YJJ Budget 2013 Speech

Madam speaker, I wish to touch on three areas in this year’s budget – SMEs, new industries and preschools.

 

I wish to declare that I own and operate private companies classified as SMEs. I have previously managed and owned childcare centres though I no longer do so now. Part of my current business supplies products and services to education institutions.

 

SMEs

SMEs form 99% of business entities in Singapore, employ 70% of all Singaporean workers and contribute 50% to the GDP (1). SMEs are facing great challenges due to higher rents, higher cost of goods and services and a manpower crunch.

 

DPM Tharman spoke of the pain that companies, particularly SMEs will go through as the economy restructures to one that’s based on higher productivity. Some companies will not survive the restructuring. I’d like to share about the pains of restructuring and some lessons we can learn when an industry restructures. I happened to have been in an industry segment that underwent very severe restructuring and experienced one of the highest rates of company closures.

 

During Singapore’s dotcom peak, I started a company developing e-learning solutions for education institutions. It could not have been at a worst time. From 1999-2000, there were suddenly some 50 companies in this space, most of them new start-ups fuelled by dotcom investments. Funding very quickly dried up after the NASDAQ crash of April 2000.

 

But the companies were already formed and operational. The industry demand was much smaller than what these companies had thought it was. These 50 companies fought tooth and nail over the meager market, for customers who were then not yet ready for the services being offered. I witnessed many companies shutting down, merging or being acquired. Companies tried different ways to stay relevant to the market. We too experimented with different business models and products, and had to go through the painful process of chopping off unprofitable business segments and to let go of excess headcount at our darkest hour, just to stay afloat.

 

Within seven years, the 50 companies were withered to around 10, and I reckon less than 5 had respectable growth and profitability. There are some lessons that I have learnt observing this brutal industry restructuring first hand.

 

The first lesson is that those that survived had adapted their business processes to merge certain job functions to stay lean. Faced with poor prospects for better revenue, companies had to look internally to keep costs down. Being in a human resource driven knowledge industry, the biggest cost was manpower. Companies had to re-examine business processes to see which job functions could be merged or reinvented to cut costs. Company structures were flattened and employees empowered to do more.

 

A second and important lesson was that surviving companies had to find new business models to try to create new revenue sources. There is a limit to how much cost one can cut to be more productive. Revenue had to increase and companies had to find these revenue sources. Some companies merged or acquired other smaller players to achieve better economies of scale or used their combined strengths to create new business models.

 

The government is calling for companies to be more productive to overcome the immediate challenges. What is productivity?

 

Productivity is output divided by input. Financial output divided by labour input is also known as labour productivity, or value added per worker. Output is commonly measured as revenue less cost of purchased goods and services. (2)

 

In the context of my restructuring experience, survivors changed business processes to become lean. By reducing labour input while maintaining the same financial output, there will be productivity gains. But more critically, to make quantum leaps in productivity, financial output has to be significantly increased without corresponding increase in workforce. This can be done either by expanding the current market or modifying business models to gain new revenue sources or by merger and acquisition.

 

I believe these lessons can apply to other industries. For example, in the F&B industry, we have heard feedback about the lack of Singaporeans wanting to work in the industry. In his budget speech, DPM Tharman said that over the past 5 years, the F&B workforce has increased by 31% with Singaporeans actually making up half of the increase. So Singaporeans do enter this industry. Yet we hear of a shortage of manpower. The boss of Jumbo restaurant was pictured in the Straits Times clearing dishes.

 

DPM Tharman cited F&B as an example of a fragmented industry structure. Could there be too many F&B outlets in this industry chasing the limited customers’ dollar? Is there too much mall and shop spaces allocated for F&B? When an industry consolidates, manpower that is not fully utilized will be redeployed to companies that most urgently need them to cope with the bustling business. Or some companies may have to reinvent their business model or product offerings to generate new revenue streams.

 

Given Singapore’s limited market size, for meaningful productivity to be sustained through revenue growth, there should also be increased efforts to secure new overseas markets. The role of agencies such as IE Singapore becomes even more important. Singapore firms will need to create strong expertise and brands around products that have high demand in new markets. We have some success in areas such as oil rigs, food, and water technologies. The challenge is for the government to help identify more industry clusters and match that with emerging new markets.

 

The government has implemented various new schemes to help locals companies. The Productivity and Innovation Credit, or PIC was introduced two years ago. This year we have an interesting Wage Credit Scheme or WCS.

 

While WCS’s objective is to help companies share the fruits of productivity increases with workers, I believe it is intended to also provide companies with extra cash. Employers generally give increments to retain workers. WCS will run for the next 3 years. The 40% share by the government will be given back to employers only after the end of the year, which will impact the company’s cash flow. This means that employers will be careful not to give wage increases unless they have to and can afford to. Employers will likely be giving regular wage increases as they would generally have done so even without this scheme. Cash strapped companies will still resist wage increases.

 

Madam, I welcome any scheme that can help local companies cope with the current economic challenges. It will be interesting though to see which companies will benefit from WCS. MNCs, larger companies and more profitable companies have been and will be able to make wage increases. Smaller and struggling SMEs will still not do so. Perhaps the DPM can share what type of companies will likely benefit most from WCS looking at wage data from the past 2 years of CPF records. What is the government’s expectation of SME’s share of the $3.6 billion payout? If in reality, WCS ends up not helping SMEs much, the government will need to find more targeted ways to support them.

 

PIC is given a new push with the new one-for-one top-up grant of $5,000 per year. It’s a generous payout over and above the earlier PIC payouts. I think that should get many more smaller companies to use PIC as they will get more cash than what they have invested.

 

The PIC process is relatively easy to administer compared to most other government grant schemes. While PIC is useful to provide some relief to companies, it is limited in effectiveness for some types of companies which really need a major transformation. It is not always automation that will help companies restructure. Sometimes, it requires drastic changes to business processes, organization structures and to business models.

 

I would like the government to consider additional ways to help companies restructure. One is in the area of M&A.

 

In fragmented industries where there are too many companies chasing the market, it makes sense to consolidate. Merger and acquisition done strategically could boost revenues or result in greater manpower efficiency. In Budget2010, the government implemented the mergers and acquisitions, or M&A scheme (3). The scheme is hardly attractive as it allows M&A allowance of 5% of the value of acquisition as tax allowance. Budget2012 provided for 200% tax allowance on transaction costs. Transaction costs cover professional fees, legal fees and valuation fees.

 

These two provisions benefit mainly large transactions. To encourage M&A activities amongst SMEs, we need the scheme to be more targeted. The M&A scheme could be graduated to allow higher allowances for smaller SME consolidation and M&A transactions. For example allowance could be 30% for deal size of $500,000 or below, another
scale at $1 million, and a further lower rate at say $5 million. This would cover the typical deal size for acquisition of smaller SMEs.

 

The current scheme allows only for outright purchase of shares. Many acquirers prefer to buy over operations and businesses of SMEs, but not the entire company as they do not wish to be entangled with liabilities that may be associated with the target company. We can loosen the definition of M&A to include such type of acquisitions.

 

We can also incentivise the acquirers to automate the operations of their acquired businesses to achieve greater productivity and to change old business models. We already have the PIC scheme with its schedule of qualifying activities. We can look at allowing even higher than 400% tax allowances for investment in automation and higher than the existing cap of $400,000 in tax allowances for merged business entities to get them to speed up investments for productivity improvements.

 

New Industries

I am glad the government is constantly looking at new industries to develop as the economic landscape is rapidly changing due to globalization and technological advancement. This is important as Singapore companies continue to seek areas it can fill a niche in.

 

One area I hope the government can give more attention to is renewable energy.  Last Saturday, the Straits Times reported energy scenario projections by Shell. The report projected that total energy demand could double in the next 50 years as the world’s population rises to 9.5 billion. In a high energy demand scenario, Shell predicted a strong push for the development of solar power as an alternative source of energy. By 2070, solar photovoltaic panels could become the world’s largest primary source of energy.

 

Singapore is constrained by a small land size. We have been told that even if all our rooftops and building surfaces are covered with photovoltaic panels, we could only have up to 14% of our energy needs being met.

 

I think that should not stop us from aggressively promoting and pursuing renewable energy installation expertise and technologies at a faster pace so that our companies can export their renewable energy products and services to fast developing countries in regions hungry for more energy.

 

Our public projects can be more aggressive in using renewable energy. The government can actively support local companies to build up their abilities to install such set-ups. Just as we had supported local companies to build up capabilities in water technologies that allowed them to become global players in this field, we can do likewise now in renewable energy.

 

Preschools and Student Care

The government has planned to more than double its spending to $3 billion for the preschool sector over the next 5 years. It is good that the government is acknowledging the importance of early childhood education and is putting significant investment into it. It is forming the Early Childhood Development Agency to combine the preschool functions of MSF and MOE. This is something that many industry players, experts and observers had been calling for.

 

The government plans to bring more operators onto the Anchor Operator or AOP scheme. At last year’s national day rally, the Prime Minister had said there will be 2 or 3 more AOPs. There will be an additional 16,000 places by AOPs to add to the existing 17,000 places. (4)

 

I have previously spoken on this issue and I believe this will drastically alter Singapore’s childcare landscape. It is currently being served by a diverse number of private and non-profit operators, with a good deal of variety and innovation. The AOP scheme was initiated in 2009. It provides AOPs with easy availability of new centres at typically under 10% of prevailing monthly rental cost of private operators, a generous combination of start-up grants which I worked out to be around $600,000 per new centre and grants for teacher training and scholarships. (5)

 

In return, AOP are expected to charge fees below the industry median. That’s hardly any challenge at all, given that the generous grants and low rents will easily allow them to achieve this without having to be innovative or be cost conscious. The dearth of remaining new sites for non AOPs have seen rents being bided to highly unsustainable levels. This budget has increased salary grants to AOPs. This will accelerate the outflow of teachers from non-AOP centres to AOPs. There are 2 important things necessary for operators to succeed in this industry: Location and Teachers. Non AOPs will be choked off in these two key areas.

 

While it is good that the government is pumping a lot of money into this sector, the industry is wrongly structured and the huge grants will worsen the situation. There will be negative consequences arising from the current AOP scheme. It will wipe out many existing players, especially operators charging fees that cater to lower and middle income families. The 2 current and 2-3 new AOPs will not have to compete hard to be innovative. A healthy level of competition is needed for operators to be innovative, to continue to offer high quality services at competitively affordable prices. I believe we can instead structure childcare as a public good, with regular competition by all operators for packages of sites at fees regulated by MSF. With the same level of investment the government has planned, I believe it will achieve in better outcomes for affordability, accessibility and quality.

 

The higher number of working parents has seen fast rising demand for childcare. These same parents will also need good quality and affordable student care facilities.  It will be another important area as a social leveler.

 

I will touch on childcare and student care further in my COS cuts on MSF. Thank you.

 

References

1. Spotlight On SMPs and SMEs – The SMP, SME http://www.icpas.org.sg/mediacentre/admin/upload/20120522022044634732932440629198.pdf

2.  A Guide to Productivity Measurement http://www.spring.gov.sg/resources/documents/guidebook_productivity_measurement.pdf)

3. http://www.iras.gov.sg/irashome/ma-allowance.aspx

4. http://www.todayonline.com/singapore/govt-raises-funding-pre-school-sector-s3b

5. http://app.msf.gov.sg/PressRoom/Disbursementofgrantstononprofitchildcare.aspx and http://app.msf.gov.sg/PressRoom/Allocationofnewvoiddeckchildcarecentres.aspx

Finding the Singapore Psy

The 17 Oct issue of TODAY featured Psy and the economics of Gangnam style. Psy (Park Jae Sang) is suddenly famous. He holds the record for the highest number of Youtube likes (now over 4 million and still rising) and over 400 million views, after officially releasing his video on Youtube only in July this year.

Psy goes against the grain of successful pop stars. He is portly and by his own admission, is not good looking. He was once told by major record labels to get a drastic image overhaul, including plastic surgery to ever be successful. He did none of these and chose to “dress classy and dance cheesy”. He is the total opposite of what had made K-pop successful in the past: stars with long legs, robotic dance moves and years of training and grooming to make more out of the same mould.

He got South Korea’s finance minister talking about him.  South Korea’s top economic official cited Psy as an example of the kind of creativity and international competitiveness the country needs. It was a plea for South Koreans to let their hair down and dream a bit.

As successful as South Korea is in the competitive world of global electronics and export, the finance minister recognises that the country needs to continue to find its own groove. It needs the creative Psy in businesses to go against the grain for the country to continue to propser as innovation becomes more important for success globally.

I believe Singapore needs that too. We may have found success in our early industrial policy. We went against the nationalistic grain of what our neighbours were doing and attracted multinationals to our shores. Former Perm Sec Ngiam Tong Dow had warned of flying on auto-pilot mode, relying on past successes as a sure and safe way for future progress. He was pushing for Singapore to grow its local ‘timber’, i.e. develop our SMEs to a level that they can compete globally. To do so, we will need innovation.

Innovation needs a mindset change. It is difficult to mandate innovation. It has to start from a culture from young where we dare to be different, where we dare to go against the grain and we dare to try alternatives. Our formula for success is too predictable.  Our system has put too much emphasis on measuring children from young and sorting them into cookie-cutter programmes we think are best for them. We sieve out the elites through tests and channel them onto fast tracked programmes. We have created an excessive meritocratic education system where the rewards for doing well in academic examinations are exceedingly high. We will end up breeding a next generation of policymakers fixed on doing what had been done previously because that is the safer way to carry on with things.

To have a culture of innovation, we need to cultivate such an attitude right across all areas of our society. If we want a Singapore Psy, we need to let our hair down in our creative sector, even if it causes a bit of discomfort sometimes. Once a while, over enthusiastic officials will clamp down on artistic expressions in the fringes, afraid that our population cannot discern. We will get conforming people but not the next Psy.

If we want Psy-thinking in our businesses, we need to encourage divergent thinking from young. We need to find alternative ways to educate our young and to find a different way to progress them up the education ladder. We need to incorporate into our education more areas that do not have fixed answers. We need to find a way to embrace greater ambiguity and diversity.

Our economy will also need to allow the space for SMEs to develop. We need to allow fresh spaces for them to grow, rather than stiffle them under the shades of giant GLCs and multinationals. I had spoken on this earlier in my Budget speech in parliament this year.

I look forward to a day when we can have our Singapore Psy, in pop culture and in business. We need confident Singaporeans, prepared to be different.

Spike in fees of private childcare operators due to crush for childcare space

The Straits Times carried an article today on “Childcare crush sees rents, fees shoot up” (ST 21 Sep 2012 page A8). The report cited keen competition for limited new childcare centres that has caused rents to spike from $10,000-$20,000 per month five years ago to $30,000 to $40,000 per month in recent tenders. This has translated into rise of monthly childcare fees of hundreds of dollars per child in this period.

The article highlighted perfectly the situation I had presented in parliament last week.

Childcare fees has been rising, fairly rapidly in the recent two years. Rent is a big issue. Since the start of the Anchor Operators scheme in 2010, the number of HDB void deck centres available to private and non-profit operators outside of the Anchor Operator scheme are few. From MCYS’s website, I see around 5 available for each category a year. Each of the two Anchor Operators however, opens around 25 centres a year, for a total of around 50 centres between both. They seem to get their sites from unpublished quotas. Anchor Operators pay $1,000-$2,000 rent per month per centre, based on MCYS’s data of $2-$4 per sqm and typical size of 400-600 sqm.

It is easy to work out the mathematics. A typical childcare centre will have an MCYS approved capacity of 70-100 children, depending on the size of the centre. A centre operating at over $40,000 per month rent will have to charge at least $400 more per child per month compared to an Anchor Operator renting at $1,000 per month. This is based on a maximum enrolment of 100 children. If approved capacity or enrolment is lower than 100 children, they need charge more than $400 in monthly childcare fees just to recoup the cost due to rent differential.

Anchor Operators also get set-up grants (over $100,000 per new centre) and other grants such as for maintenance, learning resources and manpower. MCYS has said recurrent grants (excluding setup and maintenace grants) for Anchor Operators will reach $30 million per year.

Minister of State for MCYS, Mdm Halimah Yacob had stated in her reply to my adjournment motion last week that “we have seen growth in both the Anchor Operator market, as well as growth in the commercial sector”. To her, private operators are not impeded by Anchor Operators.

I will differ on this. The number of HDB void deck sites have become few since this scheme came into being. Operators have to go into commerial properties, which charge higher rents. When a rare new void deck space is made available, existing and aspiring new operators bid unrealistically high prices. They benchmark against commercial properties and may also have been frustrated by earlier unsuccessful bids at lower prices.

This will in turn affect existing centres because when their tenancy is up, HDB will look at market rents and adjust their rental rates accordingly. Recent high bid prices will drive up industry average rental, and cause HDB to increase rental charges.

Right now, there is a shortage of childcare places due to rapidly rising demand. Parents are switching from 3-hour kindergarten programmes or from grandparents’ care into childcare. Many parents have complained to me that they have to wait for more than a year to place their children in an affordable centre. Hence, they have no choice but to enrol with a private operator, despite fees being about $200 more. So there is still sufficient current demand for private operators’ services, despite higher fees due to higher rentals.

MCYS will select another 2-3 Anchor Operators. Anchor Operators will use up almost all the new available void deck centres. When the number of places by Anchor Operators catches up with demand, parents will switch out of private operators due to fees. Private operators will then feel the pinch. Many will close down. They are already operating with tight margins due to rising manpower and rental cost. Indeed, speaking recently with staff at some private centres, they complained of increasingly stressful work situation due to high staff turnover and their companies tightening control of costs. Anchor Operators with recurrent grants for manpower, are in a better position to retain staff and even recruit from other centres. This has caused an outflow of staff from other operators into Anchor Operators in the competition for limited trained staff.

It is a graudal process that is slowly but surely happening. We will be left with only Anchor Operators and high-end premium operators who cater to a different market from Anchor Operators.

The current two Anchor Operators are NTUC First Campus and PCF Sparkletots. They were selected in 2009 based on criteria that included: (a) $5 million paid-up capital, (b) non-profit and (c) non-religion and non-racial. The entire universe of childcare operators in Singapore in 2009 that could have met the criteria may well have been just two operators.

Mdm Halimah Yacob in her reply in parliament stated “The basic entry criteria to the scheme are made known. In addition to development grants and subsidised rental rates, Anchor Operators also receive a recurrent grant to defray the costs of recruiting and developing good quality teachers for their new centres. In other words, whoever wants to take advantage of the Anchor Operator scheme and wants to receive additional grants and support, is entitled to do so. It is open to them, even if you have a commercial entity who feels that it wants to do that, can always set up a non-profit arm. And if they qualify and fulfil the conditions, they are also eligible to become an Anchor Operator and receive the additional support from the Government.”

I find this very strange. What is the purpose of expecting a commercial operator to form a non-profit arm just to be able to enjoy these grants and privileges? It is like stretching your arm around your head to scratch your nose, when you could just scratch your nose directly.

We should be outcome-based, regardless of whether an operator is for-profit or non-profit.

We already know what the two current Anchor Operators can do. They charge around $640 in monthly full-day childcare fees afer receiving all the generous support from the government. If MCYS’s concern is affordability and quality, it can challenge any operator (private or otherwise) who wants to receive similar grants to charge at $640 or lower, while proving they can also run quality operations. As a keen observer and former participant in this industry, I am very confident there will be many players able to do that.

If private operators can do that, it will mean one of two things: either

(a) current anchor non-profit operators are not really non-profit; they make decent surpluses, or

(b) current anchors have not been operating efficiently to bring cost down enough for consumers.

In my parliament speech, I had cited some examples to show why I believe quality private operators are capable of beating the Anchor Operators at their game if offered similar conditions.

Our government seems to have an aversion for giving support to for-profit operators when it comes to childcare. However, when it comes to public transport, they see it fit to pump in billions into infrastructure and bus subsidies for SMRT and Comfort Delgro, both public listed entities. If our government is consistent, shouldn’t these two private transport operators be turned into non-profit operators since it is against our government’s principle to support private companies with grants for their operations?

I also fail to see why the scheme has to be for non-religious and non-racial groups. After all, MOE saw it fit to support schools run by mission groups, buddhist groups and various race-based associations. Is MOE wrong to support education by groups with such affiliations? What’s so special about childcare?

I believe the Anchor Operator scheme is ill-conceived. Granting another 2-3 operators and asking existing commercial operators to set up non-profit arms to qualify can only make matters worse. It will kill of all remaining low-mid cost operators, given they already face enornmous pressure from rising rental and manpower costs. Those receiving such generous support will easily kill off their competitors. It will reduce diversity. It will freeze our industry at the point when this selection for the next 2-3 operators will take place. After that, this group of 4-5 Anchors will corner the market by their sheer size and advantages, and with new childcare sites deprived for new players.

My proposal made in parliament is for an alternative model. In summary, it calls for:

1. Government to organise all child care sites under its control (void deck, JTC, government buildings) in a managed low rent fashion. This would comprise more than half of all current child care sites in Singapore.
2. Government to create or secure more sites, even negotiating with large private landlord as anchor tenant and building mega child care sites out of disused schools or on empty land next to primary schools.
3. Sites can be grouped into package of centres and each package tendered out for all operators (private and non-profit) to compete fairly in based on concept, quality and affordable fees, and not on rent. Rent will be a prefixed low amount equivalent to what non-profit operators currently enjoy, at $2-$4 per square metre.  Operators cannot adjust fees without the approval of the government or an independent council monitoring quality and fees of operators. Such package of centres should have a fixed tenancy period, sufficiently long enough for operators to meaningfully recouperate investment and thereafter be subjected to contestability again to see who can continue to better run these sites.
4. Recurrent grants and other support system should not be given only to non-profit operators but to all who are operating on these sites which are under strict fees and quality guidelines.

I believe this alternative will be more outcome-based. We will be focused on affordability and quality, while providing ongoing diversity. Contestability will keep all operators on their toes, ensuring that no group of operators are annointed with special privileges that can allow them to sit back and relax, knowing that the competition can never beat them because of their special position.

In the end, consumers will benefit from this alternative model.

My speech at Hougang by-election rally (24 May 2012)

 Selamat malam, pengundi pengundi Hougang. Malam ini, saya mengucapkan terimah kasih banyak banyak sebab pengundi pendungi hadir ke rally ini.

 

各位亲爱的后港选民，各位来自新加坡各地的支持者，大家晚上好!

 我首先要向两天前陪我们一起淋雨的支持者，表示深深的感谢。那晚，即使雨下得多大，您都一直留下来。有好多没有伞的人，上了年纪的人，还有些行动不便的人，都没有离开，坚持在大雨中支持工人党。看到你们在大雨中展现出勇气，我真的是非常地感动。

 后港人的热情是雨浇不息的。人民行动党不平等 地对待您二十多年了，您还是勇敢地支持工人党。谢谢！

 您连人民行动党的威胁压迫也不怕，大雨对勇敢的工人党支持者来说，对真正的后港精神来说，算得了什么！您就是要告诉人民行动党，就算下多大的雨，就算他们压迫再久，工人党和后港人也会风雨同舟！

 

 I will next speak in English.

Recently, Professor Lim Chong Yah, former chairman of the National Wages Council and now Professor Emeritus of Economics at Nanyang Technological University made a strong proposal. He proposed to raise the wages of low income workers by 50% over the next 3 years and to freeze the pay of the top income earners.

The Workers’ Party is also concerned about income inequality in Singapore. For someone like Professor Lim who was previously in the innermost circle of government policymaking to raise this issue, it shows that this problem has grown really big, very very big. It shows that the PAP has gotten some things really wrong.

Instead of looking at the problem, one minister after another including the minister who is supposed to champion the welfare of workers dismissed the proposals as impractical. Professor Lim had to remind them that we are not talking about workers and not about cattle. Maybe the PAP expects workers to “做牛做马”, that is, work like cows and horses for pittance. Now who has a heart for the workers? Is it our highest paid ministers in the world? Do they think there is a problem for those who cannot have wages enough for daily living despite working day and night? They all sang the same tune that we need to get our productivity up first.

Last year, the Economic Survey of Singapore reported that even when productivity had risen in the past, wages in some industries did not move up as they should. There’s no assurance it would. Low income workers in certain industries have had their wages stagnate for more than 10 years already.

Productivity is important but it alone cannot determine the fair wages. Wages are also affected by government policies, like immigration. When the government flooded the job market with foreign workers, no matter how hard you work, your wages will still stagnate. That was what happened in the last ten years.

Another important reason is that it is difficult to increase productivity in some low wage industries. How many more hours can a security guard work, how many more trips can a bus driver make before we can say their productivity have risen to a level that they deserve a pay rise? More and more of our frail and elderly continue to work way way past retirement age. How much harder and longer must they work?

Naturally, Singaporeans are protesting. Finally, after 28 long years, the National Wages Council yesterday recommended a $50 increase in wages for those earning $1,000 and below. That’s barely keeping up with inflation.

Speaking of inflation, cost of living is getting higher and higher. Yesterday, the headline inflation was 5.4%. Inflation has been stuck at around 5% for quite some time already. While we can say inflation is due partly to higher prices of oil and goods from overseas, inflation is also caused by higher rents. Who is the biggest property owner in Singapore? Is it not the government, directly and indirectly through companies it owns? Who benefits from high COE prices? These are adding to the inflation.

The government likes to boast about Singapore being ranked top in all sorts of things. Well, amongst developed countries in the world, we are have the 2nd highest income inequality. Even Singapore’s Ambassador-at-large, Professor Tommy Koh described our ever widening income gap as “socially unconscionable”.

We are now the 9^th most expensive city to live in according to the Economist Intelligence Unit. Eleven years ago, we were ranked number 97. Congratulations, we are now top in another area.

Two nights ago, here in this rally site, I was moved. I was very touched by how you stayed even when the rain poured. You stayed on and displayed generous spirit in using whatever you had to shelter one another. Even the old and the frail stayed on. You cheered in the rain. You danced in the rain. We are in the same boat together, come wind, rain or shine.

 The PAP however, seems to have taken a different boat, a luxury liner, headed for a different direction. It seems hard for them to know your problems because they are not in the same boat as you are.

 Voters need to continue to send the message to the government to put themselves into the shoes of ordinary Singaporeans and feel their pain. The last elections, you gave them a stern warning. They started to do a bit more. If they win Hougang, they will stop listening again.

 Today, the Prime Minister said Hougang should vote for a fresh start. I think the PAP should itself first make a fresh start. The PAP should have a fresh start today NOT to divide the country up just because some constituencies chose to vote differently. Look at your IC. You have a pink IC, just like every Singaporean. You and your sons served National Service. You pay taxes. You helped build this country. The Prime Minister says the voters of Hougang should reflect. The PAP should instead reflect on why the people are so angry. Do not divide the country up when people vote differently. Do not divide the country up by holding off resources to opposition wards, resources that belong to all Singaporeans. The PAP should make a fresh start to be inclusive.

 If Desmond Choo really has a heart for Hougang, if the PAP has a heart for Hougang, then work together for the benefit of Hougang residents, not cut off national resources from the opposition.

I have worked with Png Eng Huat. I know he is a humble, honest, hardworking and intelligent man. He is the one with a real heart for the people. He came from a humble background. He worked tirelessly on the welfare of Hougang people since 2006 without expecting any reward. Png Eng Huat will champion the cause of Hougang for you in parliament. 方荣发才真正有一颗心，一颗为人民服务的心，一颗为后港居民服务的心。

Give your vote to the Workers Party! Give your vote to Png Eng Huat ah! Thank you.

Developing people, developing talents

I heard an interesting interview on FM 93.8 LIVE today in its “Small Talk, Big Returns” show. It was an interview of a Ms Sylvia Fernandez who practices motivation and leadership development using the methods of book author and leadership consultant Aubrey C. Daniels.

The interview struck me because I share the sentiments expressed by Ms Fernandez. She cited the example of Enron, the failed US Energy giant. It had a model of paying top dollars to buy top talents into the company, talents being defined narrowly by bright people with high academic achievements. They quickly learn the behaviours of the company and propogate the same behaviours because the leaders were looking for people who would exhibit the behaviours they wanted. Enron had over relied on a small group of intelligent people with bright results while ignoring the rest.

She said that while we should pay for talent, we should never undervalue the rest. Develop people, help them grow organically. Turn your organisation focus inwards too. There are talented people inside, even if they do not have the academic qualifications or perceived high IQ that some from outside come with. Identify people, take them up, reinforce them, inspire them to do more and make them fly. This will lead to great productivity gains in the company. Inspire people in your organisation to do more. There are a lot of misplaced and demotivated people in organisations. We need to take them from mastery of whatever areas they are already in, into fluency, even if it takes many hours of patient training and cultivation.

She cited studies that showed that exceptional performance and IQ does not have a strong co-relation and hence we should not be overly focused on just getting people with bright results and assume they can do exceptionally well in the organisation.

I recall my own experience as an entrepreneur growing a start-up, patiently growing from a 4-man company into a sizeable player in our industry. We started to grow rapidly only when we looked for talents internally, identified highly motivated individuals and gave them challenges to grow the areas they were in, or even create new areas which we allowed them to run with autonomy. They were not people with sterling academic results. In fact, one who rose to later lead the software development team orginally graduated from a vocational institution. The one who rose to manage sales and eventually the company’s entire operations originally had a polytechnic degree in a non-related field. They had started from the most junior positions in the company. Most of the rest who rose to key positions had started from the junior ranks, mostly with unimpressive academic results. They impressed with their exhibited self-drive and desire for continuous learning. This is not to say we did not value those that came with good academic qualifications. We had some with good academic results who did well too. The point is that many organisations follow too narrowly on the model that people with solid academic results are automatically talent and should be fast-tracked to leadership roles.

So I could immediately identify with what she spoke about. In this age when we need to raise productivity in organisations greatly to stay competitive, we need a different mindset in the way we identify, cultivate and motivate people. Only then can we get quantum leaps in productivity. You never know what gems there are in your organisation until you start to look inwards. Organisations that were successful in the past may become entrenched in their own past success that they start to identify only people who follow their same mould and forget how to reinvent themselves for the future, just like Enron. So we also need to be open-minded about our definition of talents and guard against in-breeding.

Being a politician now, I wonder if we should apply this to the way talents are identified and developed in government and politics as well. Hmm…

My speech at Hougang By-election rally (22 May 2012)

 各位亲爱的朋友，各位工人党的支持者，大家晚上好！

 在我还未加入工人党之前，我已对人民行动党向选民进行威逼利诱，迫使他们放弃反对党的行为感到气愤。在2006年大选期间，我曾在海峡时报发表文章，斥责人民行动党通过组屋翻新的计划，动用国家资源，以完成他们的政治目的。文章发表后，马宝山部长也曾给我答复. 不过他的答复不令我满意。

 但看到后港选民们并未受到人民行动党的诱惑，坚定地把选票第四次投给刘程强先生时，我感到非常兴奋。毫无疑问，后港是新加坡民主政治的重要指明灯。虽然我不居住在后港，但我也愿与后港人一同捍卫后港，坚决反对人民行动党用不公平的手段妄图夺取反对党的地区。

 人民行动党是一个怕输的党派。他们连续控制国会长达五十多年。这也就是为什么他们能够改变我们的选举制度。他们实行集选区制度，宣称这是为了保证少数族裔人的参政权，却将集选区选举的规模扩大到4到6位议员。实际上，即使需要保证有一名少数族裔参政，3名国会议员的集选区也足够了。

 他们怕输。他们怎么怕输呢？因为他们没有勇气派新的候选人参加单选区的选举，除非这个单选区已被反对党夺得。若是他们从反对党手中夺得一个单选区，他们会把这个选区加进个集选区，以让反对党难把选区再次赢回。他们甚至怕得连安顺区已不敢补选，就把它并吞进丹戎巴葛集选区了。还记得当他们几乎失掉静山集选区和友诺士集选区后，他们做了什么呢？这些集选区现在哪了？

 为了确保其党利益而改划选区，这是不公正的！朱倍庆说如果他赢了选举，他将继续保留后港为单选区。江山易改，本性难移。以人民行动党怕输的行为，如果赢得了后港，你说我们能相信他们吗？

 亲爱的后港居民，在过去的五次选举中，你们都勇敢地做出了心中的选择。你们向所有新加坡人宣告了民主政治的重要。正因为有你们，工人党才会有今天的发展；正因为有你们，我和我的同志们才会有勇气与人民行动党竞争。我们决不能允许他们将这个国家占为己有。

 后港的选民们，你们将在5月26号做出一个重大的决定。5月26号，我们必要再一次胜利。那么，在2016年的选举中，在未来的选举里，反对党才会呈现出更强大的力量。我们不要让已点燃的政治改革火熄灭！

 请您再一次坚定地支持工人党，为把您手中宝贵的一票投给方荣发啊！

 I will next speak in English.

 The PAP likes to talk about their track record in running this country. Let’s look at their ‘Track’ record. Their ‘track’ record has being questioned at the Commission of Inquiry into the breakdown of MRTs. And when the Inquiry was still ongoing, we had more train breakdowns. Old lines break down. New lines also break down. Straight line, circle line, North-South, East-West, North-East, MRT, LRT; they break down too frequently! What a ‘track’ record.

 Ex-PAP MP Mr Peh Chin Hua, in his PAP rally speech on Sunday described my fellow NCMP Gerald concerns about MRT breakdown as ‘BS’ (i.e. 牛粪), an uncouth term. Are the MRT problems you are experiencing ‘BS’? Is PAP so disconnected from ordinary Singaporeans that they brush off the problems as unreal and ‘BS’? Are they really listening to you or taking feedback as simply ‘BS’?

It seems no one wants to take responsibility for the maintenance failures. LTA will say it’s the responsibility of SMRT, which happened to be one of many government linked companies pervasive in our economy. SMRT instead is pointing its finger at its predecessor. The breakdown of our public transport system is in a way a symptom of a larger problem, which is the mindset that this government use in providing public goods and services

The PAP runs the country with a profit maximising mindset. It sees the country as a large company which they think they own. They say they have been divesting their businesses after the Economic Review Committee in 2003 criticized the government for being in too many businesses. So they decided that JTC should divest its factory spaces. These factories had helped Singapore grow since the 1970s by providing affordable industrial rents for many local companies. JTC has since sold almost all of its industrial space, mostly to Mapletree Logistics, another Government Linked Company.

I don’t think passing the business from the left hand to the right hand can be called a divestment. It is a rent maximising exercise to extract better rent from the SMEs. Industrial rents have shot up, forcing companies to charge more to cover costs. The government is also a large owner of retail spaces through the many Real Estate Investment Trusts that it owns. Retail rents have been rising too. In the end, Singaporeans pay the price when our cost of living shoots up.

From GST to COE to ERP to public housing to restructured hospitals, the mindset of value maximising has generated a lot of money for the government. SMRT is an example of how becoming so focused on shareholder returns can lead one to forgot its core mission of safe and reliable public transport. Essential public services for our people cannot be treated as business commodities to maximise returns. They are moral responsibilities of the government!

We the voters need to remind them through the ballot boxes that the country does not belong to just a few elites who thinks they know how best to run this place. Singapore belongs to all Singaporeans!

 When the PAP make mistakes, they quietly dismiss them. They will tell you … It’s once in 50 years. When a terrorist escapes, it’s an honest mistake. When trains breakdown, it’s “a rare confluence of factors”. Well, problems are not rare in Singapore anymore .

 Why are our new ministers for national development and healthcare so busy building flats and hospitals now? Maybe someone before them should have listened more to the problems of ordinary Singaporeans and worked harder? It took you, the voters to make them wake up last year.

 Your vote is important. Your vote will tell the PAP that they need to listen more to you. Come 26 May, vote The Workers’ Party! Vote Png Eng Huat ah!

Extract of debate on renewable energy (during Energy Conservation Bill)

Source: www.parliament.gov.sg (9 April 2012)

 Dr Vivian Balakrishnan:

… [other parts of Minister’s speech responding to MP speeches] …

I am glad that Mr Yee supports our efforts to encourage greater use of renewable energy in Singapore. Unfortunately, let me share some of our constraints in this area. We do not have large rivers in Singapore. So hydroelectricity is not a viable option. We do not have volcanoes. So geo-thermal energy is not an option as it is in other tectonically active countries. Solar and wind farms require large tracts of lands which we do not have. A recent report authored by Stewart Brand estimated that you need land about the size of the entire island of Singapore in order to generate one gigawatt of wind energy. To put this in context, it means even if the entire Singapore was converted into a wind farm, you would produce only about 10% of the installed capacity that we have. It is not possible. Even if we were to cover every roof top and every surface with photovoltaic panels using current technology, we estimated it could provide maybe about 12% to 14% of electricity needs.

Similarly, our gentle winds and the fact that we do not have typhoons and hurricanes, which is a good thing, also mean that the same characteristics that have made Singapore a safe harbour also make wind, tidal and these other renewable sources not viable in our context.

I have taken some pains to explain all these so that you understand that it would be wrong to prematurely and simplistically set a target for renewable energy in Singapore. We are an alternative energy disadvantaged country. Some people say we are not even a country, we are a city state. So you need to understand this basic strategic fundamental constraint because otherwise if you just simplistically copy what other larger countries in very different circumstances do, you will end up imposing an impossible burden on Singaporeans, Singapore enterprises and businesses. So that would be counter- productive.

Assoc Prof Fatimah and Mr Yee have also asked about our progress in achieving a sustainable Singapore blueprint targets for energy intensity and green mark buildings. Well, here, I have some good news. Under the “Sustainable Singapore Blueprint” which was published in 2009, Singapore was supposed to pursue a less energy intensive growth trajectory. Our target was to improve our energy intensity by 35% compared from 2005 levels, and to achieve this by 2030. I am pleased to inform the House that our energy intensity has already improved by some 16% since 2005 levels. This we achieved in 2010.

… [other parts of speech] …

Mr Yee Jenn Jong: I agree with the Minister that solar energy is the main option available to Singapore. The others that we have tried include bio-gas and waste which is quite minimal given the limitations. I understand the Government has been significantly funding solar research with EDB also funding solar and alternative energy research. The question I would like to ask is: if not 10% for KPIs, what other KPIs can we set for all these investments that we are currently putting into solar energy and other alternative energy?

Dr Vivian Balakrishnan: You are right. We have been promoting research and development as well as early prototyping of systems including solar technology in Singapore. For instance, there is an HDB precinct, I believe, in Punggol, where we are evaluating the system, the performance of the system and the economic implications of such a system. But the point right now is that, even as of today, the electron that you get from a photovoltaic cell is more expensive than an electron you get from the grid. So Members have to be very careful that whilst we want to do the right thing, we want to be more green, you got to be careful not, in your zeal, to impose costs onto consumers. And that is why we are taking a technology agnostic approach. And we are taking a very careful approach in the rollout of all these new technologies and green renewable sources of energy. We do not want to add on costs to people.

I do not want to politicise this but, if you take the summation of yours and Mr Giam’s speeches, you have a position where the Workers’ Party is in fact asking me to raise taxes for high energy uses to set standards for the use of renewable energy modalities which will impose higher costs to our people and I am somewhat surprised that you have been so enthusiastic that you are prepared to do that. I just want to add that, as a government, other times when Ms Sylvia Lim gives me “heat” on prices of utilities, so this is an area in which I want to be very careful on. So, we want to do the right thing. We want to encourage the research and development. We are prepared to test-bed new technologies but we are not going to prematurely roll out technologies when they are not economically viable and when they will increase costs to consumers.

Similarly, on your suggestion during your speech on having tiered tariffs for electricity, that in effect penalises big consumers. You need to understand that in the case of Singapore our energy and electricity costs are not subsidised. So, what all people are paying, whether you are a small or large consumer, you are paying market price for it. I would rather make it worth their while to invest in capability and technology to conserve energy, and therefore to make business sense rather than to impose taxes in the name of ideology or in an effort to look green, but actually impose a burden on our stakeholders and our industrial sector. So, this is one of those situations where I understand where you are coming from. I appreciate your support for this Bill. I am just asking for a little bit of careful analysis and not to be over-enthusiastic and lead down the road of unintended consequences. We are not actually that far different in our intention to ensure that Singapore becomes a leader in energy efficiency.

… [query by other MP and reply by Minister] …

Mr Gerald Giam Yean Song: Sir, I would like to clarify my points just now about the taxes or the new taxes that the Minister is suggesting I suggested. I suggested two tax rebates actually for companies which achieve their energy efficiency targets as well as those who have attained their energy efficiency certification that they will be assessed under. So, even though the tiered tariffs might result in some high energy users paying a bit more for their energy, this could be returned to the companies through the tax rebates. And, in fact, the tiered tariffs that will be imposed on the higher energy users could serve as a further incentive for them to reduce their overall bill which would benefit them overall economically.

Dr Vivian Balakrishnan: I am being a bit more constrained because I am acutely aware that he is supporting the Bill. But actually there is a fundamental difference in approach here and I cannot help wondering whether you have calibrated your position with the Workers’ Party, in particular as a whole. So, let us go back to basics.

Our electricity price in Singapore is not subsidised price. There is a market. The market sets the price. Everybody pays for it. For the big consumers, they are in a position to bargain to take advantage of the contracts which are available. But the point is these are all market prices. We are not subsidising them.

If I take your proposal to add another levy on top of the market price, it is a real burden on our industry sector. And if you say let us only target the big consumers, then you can start playing games by having a big company decide it has got multiple subsidiary units and qualifying for the lower rate. All these are regulatory games which I believe are counter-productive. The key point is to have right pricing for energy. It makes sense for everybody to save energy to reduce their consumption and to invest in more energy efficient equipment. But right now there are some barriers to that – lack of knowledge, or the fact that sometimes the split incentives between owners and users of a facility or a building or because the payback period is too long and businesses for instance might be prepared to invest in technology that can pay back in three years, they may not be prepared to invest in technology that takes six years to pay back.

So, our approach right now, rather than play games with tax or additional levies, is to focus on building up capability, building up access to information. And in the case of technology that takes too long a period to pay back, for instance, the Grid scheme in which we co-fund equipment that will lead to greater energy efficiency for the company. Our co-funding in effect reduces the payback period to a level in which the company is willing to go for. By making these measures carefully and slowly we are enhancing capability, building up knowledge, and more important, I am enhancing the competitiveness of our companies in Singapore. I think this is a better and safer way of promoting energy efficiency and conservation. Not by saddling our companies with additional levies and taxes as what you have proposed. So, I do not want to be overly robust to engage in an overly politicised debate with you. But I just want to hasten to add that you got to be very careful about the unintended consequences of your proposal.

I have just been reminded that we do have U-save grants and the reason we do that is so that we can have a system in which energy and water is right priced but yet low income families can afford it, by giving them in effect cold, hard cash which they can then decide how to spend and how efficiently they use precious resources like water and energy.

So, what we have is a unique system. In many other countries, just in our own neighbourhood, they are unable to stop subsidies for fuel oil, for cooking oil, for energy. The logical thing is to actually remove subsidies and then target assistance to low-income families who need access to these essentials in life. But if you do have a government and a civil service that is capable of planning things rationally and of directing assistance in a targeted way without worry of corruption, you cannot get out of this subsidy trap.

We are in a very fortunate position in Singapore to be able to right price, to market price essentials and yet ensure that even the lowest income family has access to water, energy and other essentials in life. So, it is a complete package that you have to look at. That is why be very careful when we try to emulate or copy other people who may be in very different circumstances, from the environmental, social, political and economic perspective.

My speech on Energy Conservation Bill, 9 April 2012

 Mr Speaker, the Energy Conservation Bill aims to bring about a 35% improvement in our energy intensity by 2030 and to improve the energy performance of our companies in the industry and transport sectors.

 

Sir, I welcome this Bill. As a developed nation, we should be more energy efficient, both for the purpose of allowing our companies to become competitive globally as well as to signal our commitment to good use of a scarce global resource.

 

The Bill sets out the minimum energy management standards. This includes the appointment of energy managers, reporting of energy use and submission of energy efficiency improvement plans for large users of energy. I noted that the Government recognises that these are “minimum” standards, which implies that it is aware that more needs to be done and companies can be encouraged to do more. I like to point out some implementation matters for consideration as well as to offer suggestions on what more can be done.

 

First is in the area of energy management practices. We are generally supportive of making energy management plans mandatory for heavy energy users. There are however potential issues concerning governance that we anticipate with the proposed energy management practices.

 

The Bill gives extensive flexibility to the Director-General and to the Minister to subsequently introduce by-laws, regulations and standards via gazette. The Minister is empowered to gazette by-laws, but no guidelines have so far been given. It is left to the subsequent discretion of the Director-General.

 

Therefore, I like to ask theMinisterto give more indications of the by-laws, regulations and standards the ministry intends to gazette, so that Parliament can debate these. What guidelines do the ministry intend to use? Can theMinistershare the time-frame guidance on when the by-laws may be gazetted? I believe these are necessary to prevent inconsistency in the implementation and enforcement of the proposed Bill.

 

Drawing a parallel from the practices in the building industry, there are the Building Control Act or BCA and Building Control Regulations, or BCR. The BCA and BCR have been in use for more than 20 years in Singapore and are very detailed. Does the Minister anticipate that the by-laws, regulations and standards will take a form like that of BCA and BCR?

 

Second is in the area of the Energy Managers that large companies must now employ and auditors to monitor for compliance. We noted that there have been recent prog-rammes which are supported by E2Singapore and EDB to train auditors and energy managers. How many have been trained and how sufficient are these programmes to ensure that there will be sufficient qualified officers to fulfill our needs? Are there guidelines on the qualification and experience of such Energy Managers?

 

Third, I like to cover an area I believe will be increasingly important for both Singapore and for the world; which is renewable energy. I think a gap in the Bill is that it does not seek to promote renewable energy. A comprehensive energy conservation effort must include renewable energy as a component. South Korea is aiming for 11% share of renewables in total energy consumption by 2030. Another heavy energy consumer country, Belgium, is aiming for 12% share of renewables for electricity suppliers in 2012. Japan, the energy intensity of which is comparable to the EU, is aiming for 10% by 2020. Denmark, already a leading energy efficient country in the world, is aiming for 13% by 2020.

 

According to statistics from Singapore’s Energy Market Authority, in 2010, 79% of electricity in Singapore is produced from natural gas, 19% is from petroleum products (i.e. fuel oil and diesel) but only under 3% is from renewables.

 

This gap is made more pronounced by the fact that our National Climate Change Strategy commits Singapore “to do our part in the international effort to address climate change”. We have promised to play our part by “improving the energy efficiency of our major energy sectors, namely power generation, industries, transport, buildings and households” and “to the global research effort on climate change and energy technologies”, particularly solar energy and green buildings. The Strategy states, “The objective of our research efforts … is to improve the current state of technology, and to bring down production costs to a level that would make large-scale adoption commercially viable”.

 

The Government is conscious of the need to signal to the international community our national commitment to the international climate change effort. The factsheet in this Bill concludes, “Establishing energy efficient standards across sectors under an Energy Conservation Act will also send a strong signal to external parties that Singapore is serious in undertaking mitigation actions to meet its international responsibilities”.

 

Therefore, I like to know the progress of our development in using more renewable energy. What are our current plans to significantly increase the use of renewables? I like the Government to be more proactive to signal to the international community of our commitment to international efforts to address climate change by setting a target share of renewables in total energy consumption to be achieved by a specific year. Using the four benchmark countries’ targets as reference, how far can we push for a target of say 10% share of renewables in total energy consumption by 2030.

 

Lastly, I like to cover another area which I feel can be promoted more aggressively to drive energy conserveration practices, which is having an integrated system of financial incentives and disincentives. A comprehensive energy conservation policy, especially for a liberalized energy market such as in Singapore, should include such a financial system to support volunteer agreements with corporations on energy efficiency targets.

 

In terms of financial systems, the developed world could be divided into three zones: EU and UK, AAC (America, Australia, Canada) and Asia (Japan, Korea, Singapore). AAC offers both financial assistance to promote energy management and tax incentives to encourage achievement of energy efficiency targets. EU and UK use carbon emission market “cap and trade” to promote energy efficiency, but individual countries use a variety of other instruments, including financial assistance, tax incentives, and green taxation. Asian countries, including Singapore use only financial assistance.

 

We can look more aggressively at using tax and cash incentives to encourage the achievement of energy efficiency targets set for different industrial sectors in consultation with stakeholders. Currently the energy efficiency initiatives of E2Singapore are mainly support schemes for implementing programmes.Only the Greenmark scheme gives out cash incentives for hitting targets. I am interested to know how effective Greenmark has been, and if effectiveness of all our schemes have been indexed and tracked. I am also interested to know the utilisation rate of existing schemes listed in E2Singapore and if the Minister thinks these have been effective in promoting energy efficiencies.

 

Calling current assistance schemes as “incentives”, is also a misnomer as they do not really measure actual achievement of targets. Besides current support schemes, I hope the ministry can look at providing real incentives for hitting energy efficiency targets.

 

My colleague the Hon. Member Gerald Giam will elaborate further on suggested taxation and incentive schemes that can be considered.

 

In summary, I support the Bill in its intent to bring about a more energy efficient Singapore. I hope the implementation issues and other suggestions that I have raised can be considered by the Minister to more aggressively set the pace for Singapore to be a global leader in energy conservation and energy technology.

Extract of COS on MOF – Project Finance Company

Project finance company

Mr Chen Show Mao (Aljunied): Based on the recommendations of the Economic Strategies Committee (ESC) in 2010, Budget 2012 announced that Temasek has put together a consortium of reputable financial institutions to establish a specialised project finance company (PFC). I would like to understand more specifically how the PFC will benefit our companies.

First, the PFC will aim to have about 80% of its portfolio comprising cross-border projects with significant Singapore-based corporate participation. What does the Government mean by “significant Singapore-based corporate participation”? Does significant participation means majority ownership? And how does the Government define a Singapore-based company for this purpose? Does it have to be headquartered in Singapore? Listed on the SGX? Or majority owned by Singaporeans? Is a Singapore subsidiary of a foreign multinational company considered a Singapore-based company?

I hope the Government will have clear guidelines on this. The ESC has made it very clear what the gap is and that is to facilitate cross-border financing for our companies that are investing in large-scale projects overseas, because project finance is significantly less developed in Singapore than elsewhere and capabilities of our local banks in this area are relatively limited. These concerns do not exist in the case of companies that can access project financing outside Singapore’s financial system.

Second, the ESC highlighted that as foreign export/import banks (EXIMs) remained largely nationalistic, Singapore companies are currently disadvantaged in this aspect. In order to help our companies compete on an equal footing, will the PFC adopt a similar approach to the foreign EXIMs? The Singapore Government will provide backing to the PCF by guaranteeing it debts. Will the PCF require some form of participation by Singapore companies in every project that it finances?

The Minister of State for Finance (Mrs Josephine Teo):

.. (other replies) …

Sir, we had said that to further support internationalization efforts, a Project Finance company (PFC) will be operational from the second half of this year. Mr Chen Show Mao sought to understand how the PFC will benefit local companies. The PFC addresses a market gap in long tenure, cross-border project financing. The PFC, which is a commercial venture led by Temasek Holdings, will address this gap and catalyze the supply of such project financing. Local companies will benefit in the following ways: first, access to financing gives them added confidence and ability to bid for major projects on an equal footing with their competitors, who typically have funding support from their respective national Export Import (Exim) banks. The PFC removes a constraint on our companies where Singapore companies have had to partner foreign contractors to tap financing facilities overseas. And as Mr Chen pointed out, we have put our companies at a slight disadvantage. So this opens up opportunities for our own SMEs to participate in these projects.

Mr Chen has a specific question on the definition of Singapore-based companies. We have defined a Singapore-based company as one that is listed or incorporated in Singapore and have at least three global or regional strategic decision-making functions located in Singapore. This is the definition that is commonly used in incentive schemes of our enterprise development agencies. While this definition does include foreign companies based here, these companies will have substantial presence anchored in Singapore. And there are significant spin-offs to the economy such as value-add and jobs created because they use Singapore as a base for internationalizing and undertaking major projects overseas. This will strengthen our position as a global Asia hub.

Mr Chen also asked whether the involvement of Singapore’s companies will be a requirement in every project. Let me reiterate that the PFC will aim to have 80% of its long-term portfolio comprise projects with significant participation from Singapore-based companies. This already assures us of significant benefits because the Singapore-based company must have at least three global or regional strategic decision-making functions located in Singapore, which I have explained earlier. The additional condition of local partnership, if we were to put it in, will unduly constrain the borrower and make it less attractive for the deal to be financed out of Singapore. So if we make that as a requirement, you might not even get it. Notwithstanding this, our economic agencies will continue to facilitate meaningful partnerships between our local SMEs and international companies for infrastructure opportunities in the region.

… (other replies) …

Mr Yee Jenn Jong: I have two questions regarding the PFC. It seems that the criteria allow Singapore incorporated foreign companies with zero Singapore ownership to take part. First question is that can the evaluation criteria be bias in such a way that it will favour companies with local ownership so that we can help grow locally-owned companies? The second question is that by having only 80% of the projects required to be Singapore-based companies involved and not 100%, is it because we are not confident that there will be enough projects that will involve at least some of our local companies?

Mrs Josephine Teo: Mr Chairman, I will try to be brief. On his second question first: why 80% and not 100%? Actually, with the requirement to have 80% of the portfolio comprised projects with significant participation from Singapore-based companies, the mandate of the PFC is very clear. However, as with any investment portfolio, the PFC needs to diversify its project portfolio and also the risks. Other countries and their EXIMs are far larger than Singapore’s and able to achieve sufficient risks diversity within their own country’s industries and companies. So, it is a practical concern there. With us, there is a reason why we have decided to allow the PFC some flexibility to provide financing for projects not involving Singapore-based companies. It is to our benefit that the PFC is able to diversify and manage it risks to enhance the commercial viability. So that is to the second question.

To the first question: I have every confidence that Singapore companies are up to it and, in fact, all of our efforts are directed towards helping them to build the capabilities and not assuming that they are not up to it. So, let me give him that assurance.

Extract of COS on MTI – REITs & Tourism Development Fund

Affordable rentals

Mr Yee Jenn Jong: Since the first REIT was formed here in 2002, REITS have grown to be a dominant force in the space leasing industry. The costs of rents remain a huge concern to SMEs. In an article in TheStraits Times last month, industry players pointed to REITS as the main driver of increases in retail and industrial rents. We saw closures large and popular bookstores with rentals cited as a main cause. Last year, industrial rents jumped by its highest level in 14 years. I hope the Ministry can actively look at how rental rates can be brought done.

A good place to start is at JTC. Since 2008, JTC has divested 2 million square feet of industrial space to REITS. I urge JTC to stop all future divestment. I also hope JTC can resume its original role of building and leasing affordable industrial space again to SMEs, rather than relying only on land sales and market forces.

The Minister for Trade and Industry (Mr Lim Hng Kiang):

.. (other replies) ..

We recognise that Singapore cannot be a low-cost location and we have to accept pricing costs because of our limitation in space and, more importantly, our shortage of labour. Our best approach is really productivity. More specifically, Mr Inderjit Singh and Mr Yee Jenn Jong asked how we can help our SMEs manage rental increases and also how JTC can play a more appropriate role.

Let me use this occasion to explain the role of JTC. The industrial property market comprises four main sectors – land, specialised facilities, standard factories, and generic multi-storey multiple-user factory space. In the first segment, JTC allocates industrial land to companies to build their special purpose facilities, provided these companies meet our criteria in terms of value-add, linkages to other sectors of our economy as well as jobs creation. In the second segment, JTC provides innovative industrial facilities such as the Jurong Rock Caverns, the Very Large Floating Structures (VLFS), Offshore Marine Centre, Seletar Aerospace Park, Clean Tech Park, Med Tech Hub, etc. This is to meet the specialised needs of these key clusters. The third segment is standard factories where the investors need a quick start-up and can fit their operations in JTC’s standard factories. In all these three segments, JTC has a very important role to play and will continue to do so. For such premises, JTC will price the industrial land judiciously. We cannot price industrial land cheaply in Singapore because land is at a premium. But at the same time, we cannot price ourselves out of the competition. We do benchmark our industrial land price against regional alternatives. By and large, I think JTC’s industrial land prices are set at a fair and competitive level for these three segments.

For the fourth segment, the generic multi-storey multiple-user factory space, or what is commonly known as flatted factories, the Government decided in 2005 that JTC should exit this segment. There is already a competitive market for flatted factory space in the private sector. JTC’s market share was only 18% at that time. JTC’s tenants were enjoying lower rentals than the others. This was inequitable. JTC should be concentrating on the first three segments which are more challenging rather than undercutting the flatted factory private sector players with JTC’s lower rentals. That is why JTC divested their flatted factories in order to ensure a level playing field in this segment. It is also in line with the “Yellow Pages” rule where Government would exit from market segments where there are already active private sector players.

I would also like to address Members’ concerned, especially Mr Yee Jenn Jong’s concern, about the impact of the Real Estate Investment Trusts (REITs) on rentals. Today, the seven industrial REITs compete with the other property developers and landlords. Like any other landlord, they have to compete in the rental market to attract tenants. REITs are part of the competitive rental market where no single player should have the market power to influence rentals significantly. I would like to assure Members that we will not hesitate to intervene if we see evidence of collusion or abuse of market dominance by the REITs.

While JTC may have exited from the flatted factory market segment, we continue to monitor it vigilantly. Rentals have indeed gone up, in tandem with our economic recovery in 2010. To keep industrial space affordable, we have increased the supply of industrial land to meet the demand. In 2010 and 2011, under the Industrial Government Land Sales (IGLS) programme, about 20 hectares of land was released for every half of the year. This is about 30% higher than in 2008 and 2009. To ensure a more timely supply of space, we have also shortened the project completion period for the IGLS sites from eight years to between five and seven years.

Tourism development fund

Mr Yee Jenn Jong: In January 2005, Minister for Trade and Industry Mr Lim Hng Kiang announced the $2 billion Tourism Development Fund to support the Tourism 2015 targets of doubling visitor arrivals to 17 million and tripling tourism receipts to $30 billion by 2015. This Budget has an injection of an additional $905 million into this fund. Can the Minister share: (i) how were the original funds used and why are additional funds needed, given that the $2 billion was to last until 2015; (ii) what projects will be funded by this additional amount and how are these projects different from those unveiled in 2005; (iii) is STB on track to achieve the 2015 targets? What new outcomes and targets can we expect from this funding beyond the original targets; (iv) lastly, how much of tourism receipts is contributed by gaming revenue, and should gaming revenue even count towards the target of $30 billion in tourism receipts, unless it is MTI and STB’s role growing gaming revenue?

 

The Second Minister for Trade and Industry (Mr S Iswaran): Thank you, Mr Chairman. And may I, first, thank all the Members who have raised issues pertaining to R&D, tourism and energy, and I will respond to them in turn in the context of our efforts to restructure for growth.

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Let me now turn to tourism- a sector which has grown well and has further potential. Mr Yee Jenn Jong asked how we spent the $2 billion in the Tourism Development Fund (TDF). The fund was launched in 2005 with a five-year funding commitment period. And the reason you have a five-year commitment period is because many of these projects have a gestation period. You invest early in order to let the infrastructure kick in, then contribute to your tourism spend. The long-term target is $30 billion of tourism receipts and visitor arrivals of 17 million by 2015. The fund has supported many major projects – Formula One, Gardens by the Bay as well as the International Cruise Terminal and River Safari, the latter two are scheduled to open later this year. It has also brought in numerous events and helped our tourism companies build capabilities. These, together with private sector investments such as the Integrated Resorts, have transformed our tourism sector and kept us on track to achieving our long-term targets. In 2011, Singapore had 13.2 million international visitors and Tourism Receipts of $22.2 billion. This is a 13% increase in visitor arrivals and 17% increase in the tourism receipts. To respond to Mr Yee, tourism receipts include spend on accommodation, spend on shopping, spend on entertainment, so it is a collection and not segmented into particular parts alone. STB’s strategies cannot segment the spending activity of tourists in Singapore to the degree that he has asked.

This growth in tourism has also created more and diverse job opportunities for Singaporeans. Let me give you a couple of examples, Catherine Ho is a former Warrant Officer with 26 years of service in the SAF. Now, she is a theme park manager in charge of park operations in Universal Studios Singapore, assuming there are some relevant skills there. She is now helping to set up operations at the upcoming Marine Life Park. Another example is Gwern Khoo. A chef in the Celebrity Chef Restaurant Waku Ghin in Marina Bay Sands, who has been identified by Chef Tetsuya as a promising local talent with plans to send him to Sydney for further training. He has come a long way from his days at SHATEC and from helping out at his father’s duck rice stall. And these are some examples of how the growth in our sector has created interesting and diverse opportunities for Singaporeans.

The Formula One Race (F1) has also been good for our tourism sector. Besides generating economic benefits and creating a good platform for business networking, F1 has helped to brand Singapore as a global city with a vibrant lifestyle and this has other collateral benefits for us as an economy and as a country. In response to Mr Liang’s question, I would say that on the whole, the benefits of F1, both tangible and intangible, have outweighed the costs. Yes, there are certain disruptions like the road closures, and this is something between the Government agencies and the race promoter, there has been significant effort to reduce that by more than half to about six days now, compared to where we were at the start, but we need to continue to work on this. Overall, the benefits have been significant and they outweigh the costs and any decision on an extension will have to be premised on the value that we can continue to derive from such an event. The Government will make this decision only after carefully weighing all factors.

We must build though on these significant tourism inroads that we have already made by seeding the sector’s next stage of growth. We must especially focus on quality or yield-driven growth by attracting tourists to visit more often, to stay longer and to spend more. That means enhancing the tourism experience through creativity and innovation, higher capabilities and productivity, and superior service standards. For this, we are injecting $905 million over the next five years as the second tranche of the Tourism Development Fund.

Mr Yee and Mr Liang have asked what strategies this second tranche will support. First, we will invest $300 million to build on Singapore’s positioning as an international Lifestyle and Business events hub through the Tourism Events Development Scheme (TEDS). It will seed and anchor best-in-class events, whilst bringing in international conferences and exhibitions as well as leisure and lifestyle events.

Second, we will co-create new tourism products with the industry, and rejuvenate existing products, through the Tourism Product Development Scheme (TPDS). A sum of $340 million will be set aside to drive new concepts and ideas for tourism products.

Third, we will invest $265 million to enhance capabilities in our tourism-related enterprises as a part of our key drive for higher tourism yield. Mr Dhinakaran raised the issues of manpower and the challenges faced by some of the companies in the sector. Substantively, the points on DRCs and levies have been dealt with in the Finance Minister’s discussion earlier on the debate, and also earlier in the COS discussion. Let me complement that by talking about what we are doing specifically in one or two areas. STB drives a productivity roadmap for the sector, and what it seeks to do is increase the attractiveness of jobs through redesign and reengineering of business processes. This will attract more Singaporeans to come and work in this space. We are open to more ideas from the industry on how else we can increase local labour force participation rate.

Mr Yee Jenn Jong: Sir, I have two categories of questions relating to the two cuts that I have made. The first is regarding the strategy of using land sales to manage the cost of industrial space which the Minister of Finance and also the Minister for Trade and Industry mentioned today. I like to seek clarity on how Government price the land sales. Last year there was this Paya Lebar industrial site that was not awarded because it went below the price. So there is some perception that during economic boom, developers would bid very high prices and we award to the highest bidder, but when the market is down then we will not award. So, will this be artificially keeping prices up so that it is quite impossible to have rent rates going down?

I am also concerned that there is the effect that REITS being a dominant force in the market now, they are actually price maker in the rental market. So, if we take the rent benchmark to price land, then we will have a cycle that it can only go up, it can hardly come down. So I need clarity on this.

The second question that I have relates to the Tourism Development Fund. I am not sure if I missed out something, I just want to understand. On the committed amount to the Tourism Development Fund since 2005, is it $2 billion plus an additional $905 million? Has the KPI still being set unchanged to 17 million for tourist arrivals and $30 billion in tourism revenue?

I also just want to clarify the question that I made regarding gaming receipts. I notice, for example, that tourism receipts jumped 49.6% in 2010 and that coincided with the opening of the two IRs in January and April respectively. I also notice that gaming revenue is classified under “Sightseeing and Entertainment”. So my question – for the original $30 billion receipt target in2005, did it actually factor in gaming as revenue?

Mr Lim Hng Kiang: Sir, let me take the first question and Mr Iswaran can take the second question.

Government land sales procedure is very well documented. It is the same procedure whether it is industrial land sales, commercial land sales or residential land sales. Basically, land is protected. It is considered part of the old reserves. Therefore, the way we sell land in Singapore has to go through the same processes which are agreed to with the President. Essentially, we must sell land at a competitive market rate; otherwise, we are not preserving old reserves. And to do so, we need evidence that there is competition. And if there is competition, then we go at the going market rate of the highest tender. If there is not enough competition, then of course we have to satisfy the Chief Valuer, who is.an appointment made by the Elected President, to make sure that we are selling land at the right price and not under pricing it. So that is the procedure for the sales. So we can have sales that come in with very few tenderers and still being awarded, because the Chief Valuer certifies that this is reflective of the market price.

Mr S Iswaran: Sir, I thank the Member for his question. Let me take the second point first. I am not sure why he is so fixated on this gaming revenue element but let me elaborate.

Firstly, when we do a tourism revenue forecast, we take into account all dollars spent by the tourists. I do not think we split them up, and whether expenditure on shopping should be under another body and so on. We look at the total amount tourists spend. And this is how STB did its forecasting when it launched its programme for the Tourism Development Fund.

Importantly, and I think this is important to register, this is a purely private sector investment. There was no Government money used on the Tourism Development Fund or any other source to support this project. So, essentially, these are projects that were conceived in order to enhance the tourism environment as part of a larger ecosystem in Singapore. And it is difficult really to start splitting out what is the tourists’ spending because of the IRs, what is the tourists’ spending because of other new entertainment and other new products we have in Singapore. So we look at it collectively as part of the overall wallet and the share of the wallet that we are able to draw into Singapore.

The second question, which is his first, on the Tourism Development Fund, yes, it means that there was $2 billion in the first instance as a first tranche, and there is now $905 in the second tranche. So the question is: why are we having a second tranche? Let me explain again because I think it may not have been clear for the Member. We put in the first tranche in 2005 and we said that there was a commitment period of five years, because these investments would need to be incurred early in the period in order to generate the returns over the longer term, and that is what we are seeing now. Many of the investments we made in the first five years are now beginning to yield results for us, and some are still coming on-stream, such as the International Cruise Terminal and the River Safari. And secondly, this new tranche is not just about achieving these numbers that we talked about. It is to go beyond that and drive our yield driven tourism strategy and also to raise productivity and create more job opportunities in Singapore.

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 Mr Yee Jenn Jong:Thank you, Mr Chairman. I just want to refer to my question and what the Second Minister said that why am I so fixated about this gaming revenue. Maybe I should rephrase it. I am not so fixated about it and I also understand that it is private investment. TDF will not spend on it. Maybe I will rephrase my question this way. When we set the $30 billion tourism receipt target revenue in 2005, did we envisage gaming revenue to be part of it, because gaming revenue is now a significant part of the tourism receipts by the statistics that we capture? Should we not look at the KPI of our tourism investment to be based on the $30 billion without the gaming revenue?

Mr S Iswaran: Mr Chairman, I thank the Member for clarifying his fixation – sorry, lack of fixation – on the matter. When the target is set, we are talking about tourism spending as a whole. In other words, when a tourist comes to Singapore, what is he spending his dollar one? We do not preclude future innovations or new developments in the market which might encourage the tourists to spend more. Let me use an alternative example. We are now going to have an International Cruise terminal, which presumably will boost our cruise industry in Singapore and bring more tourists to Singapore who will buy cruises. Should that be excluded from tourism spending forecasting or calculations? So, the way I put it is at the time this target was drawn up and the Tourism Development Fund was set up, there was a clear goal that these are the resources, this the mission that the Government gave the STB. This is the goal, this is funding available, now go forth and seek ways to make it happen, and that is what they have done.