INCREASE IN ELECTRICITY TARIFFS

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INCREASE IN ELECTRICITY TARIFFS: 3.

Mr Ong Kian Min asked the Minister for Trade and Industry what are the main reasons for the sharp increase in electricity tariffs for the period 1st July to 30th September 2005 and whether the financial impact of such increases can be mitigated for ordinary households.

Mr Ong Kian Min (Tampines): Sir, before I ask my question, I would like to declare that I am a director of Senoko Power Ltd, a Temasek-owned power generation company. Question No. 3, Sir.

Mr Lim Hng Kiang: Mr Speaker, Sir, fuel cost makes up about half the cost of electricity. Our fuel sources for electricity

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generation are oil and gas. Gas prices in Singapore are indexed to oil prices. An increase in oil prices will therefore lead to higher electricity prices. The electricity tariff for the period 1st July to 30th September 2005 increased by 14% mainly due to a 31% increase in fuel oil price over the previous quarter from US$30.09 to US$39.32 per barrel.

The Government will be giving utility rebates ranging between $60 and $200 - depending on HDB flat type - this month (July 2005) and in January next year (2006). Unused rebates can be rolled over to the following months. These rebates, which were announced by the Prime Minister in his Budget Speech in February this year, will mitigate the financial impact of electricity price increases on households. In all, the rebates will cost the Government about $62 million.

Singapore Power Services (SP Services) has also introduced the Pay-As-You-Use (PAYU) Metering Scheme on 16th May 2005 to help needy HDB households better manage their electricity consumption. This scheme enables HDB households whose electricity supply has been disconnected to be reconnected and have their arrears paid over time. This will help customers on the scheme consume electricity at levels they can afford.

In this period of high oil prices, it becomes all the more important that we adopt good energy conservation practices. Consumers should be more conscious about using energy-efficient electrical appliances. This includes opting for energy-labelled air conditioners and refrigerators, energy-saving lights, choosing the correct capacity of air-conditioner and refrigerator, and enabling "energy-saver" modes in their computers. More information on energy conservation practices at home is available from the National Energy Efficiency Committee website.

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Mr Ong Kian Min: Sir, I would like to ask the Minister three supplementary questions. First, instead of introducing a 14% increase in tariff in one go, whether such a large double digit increase could or should be smoothened out and spread out over a period of time to mitigate the financial impact, not just on lower income households but on all families.

Secondly, whether the present formula to determine the electricity tariffs for domestic households is too rigid as it is based on the average price of HSFO over a period of one month, say, the month of April, to lock in the rates for the period July to September.

Thirdly, nothwithstanding that the new electricity tariff has been determined for the next three months, would there be any flexibility for a downward adjustment if oil prices were to retreat and come down during this period?

Mr Lim Hng Kiang: Mr Speaker, Sir, the regime for setting electricity tariff prices has been in place for many years, and has served us well. It allows prices to move up in a smooth way as oil prices go up. At the same time, it allows electricity prices to come down should oil prices come down. As I indicated in my reply, even though oil prices have moved up by more than 30%, the electricity prices are adjusted upwards by 14%. So this is a result of the smoothening process.

In answer to the second question, the tariff is set for three months. And every time we do a revision, we look at what actually happens compared to what is forecasted and then make the adjustment. So there is also an adjustment process with each review period.

In answer to his third question, a downward adjustment will definitely take place if oil prices come down sharply.

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This is the automatic balancing that goes on with the review process.

Mr Steve Chia Kiah Hong (Non-Constituency Member): Sir, I just want to clarify with the Minister. The 30% increase in the fuel oil price in the last quarter has caused this 14% increase in the electricity tariff. Does it mean that as the price of fuel oil goes up and is expected to go up further that we could expect another tariff hike in the October-December period? If so, what is the Government doing to mitigate this expected increase in the tariff in future?

Mr Lim Hng Kiang: Sir, what the electricity tariff will be in future will depend on the behaviour of oil and gas prices which are linked to the high sulphur fuel oil prices. As I indicated, there is a review mechanism, and we look at it quarter by quarter. If the oil prices come down, then for subsequent quarters, we can see the electricity tariffs coming down too.

There is another factor coming into play, ie, the competitive nature of the business. If you read the Business Times report today, the article indicated that there is a huge supply capacity right now in our power generation sector, more than double the demand. Therefore, there is a great deal of competition among the generating companies, and this has led to very competitive prices. So the electricity tariff prices, for example, if we look back, say, in February 2001, it was the same price as today, whereas the oil prices in February 2001 were much lower than today.

So there are two factors at play here: one, the oil price and, secondly, the competitive forces. Over the last few years, the competitive forces have helped to push the price down but, unfortunately,

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we have this very strong headwind of higher oil prices.

Dr Geh Min (Nominated Member): Mr Speaker, Sir, the Minister mentioned that with high and rising oil prices, it is important that we adopt good energy efficient practices. May I ask the Minister what his Ministry is doing about promoting renewable energy and alternative sources of energy?

Mr Lim Hng Kiang: Sir, as I mentioned just now, our electricity capacity is already double what we need. Therefore, to get companies to invest significantly in new renewable energy sources would not be an easy task. For the time being, we are converting most of our fuel to gas, and that in itself is more efficient and more eco-friendly. I think this is already a good move and helps us to bring the electricity prices down. What I think we can do as a country is to make use of energy saving appliances. I think this will help to conserve energy.