your name from the e-mail. I have done so. Sometimes, there is a reason and it has to be put right; sometimes, there is an explanation and that has to be conveyed. But the Government will exit from businesses that are no longer relevant although it cannot do this overnight.

The solution is not to dump the GLCs altogether or to handicap the GLCs and prevent them from competing fairly but robustly against private companies. GLCs, private companies and SMEs all have roles to play in growing our economy and developing our external wing. They will sometimes compete, but they should also cooperate with one another. As Ms Indranee and others have said, the issue is Singapore Inc. versus the rest of the world. Government's overall thrust is thus to grow the private sector as a whole, whether GLCs or non-GLCs. And as Mrs Fang Ai Lian pointed out, the issue is also entrepreneurship, because it is the spirit of enterprise that will help us to adapt and grow as the world changes.

As the economy grows, and as the private sector expands, the shape of the Government in business will change. The key is not whether the companies are Government-owned, but whether they are well run, entrepreneurial and profitable. We have every intention of ensuring that GLCs are as well run, entrepreneurial and profitable as private companies. That is the way to build an efficient and vibrant economy.

In this spirit, Mr Deputy Speaker, Sir, I support the motion. [Applause.]

Mr Deputy Speaker: Mr Leong, do you want to wrap up?

Mr Leong Horn Kee (Bishan-Toa Payoh): Mr Deputy Speaker, Sir, I wish to thank all the 24 Members, including the 22 PAP MPs and NMPs, MOS Raymond Lim and DPM Lee Hsien Loong, for speaking on this motion. I have listened very carefully to all their speeches, particularly by MOS Raymond Lim and DPM Lee Hsien Loong. They have all made very good points. I wonder why none of the Opposition MPs and the NCMP spoke on this motion. Perhaps, they thought that this motion is not very important enough for them to debate on it. I do not agree with them.

Sir, I would like to thank the Minister of State, Mr Raymond Lim for his considered reply. I am pleased to hear from him and, as explained by him, there will be no "Great GLC Sale". As to the response by DPM Lee Hsien Loong, I would like to thank him specially for his very thorough and robust reply. He has set down clear policies on GLCs and the basis for Government in business. He has put across the total picture in a very clear perspective. I would like to especially thank him for the clarity of his reply and explanations.

Sir, just on a few points about the comments that I have made. I want to clarify that in the case of the joint venture with three GLCs and a local company, I did not mean to say that the bank had made an irrational decision. In fact, the bank had made a very rational decision. In contrast to the private company, the three GLCs are much larger and stronger and therefore given lower interest rate. As the DPM has said, it is a question of size. For a smaller private company, our corporate guarantee was deemed to be of lesser value.

Sir, the other point I would like to clarify is that the annual report to be prepared by the Ministry of Finance and Temasek Holdings is meant more for the non-listed companies, and is meant as an avenue for the Government to take stock, perhaps every year.

On the point about Ministers in private practice or professional business, I did not say that they should go into private practice or into professional business. I said that if they had been, they would have made very good entrepreneurs or good businessmen - "if they had been". I agree that we are glad that they did not go into private business. For the sake of Singapore, we are pleased to have very good Ministers in charge. I just want to make the point that because of being scholars, if they had not taken up the scholarship, they could, on their own merits, have become great entrepreneurs. That was the point I was trying to make.

Finally, on the 10 recommendations that I made to the DPM, I did not count because he was going through them very quickly. I think I got about 6-7 right. So, it is above the passing mark!

Sir, I wish to say that much criticism had been levied on the GLCs. I wish therefore to put into perspective the values of GLCs. I agree that they have several plus factors. They have contributed to the economy, and given employment. They are mostly efficient, well run, and they are clean and non-corrupt. Of course, some GLCs, like SIA, have helped to put Singapore on the world map.

Some people actually asked me why am I knocking the GLCs. I would like to explain that I am not complaining about GLCs per se. What I am debating is the fairness and the benefits against the evils of Government in business. All of us have friends, relatives and constituents who are working in GLCs.

Sir, to emphasise the point on the need to reinvent for the success of Singapore, a comparison can be made between Korea and Japan. During the Asian financial crisis in 1997, Korea was badly affected and nearly went bankrupt. But now they are bouncing back strongly, because they have changed everything. They have changed their constitution, changed their President and changed the way their economy is run. In contrast, Japan's economy was drifting for over a decade, because it was unwilling to make painful but necessary changes to its economic structure. Japan is still languishing today.

Sir, during the debate on this Motion, much has been said to clear the air and the smoke about GLCs. The concerns started about 15 years ago which resulted in the Public Sector Divestment Committee under Mr Michael Fam. Fifteen years later, we are still having this debate on GLCs. I do hope that with the EISC Report and the Temasek Charter, and the explanations given by the Deputy Prime Minister, there may not be a need for debate 15 years later.

Sir, I wish to conclude by agreeing with the DPM that going forward, GLCs will coexist side by side with private companies, each playing a vital role, each helping and supporting the other to grow. The ultimate objective is to create world-class companies for Singapore. It does not matter really whether they should be GLCs or privately owned companies. We should have a good mix of both. Above all, we want to have a system, an economic and industrial model, which is the best for Singapore. We want a model that can take us into the future.

Finally, I wish to thank the Speaker and you, Mr and Mdm Deputy Speakers, for your patience and indulgence.

Question put, and agreed to.

Resolved,

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.