Singapore Power Breaks Silence

Newspaper TODAY ran this story yesterday:

The uproar began slightly over a month ago when SP Services announced that electricity tariffs would increase 21.5 per cent in the last quarter of this year.

Consumers, already burdened by record inflation, saw red and pointed to profits of S$1.086 billion that SP's parent company, Singapore Power, made last year.

How would the poor cope, and why couldn't Singapore Power use some of its profits to absorb the cost, many asked in newspaper and Internet forums.

But the company remained largely silent, leaving market regulator, the Energy Market Authority (EMA), to respond to news coverage and readers' letters.

On Friday, Singapore Power broke the silence and launched a spirited defence against public anger.

"We have nothing to hide," said group chief executive officer Mr Quek Poh Huat in a media briefing helmed by top management.

The key message was this: Blaming SP Services for high tariffs is akin to shooting the messenger.

"If I'm the lorry driver (delivering) goods to your house, and you ask me how come the (price for) a bag of rice has doubled, I can't explain to you," said chief financial officer Yap Chee Keong.

SP Services does not generate electricity; it transports power from the generation companies (gencos) to end-users, selling to households without any price mark-up.

The transmission charge, together with the fee for billing and reading of meters, makes up 17 per cent of the tariff.

Over the last six years, Singapore Power has reduced transmission charges by 24 per cent through higher efficiency.

The remaining 83 per cent of the tariff – or 25.13 cents out of the current 30.45 cents per kilowatt hour – is paid to gencos.

EMA sets the formula for tariffs, which Non-Constituency Member of Parliament Sylvia Lim asked to be revealed in Parliament last month.

Singapore Power's profit from the regulated electricity market here was S$423 million last year, representing a 6 per cent return on total assets (ROTA) – a "reasonable" rate compared to other countries.

In Australia's Victoria state, for example, the ROTA is 9.6 per cent. The rest of its profit was from sale of investments and its Australian operations.

In the briefing, Singapore Power also tackled other thorny questions: How far in advance can consumers know of next quarter's electricity prices? Why can't investments in infrastructure be postponed? Why not ask the government for funding?

Tariffs for Jan to Mar 2009 will be based on October's average forward fuel prices, said SP Services deputy managing director Jeanne Cheng.

The gencos will convert the average forward price to Singapore dollars and use it to set the tariff's fuel component.

"By the end of November, we would submit to EMA for approval the tariffs for (next) quarter.

EMA would require time for checks, but I believe EMA is trying to work to shorten this period to have an earlier announcement," she said.

SP Services had announced this current quarter's tariffs two days before they kicked in, but notice of up to a month is possible, said Mr Quek.

When contacted, EMA said: "We are working with SP Services to shorten the turnaround time, but ultimately, due process is needed to compute, check and confirm the figures."

Singapore Power will invest S$5.1 billion in infrastructure over the next five years, with funds coming from operational cashflows and external borrowings.

It has borrowed S$9 billion from the international markets this year for further investment, said Mr Yap.

It would be unfair to ask the government for funding because that would mean taking from taxpayers, he said.

"We can take the easy way out, but S$10 billion from the Budget would mean S$10 billion less for the rest."

Mr Yap added: "Energy has a direct correlation with gross national product. If you believe Singapore will grow, then you need to plan forward. It's like the airport – you have to build it before planes will come."

Singapore's major industries like the banking and pharmaceutical sectors also require high quality power grids with minimal voltage fluctuations, and "just to maintain the same standard, you have to invest", said Singapore Power's chief operating officer Ong Boon Hwee.