Wednesday, July 20, 2011

Revisiting the decision to privatise our power stations.

Since we are on the topic of privatisation, you might want to relook at the decision to privatised our power stations. The decision was never explained clearly to Singaporeans. Japan’s Marubeni bought Singapore’s biggest power station. Senoko, for S$4bn in Sep 2008. Tuas, the smallest and most efficient in Singapore – to China’s Huaneng group for S$4.2bn in March 2008. In December 2008, Power Seraya was sold to YTL, a Malaysian company after it made an unsolicited offer for the power station.

The story that was sold to Singaporeans at that time was:
" The way you pay your electricity bills will soon be very much like topping up a
pre-paid card.

This is possible under a S$3 million pilot scheme that
allows small consumers such as households to switch between electricity

In fact, consumers will only pay for electricity as and when
they need it.

Over the next 2 years, the market regulator will be
piloting this new system, known as the Electricity Vending System (EVS), that
aims at opening up competition in the market for households and small
." -  CNA Report, Oct 2007.[Link]

We were suppose to have competition just like we do in the telco sector and consumers are supposed to enjoy great savings/discounts from the competition. However, there are several problems here - none of the privatised power stations can supply the whole market so why would they compete for more customers when their capacity is limited. In the telco arena, each mobile player has the full infrastructure to take as many customers as they can win.

The competition in the electricity market has not materialised and our strategic national assets are now in the hands of foreigners who bought them from Temasek during the Financial Crisis. Utilities are a great asset because the owners are guaranteed a profit by the EMA that adjusts the price of electricity based on the input cost as the price of oil fluctuates. However, if there is no price fixing by EMA and these suppliers are free to make as much profits as they want, will we be better off? Remember each player is only able to supply part of the market so is there any incentive to compete and drive prices down?

Why did Temasek sell our strategic national assets to foreigners? What happened to liberalisation of our electricity market through the EVS?  Utilities are a great source of steady income especially when the EMA guarantees profit by fixing prices - does it make sense for us to give these profits away to foreign entities?

Monday, July 18, 2011

PAP Govt : We can't run public transport efficiently....

Minister Liu and PAP MP, Josephine Teo,  have recently said that a govt operated public transport system based on cost recovery, as proposed by the Workers' Party, will result in inefficiencies that "will lead to higher costs, which will be borne by commuters, as well as a stagnation of service standards"[Link]. While there are many reasons to believe that govts can run public transport system well since there so many good examples, you better believe Minister Liu when he says he can't do it despite the PAP telling us they are an efficient govt - if he says the PAP govt can't operate the MRT more efficiently than Saw Phaik Hwa who had no prior experience running a transport company before she joined SMRT, you have to accept it. You cannot count on a solution to our transport system that depends on the PAP govt proving itself wrong.

Here is an interesting article: Why Taipei’s MRT trumps Singapore’s you should read. It compares the MRT systems of both countries. The Taipei MRT implemented safety doors for "above ground" stations years ago. It already has the "advanced"| signalling system that SMRT is implementing to allow greater frequency of trains to stations. It is run by the Taipei City Govt. Yes, it makes less profits than the SMRT but it delivers higher service quality. SMRT (+SBS Transit) which is profit oriented will hold back investments to improve service quality because it is a  monopoly - passengers don't have other cost effective option.

Singaporeans are unhappy with the public transport system. The PAP govt has to find a way forward to up service quality to improve the quality of lives of Singaporeans while keeping the cost to commuters down - the income gap and stagnant wages among a large segment of the populace makes fare increase very unpopular as it is seen as an exercise to maintain the profitability of these companies. I would even go further than the Workers' Party's  "cost recovery" model. If you can drastically improve the quality of life of Singaporeans by accepting some operational losses that can be recovered by using the massive gains in the COE system,  you can create much more "net happiness" and lower the demand for aspiration that cannot be met for most families in Singapore. While such schemes using cross-subsidies violate PAP's ideology, the large income gap and stagnant wages breaks many of PAP's "self-reliant pay for yourself" schemes. The PAP has to overcome its ideological constraints to begin solving problems faced by Singaporeans otherwise they will face greater uncertainty in the next elections.

Tuesday, July 12, 2011

The flipside of privatisation....

Two pieces of news appeared recently:

1. Transport Operators seek fare increase [Link].
2. Govt finding ways to integrate private and public healthcare[Link]

In the past 2 decades, many govts including the PAP believed that privatisation of govt services will bring about greater efficiency in the provision of these services. While it is true for the initial years after privatisation, the efficiency gains quickly tampers off while the profit motive of these privatised enterprises stick around forever.

About a decade ago, the PAP govt had this idea to turn Singapore into a medical hub for the rich in the region. More private hospitals were build. Resources shifted from public hospitals to the private sector to treat foreign patients and the rich. If you go to a public hospital to visit someone today, you will find that the hospitals almost every single hospital bed is filled. If you visit a private hospital, very often you find that most of the beds are empty.There are private hospitals today allow rich patients to purchase private suites that are used only for themselves and their family members. The best specialists and surgeons move to the private sector because they get paid more for seeing fewer patients  - one of them, a Dr. Susan Lim, billed her patient $20M for dedicating the entire resource of her practice to a single patient. Cost of medical care spirals up and begin to ampllify the effects of the widening income inequality in our society. In our eagerness to become a medical hub, we have made the some of the same mistakes as the Americans in believing that privatisation will lead to good results - we are seeing cost spirals and inefficient use of resources unter the present system. Minister Tharman now wants to fix it by tapping resources lost to private hospitals.

Here's a picture of Minister Liu Tuck Yew taking the MRT. I'm always happy to see minister try out first hand the system under their purview. Suppose one day you contract a bad case of food poisoning and have to be hospitalised at a govt hospital - you are treated like evey other Singaporeans that goes t. You wake the next morning to find the health minister, Mr Gan,  in the same ward treated by the same doctors - now that would really change your view of the PAP leadership wouldn't it? Ordinary citizens appreciate the idea of having leaders who put themselves in the shoes of the people. That was what Minister Liu did for a few days - experience something that ordinary Singaporeans have to cope with every single day.

I'm not impressed by the transport operators request to raise the fares again. Why? I took a bus today and it was so packed, I stood on the steps at the entrance of the bus. The people behind me couldn't get on/ When the SBS was privatised, it was hoped that privatisation would bring about greater efficiency in its operations. All the gains in efficiency probably occurred its first few years as a private company. As a listed company, they need to answer to shareholders and the profit motive would dominate how it operates. Running a bus service that is frequent enough for passenger to be seated comfortably through the ride is not a profitable thing to do. Packing every bus to the limit is a lot better for the bottomline. Keeping to the minimum standards of quality of service laid out by the transport authority would be most optimal for profits - there is no motivation to do any more than that. Passengers have other no choice - our cars are the most expensive in the world and controled by a strict quota. Taking taxis during peak hours can be 10 times more expensive so there is no real competition for our public transport operators for force them to improve the quality of service further.

Suppose profits is not important and the comfort of bus passengers is the most important goal.
The following figures are extracted from SBS Transit's latest quarterly financial report:

Figures in '000 S$.
Staff costs - 72,044

Repairs and maintenance - 20,140
Fuel and electricity costs- 29,743) 25.3
Premises costs - 7,787
Depreciation expense - 11,261
Other operating expenses - 14,641

Total operating expenses ; 155,616
It costs a total of S$155M to run the public bus system. Roughly $620M per year. The profit is about 10% of the cost. 
Suppose we want to improve the live of the millions of Singaporeans who take the bus everyday. Lets say the govt spends, say, another $300M. Maybe to provide an overlay network of buses to complement the current bus system and improve service during peak hours. To improve the bus service tremendously we are talking about an additional spending roughly several hundred million dollars, say, $300M. This amount can transform the lives of millions of Singaporeans because they would be able to get to work in much greater comfort everyday. To put things in perspective $300M is less than 3% of our annual defense budget which has grown to $12.08B much of which is spent on systems that will likely turn obsolete without seeing any real action in war given the current geopolitical climate.
Instead of a transport service provider that tries to maximise its profit by pushing down service quality to as low as possible, we can elevate the quality of life of millions of Singaporeans by putting in place a transport system that puts the comfort and convenience of commuters at the top of its priorites. This is money that has a direct impact on the lives of Singaporeans and we can do it not by spending more in our annual budget but reallocating a small portion of it for this purpose. The Worker's Party suggests re-nationalising the public transport system and then combining the SMRT & SBS Transit to get cost savings. Whatever it is something has to be done to our public transport system because it greatly affects our quality of life. A "for-profit" transport system that is a monopoly will always limit the quality of service and the question is whether we should be doing something more instead of tweaking this system so that just continue to meet basic standards.

Sunday, July 10, 2011

Tan Kin Lian on the President's role and responsibilities...

A few weeks ago, prominent ex-civil servant, Ngiam Tong Dow, wrote an article that was published in the Straits Times. He wrote that the trust between the PAP and the people has weakened and 2 important issues needs to be addressed[Link to Ngiam's article]. The first is the high pay of our leaders and the second is greater transparency for our reserves. Although cutting the ministers' pay is not something difficult, the real problem today is the widening income gap which has caused great dissatisfaction among a large segment of the populace. This is much harder to fix as it is linked to the structure of our economy.

"The Singapore Government can seek to build more trust with citizens
by being more open about the size and composi­tion of the national reserves.

While there is no outcry on the secrecy now, a more open,
transparent approach can reduce confusion and dispel any doubts on the issue. I
would urge the Min­ister of Finance to consider publishing an annual audited
statement on the size and composition of our reserves. It can be presented as a
White Paper to the new Parlia­ment, which is due to begin its term."  - Ngiam Tong Dow.

While there is no public outcry on the secrecy of those reserve, every time the veil is pulled aside and we get catch a glimpse of what they are doing, the desire for transparency goes up. Take the Shin Corp deal that triggered Thaksin's downfall as an example. Once the light was shone on  the deal when Thaksin's political opponents had the deal investigated, it was found that Temasek used nominees to circumvent Thai laws to acquire Shin Corp [Link] and that result in massive losses when they wre forced to reduce their stakes[Link].

The suggestion by Ngiam Tong Dow to have Temasek and GIC publish an annual audited statement statement on the size and assets held in our reserves is a good start. It is ridiculous that the size of our reserves is kept secret from Singaporeans. Minister Mah revealed a few months ago that much of our reserves were accumulated from the sale of 99 yr land leases to Singaporeans who took up heavy loans to purchase their HDB flats. The purpose of accumulating reserves has to be very clear and there has to be a targeted amount of reserves to serve this purpose - it is best that this is debated in parliament along with the issue of how the reserves will eventually benefit Singaporeans. Without a clear articulation of purpose, targeted size and benefits,  many Singaporeans will always view reserve building with suspicion - it is build from the 'sweat and blood' of Singaporeans but whose interests does it serve? Is it there to cushion against economic crisis? Is it there to cushion against poor demographics of an ageing population? Is it there to feed and sustain a network of GLCslinked to the power-elites?  Is it to create jobs to parachute elites into top fund management positions?

Transparency is the first step to building trust -  if that is what the PAP wants. That we don't even know the size of reserves shows how far we are from any form of real transparency. We would like to know what performance benchmarks are used so that we can tell if the benchmark is correct and whether the reserves are well managed over the long term. We would like to know the overall risk profile of the investments as part of it is borrowed from our CPF retirement accounts. What Singaporeans are generally are asking for is no different from what other major sovereign wealth funds and pension funds already practise.

The PAP govt stonewalled President Ong Teng Cheong who was their endorsed candidate. Then came a number of high profile risky deals with bad results. We saw Ho Ching planning to step down for Goodyear then Goodyear stepping down so that Ho Ching can stay. All this does not create trust and citizens are not going to accept secrecy any longer.

Dr. Tony Tan has been an executive director in the GIC for about 10 years and was part of the Cabinet for more than 10 years. He is clearly not an independent candidate although he says he is. The PAP appear to endorse his candidacy. He was executive director of the GIC during the financial crisis and in the last 10 years we see only minor improvement in the transparency of the GIC - far less than what Singaporeans want and have been asking for. What we need today is a truly independent president who will work with the govt on the issue of transparency bringing along with him to office the mandate of the people and channelling these requests for information to the govt. While the PAP govt can still choose to stonewall him, it will be wiser for them to work with him to resolve these issues to win the trust and support of the people.

Saturday, July 09, 2011

Life and Debt : Predatory Lending in Singapore

I took an unannounced break from blogging for the past few weeks. Much of my writing energy was expended during GE2011 and I ended up busy with work the past few weeks. I will probably get going again once the Presidential Election gets going - it looks like a PAP endorsed candidate vs an independent candidate. The last time the people got to vote during the Presidential Elections, the PAP endorsed Ong Teng Cheong. While Ong Teng Cheong was highly respected, better known and campaigned much harder than the other candidate, he only garnered just over 58% of the votes. The other candidate received 41% of the votes hardly campaigned and voters were not even sure he wanted the job but voted for him anyway.  The result shows that people really did not want a president too closely associated with PAP govt in the 1993 elections. The PAP is a lot less popular today and I believe the independent candidate for the coming elections will put up a good fight - unless the Presidential Elections Committee has other ideas. I believe the head of a large coorperative who has to take care of diverse interests of all stake holders not just the bottomline of a company is eligible under the constitution. More on the presidential election later. Today's topic is predatory lending in Singapore.

Yesterday's New Paper had this headline news about 80 teens arrested for distributing flyers. These teenagers were recruited online and were offered temporary part time jobs to distribute flyers and name cards. They were handcuffed and taken to the police station. Based on The New Paper report, it is likely that most of them did not know they were doing anything illegal:

"More than 150,000 name cards and pamphlets advertising loan facilities, masquerading as legal loans and licensed moneylenders, were seized. Other items confiscated include two printing machines." -  News Report : [Link]

The parents of these kids had to pay a bail of $2000 to get them out of jail. I find it strange that the police used so much of their resources to catch these teenagers who were probably themselves ignorant deceived victims exploited by masterminds behind these schemes. I think it is hard for these teens to figure out they were doing something wrong handing out flyers for "esay loans", "fast cash" when these are almost ubiquitous in Singapore - you find them at bus stops, notice boards, lamp posts, in your mail box etc.

The irony is The New Paper that broke the story carry hundreds of these ads in their paper everyday.

Hundreds of listings offering fast and easy loans no different from the flyers the teenagers were distributing. I counted 10 full pages of such ads. I wonder if The New Paper checks every single one of them to ensure that they are legal. If not, shouldn't they be treated like the 80 teenagers who were arrested? Given its circulation and the number such ads it carries, The New Paper is helping to promote predatory lending which is extremely harmful to our society.

The growth in demand for these loans is a manfestation of thngs going wrong in our society. It could be gambling, poverty, low wages, or unemployment that makes people desperate enough to take up these loans. The lenders exploit the financial hardship of these people for profits and worsen their financial situation. In a number of countries, the govt proactively stepped in to regulate such loans by limiting the effective annual interest and the fees these lenders can charge. If nothing is done in Singapore, such activities and associated problems  to grow and fester. The New Paper used to have only one page of such ads. Now it has 10 full pages.  I believe the number of people getting exploited by scrupulous lenders is growitng.

If the people who are supposed to be doing their jobs do not watch these signs carefully and try to figure out the underlying problems faced by the people and allow these lenders and the banks to promote and expand their lending activities to exploit the financial situation of a large segment of our society, we will find our problems less solvable when they become big enough to be visible.