Monday, November 03, 2008

An Expensive Messenger Boy

The uproar began 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, pointing to the $1.08 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 newspapers and internet forums.

After remaining largely silent while market regulator, the Energy Market Authority (EMA) made pathetic responses to news coverage and letters to the press, group chief executive Quek Poh Huat told a media briefing that blaming SP services for high tariffs was 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, who, like his boss, draws a superscale salary which is more than double that of a lorry driver.

We are told the transmission charge, which is collected by SP services, makes up 17 percent of the tariff. The EMA sets the formula for tariffs, which Non-Constituency Member of Parliament asked to be revealed in Parliament last month. Expectedly, the Singapore Power lorry drivers are very quiet on this request. At best the public will get a Ong Teng Cheong type answer about how many man years will be required to make the computations.
Singapore Power's profit from the regulated electricity market monopoly here was $423 million last year, representing a 6 per cent return on total assets, which is more than double what the public gets from their Central Provident Fund compulsory savings (2.5 per cent). And it's also higher than the 5 percent promised returns on the Lehman-linked structured deposits, which many retirees turned to because of the pathetic 1 per cent offered for bank fixed deposits.
Reader Daniel Gwee wrote in his response:
"SP Services in not an office boy. It has a higher mandate: That of a negotiator, to get the best terms for us and not pass on what terms have been quoted by a supplier.
We have been told Singapore switched to the use of natural gas as a more competitive source than fuel oil for generation purpose.
Have we been able to get the best commercial financing terms, and is it cheaper than obtaining Government funds?"