Recession...
And an electric shock
Recession-hit Singaporeans can't understand why electricity charges have to go up 21% when energy prices have collapsed. By Seah Chiang Nee.
Oct 11, 2008

DAZED by months of paying more for almost everything except fresh air, Singaporeans found themselves hit again — by a big increase in electricity bills.

From Oct 1 they had to pay a mind-boggling 21.89% higher power tariffs despite the collapse in the oil price, the second increase this year; in January, the rates went up by 6%.

The latest series are bound to exert inflationary pressures on the economy, which is declining along with the stock and property markets. Singaporeans are girding up for real hardship ahead.

The increase has badly affected middle-class Singaporeans, who are baffled by it. It couldn’t have come at a worse time. Yesterday, the city state entered a recession, after six years of growth.

A pall of gloom has descended. Over the past few days, panic had gripped the market here in line with world bourses as investors dumped shares in panic.

Property is also in decline. As a result, much of the personal wealth that has taken Singaporeans years to accumulate has evaporated. And they now find themselves with a power headache, leading people to ask: “Why a 22% increase when oil is 33% cheaper?”

For sure, it was not to alleviate losses to the state. Last year, the Temasek-owned electricity company, Singapore Power, made profits in excess of S$1bil.

To critics, it is an example of Singapore Inc sticking to the principle of state-linked enterprise striving to make maximum profits, even in a downturn.

Three government-owned power companies produce 90% of electricity here. Recently the government sold off two of them to Chinese and Japanese firms for a total of $8bil.

Some 80% of power is produced by natural gas. The gas, imported from Indonesia, is priced under contract according to the oil market. Since the oil price has fallen from US$147 a barrel to US$88 in recent months, Singaporeans had expected a drop in electricity costs.

The jump appears even more unseemly vis-a-vis Hong Kong, its long-time rival frequently held up for comparison.

On Oct 1, the same day as Singapore’s increase, Hong Kong reduced its electricity costs by 3%. Even then, people there complained it fell far short of market realities.

So why the increase in Singapore? Was it a mistake by bureaucrats? The government says there’s a perfectly good reason for the disparity.

In Singapore, the tariffs are calculated from oil prices in the preceding three months. Oil was more expensive then.

Singaporeans appear baffled with the explanation, asking if Hong Kong can make its market work better, why can’t we?

Four months earlier, many Singaporeans had complained about mysterious overcharging in their electricity bills.

The electric company said it had received — and investigated — 1,093 complaints in April that the bills jumped for no apparent reason, some by 60%-113%.

The controversies followed from a strategy to privatise electricity. Temasek Holdings recently sold off two companies — Tuas Power (in March) and Senoko Power (in September) to the Chinese and a Japanese-led consortium for about S$8bil. The third, PowerSeraya, will follow suit next year.

Irritated Singaporeans do not regard electricity as just another market product to buy and sell, but as a public service. “It is unwise for an elected government to price it for too much profit,” said a stock broker.

He queried whether the price rise was linked to the sale of the plants. “Obviously, the higher the electricity charges, the higher they can fetch on the world market,” he observed.

Admitting the ‘rather high’ charges were unsettling people, Finance Minister Tharman Shanmugaratnam promised to introduce measures in next year’s Budget to help ease the impact.

At the same time another state-controlled company, Singtel, has raised fixed-line telephone rates by S$10 from Jan 1. Annual residential and business rates will be S$110 and S$160, respectively.

The technical recession — particularly the repercussion of state profits in times of crisis — will likely increase political pressure on the government.

Some observers believe that if the fallout were to result in severe hardship, it could impact the election due in two or three years’ time. Much depends on how much the bulk of the heartland voters are affected by recession and inflation.

The ruling People’s Action Party (PAP) has won credit for Singapore’s rapid progress in the past 40 years, which turned Singapore into an advanced global city. But when things go wrong, it will take a proportionately larger blame.

Lately, there have been calls for the government to draw on state reserves to provide relief to stricken — especially unemployed — Singaporeans, instead of investing them in Western banks with questionable returns.

In the past, such appeals had been rejected with the explanation that reserves were meant for a rainy day. The debate now is: Have the heavy rains started?

The power price rise has revisited the matter of state corporatism in times of crisis. The Singapore government is both a provider of public services as well as — at least indirectly — a major seller of these services for the state’s coffers.

In happy times, it evokes little complaint since in contributes to substantial asset accumulation; the profits go back to Singaporeans collectively. But in times of hardship, this role of provider-cum-seller of public services becomes hard to balance.

How far should profit in state-controlled firms be allowed in times of trouble?

So far, there is no sign that any change is forthcoming, at least not until the level of public suffering hits an unbearable level.

(This article was published in The Star on Oct 11, 2008)