31 March 2011

Living on Low Wages

McDonald's workers in Singapore will get more pay from this April.

The wages of its 6,000 rank-and-file workers will increase by an average of 20 per cent as a result of improved productivity.  The monthly wages of full-time employees will increase from $900 to $1,100, and those of team leaders will increase from $1,100 to $1,240.

McDonald's made the announcement as NTUC Secretary-General Lim Swee Say, NTUC President John de Payva, NTUC Assistant Secretary-General Ong Ye Kung, Employment and Employability Institute CEO Ang Kin Hee and other top unionists toured of one of its restaurants.  Mr Lim is also Minister in the Prime Minister's Office.

As at June 2010, the median gross monthly income from full-time work of residents aged 15 years and older was $2,710.

As may be seen from the table and chart below, slightly more than one in three employed residents aged 15 years and older earned less than $2,000 in gross monthly income from full-time work as at June 2010.

























What is it like to live on less than $1,000 per month?  Or, even $1,500 per month?  It must be exceedingly difficult.

The challenge for NTUC and the Government is to raise the wages of those at the lower end of the wage spectrum and/or help them upgrade to better paying jobs.

---------------
Notes

1.  "Upsize for McDonald's Pay as Fast Food Gets Faster" The Straits Times (26 Mar 2011).

2.  Report on Labour Force in Singapore, 2010.

3.  Full-time employment refers to employment in which the normal hours of work are 35 hours in a week.

4.  Residents are citizens or permanent residents.

29 March 2011

The Future of Singapore

Singaporeans have been reminded to think carefully and calmly about the long-term future of Singapore during the upcoming general election.

Singaporeans should also think carefully and calmly about the short-term future of Singapore.

Individuals and families have to live through, manage and survive the short-term in order to enjoy the long-term fruits of their labour.

Furthermore, the long-term future for Singapore (or any organisation, for that matter) consists of a series of short-term future.  It is not realistic to consider Singapore's long-term future without considering its short-term future.  To achieve the long-term vision, Singapore has to progressively achieve the short-term visions.  The vision for the short-term future must be consistent with the vision for the long-term future.  To the extent that the actual short-term situation is not consistent with the long-term vision, steps must be taken quickly to rectify the situation.

The general election is about Singapore's future, short-term as well as long-term.

28 March 2011

Profiteering

Singapore's Ministry of Trade and Industry recently set up Retail Price Watch Group to monitor the price of necessities and food, to prevent monopolistic practices and promote money-saving tips.

Department of Statistics currently monitors the sale of necessities, tracking the prices of items such as rice, fish, meat, eggs and vegetables, and prices of chicken rice and fish ball noodles commonly sold at food centres.  It will begin to monitor prices at food centres, to see which stalls have raised prices.

Retail Price Watch Group will take action against monopolistic and profiteering practices.

What action will be taken against profiteering practices?

Firstly, there appears to be no provision in existing legislation prohibiting the making of excessive profit, provided it is not the result of an unfair practice under the Consumer Protection (Fair Trading) Act or anti-competitive behaviour under the Competition Act.

Secondly, it is extremely difficult if not impossible to ascertain whether the quantity or the quality of a good has fallen, even if the price of the good is unchanged.

Thirdly, it is extremely difficult to tell a small business owner that he should not make excessive profit for the sake of the man in the street, when he is aware that many other people are getting fat pay packets, huge bonuses, and increments.  In any case, what constitutes excessive profit is subjective.

27 March 2011

The Politics of GRCs

Group representation constituencies ("GRCs") were created by Singapore's ruling People's Action Party ("PAP") and introduced in the 1988 general election.

A GRC is an electoral division in which an election is to be held on the basis of a group of candidates.

The stated purpose of a GRC is to ensure the representation in Parliament of members from the Malay, Indian and other minority communities.  Each GRC will have at least one candidate belonging to a designated minority community.

Minority communities account for 23.8 per cent of Singapore's resident citizens.

Singapore's next Parliament will have 87 members of Parliament from 15 GRCs and 12 single member constituencies.

With 15 GRCs, the minority communities will be assured that there will be at least 15 members of parliament, or 17.2 per cent of all members of parliament, from the minority communities.

What is so special about GRCs?

Since GRCs were introduced in 1988, no opposition party has captured a GRC.  It is not clear, however, whether this is due to the nature of the GRCs or simply the dominance or popularity of the ruling PAP.  Since the 1968 general election, no opposition party has won more than a handful of seats in Parliament.

GRCs allow a party to use stronger or more established candidates to anchor the team.

Thus the ruling party has an advantage in a GRC because it has more strong and/or established candidates, especially when it has been dominant for a long time.  Nevertheless, even strong candidates may be defeated, just as then Australian Prime Minister John Howard learnt when he was defeated in 2007.

The leaders of some opposition parties have spoken of the need for their parties to win a GRC in the coming general election.

Deputy Prime Minister and PAP first assistant secretary-general Wong Kan Seng recently questioned their motivation.  Is it for renewal, to leave a legacy or to create history by winning a GRC?

Renewal is appropriate and necessary for PAP and the opposition parties alike.

There is no reason to suggest that the opposition parties are motivated differently from PAP when it comes to winning a GRC.

Capturing a GRC is an obvious necessity for an opposition party because there are only 12 single member constituencies out of 87 seats in the next Parliament; the rest of the seats are in GRCs.

Even so, the capture of a GRC by an opposition party, if and when it happens, is only a first step.  It has limited significance if the opposition does not go on to win more constituencies in future elections, to give the country a credible alternative to PAP.

A general election is about a country's future.


---------------
Notes

1.  "Election is about Your Future, not about Leaving a Legacy: DPM Wong" People's Action Party (23 Mar 2011).

2.  "DPM Wong Throws Down Gauntlet to Opposition: Questions if Opposition Gunning for GRC for Political Ambition or Personal Legacy" TODAY (24 Mar 2011).

3.  "East Coast: The GRC to Watch?" TODAY (26 Mar 2011).

24 March 2011

Singapore Takes Charge of Key IMF Board?

The members of International Monetary and Financial Committee ("IMFC"), the policy advisory committee of International Monetary Fund ("IMF"), selected Singapore's Minister for Finance Tharman Shanmugaratnam as Chairman of IMFC for a period of three years.  He succeeds Dr Youssef Boutros-Ghali, Egypt’s former Minister of Finance, who resigned on February 4, 2011.

IMF's press release was entitled "IMFC Selects Tharman Shanmugaratnam as New Chairman".

The Business Times report was entitled "Tharman to Head Key IMF Steering Committee".

The Straits Times report was puzzlingly entitled "Singapore Takes Charge of Key IMF Board".

The IMFC, comprising finance ministers and central bank governors, is the primary advisory body of the IMF Board of Governors and deliberates on the principal policy issues facing the IMF.

The appointment of Mr Tharman is a recognition of his experience and potential value to IMFC, but neither he nor Singapore has taken, or will take, charge of IMFC.

---------------
Notes

1.  "IMFC Selects Tharman Shanmugaratnam as New Chairman" International Monetary Fund (22 Mar 2011).

2.  "Tharman to Head Key IMF Steering Committee" The Business Times (23 Mar 2011).

3.  "Singapore Takes Charge of Key IMF Board" The Straits Times (23 Mar 2011).

18 March 2011

The Price of Water - The Malaysian Perspective

In an earlier posting, I discussed the water agreements between Singapore and Malaysia to determine whether the price of water purchased from Malaysia was comparable to the price of water from other sources.

Former Malaysian Prime Minister Tun Mahathir Mohamad recently touched on this issue in A Doctor in the House, The Memoirs of Tun Mahathir Mohamad.

Under the agreements, Malaysia undertook to supply Singapore with 350 million gallons per day of raw water at 3 sen per 1,000 gallons and Singapore undertook to sell to Malaysia treated water not exceeding 12 per cent of the raw water quantity drawn down at 50 sen per 1,000 gallons.

According to Tun Mahathir, the cost of treating the water was probably in the region of RM1.20 per 1,000 gallons.  (Singapore said that its cost of treating water was RM2.40 per 1,000 gallons.)

He reasoned therefore that if Singapore and Malaysia took the maximum quantities of water allowed under the agreements, Malaysia would pay Singapore RM21,000 per day while Singapore would pay Malaysia RM10,500 per day.  The result was that Malaysia "earned zero" while Singapore received RM10,500 per day after paying for the raw water.

That's incomprehensible math.

Tun Mahathir omitted the cost that Singapore incurred in treating the water it sold to Malaysia.  Using the same assumptions as above, this cost amounted to RM50,400 per day.

Singapore incurred a loss of RM30,660 per day from selling treated water to Malaysia.  Taking this into account, the raw water that Singapore bought from Malaysia for its own use cost 12.95 sen per 1,000 gallons, not 3 sen per 1,000 gallons.  These amounts do not include the depreciation of the water collection infrastructure and related pipework, or their maintenance, all of which was borne by Singapore.

Malaysia paid Singapore RM10,500 per day for water that cost Singapore RM51,660 per day to procure and treat.  Presumably, Malaysia could sell, and has sold, that water for more than 123 sen per 1,000 gallons.

That, together with the RM9,240 per day paid by Singapore for Malaysian water consumed in Singapore, is Malaysia's gain from the water agreements.

--------------
Notes

1.  "The Doctor's Beef with S'pore" (an excerpt from the book A Doctor in the House, The Memoirs of Tun Mahathir Mohamad) The Straits Times (13 Mar 2011).

2.  The Price of Water (8 Mar 2011).

17 March 2011

Singapore Should Never Have a Nuclear Power Plant

Prime Minister Lee Hsien Loong said at International Energy Week 2010:

"Globally, nuclear energy would be an important part of the solution to mankind's energy problems and to tackle global warming.  It is clean, it gives off low carbon emissions, in fact no carbon emissions, but of course harnessing nuclear energy is a complex and long term enterprise.  There are significant issues relating to safety and the nuclear fuel cycle and disposal of nuclear waste.  And there is often strong resistance in countries, from the Green movement, from populations who have witnessed accidents like Chernobyl and are fearful and anxious about their safety.  But if we look at this rationally, without nuclear energy, the world cannot make sufficient progress in dealing with global warming.  Hence, countries are expanding their nuclear energy programmes, particularly countries like France, like China, Japan, Korea.  And the US has announced that it is going to be building more nuclear plants for the first time in 30 years.  And even Germany where there is a very strong Green movement and where they had committed to phasing out their nuclear plants by 2020, totally shutting them down, Angela Merkel's government has had to pass a law, change this policy against tremendous opposition and extend the operating date of the nuclear plants in Germany, because they know that unless they keep those plants going, indeed unless one day they build some more although it is not speakable, they have no hope of achieving their green emission targets.

"In Southeast Asia, several countries have expressed their intention to build nuclear powered plants.  Developing countries will have even more challenges achieving this than developed countries because they have first to build up not the plant but the capability base and institute proper systems and safeguards and standards, to develop a strong safety culture and high standards across many industries before they can safely embark on a nuclear project.

"For Singapore, our small size poses additional challenges.  Safety is a major concern because of our high urban density.  A plant, if we ever build one, is very difficult to put very far from the population because no place in Singapore is far from population.  And yet we cannot afford to dismiss the option of nuclear power altogether.  So we should keep up with new developments, the technologies are advancing, smaller, safer reactors with more fuel efficient designs that reduce the amount of nuclear waste produced, and we must keep up with experiences in other countries, how they are using it, how they are deploying it, how they are managing the sentiments and concerns of the population and working out practical, sensible solutions to these problems.  It will be a long time before we make any decision on nuclear energy but we should get ourselves ready to do so.  And that means to give Singapore the ability to exercise the option should it one day become necessary and feasible.  Therefore we have to start building up the capabilities now, to get in touch with the experts in the field, to train a few of our own engineers and scientists and then we can critically assess developments in nuclear technology and decide on the feasibility of nuclear deployment one day in the future."

Three Mile Island in 1979.

Chernobyl in 1986.

Fukushima Daiichi in 2011.

Apart from these headline grabbing events, there have been others.  Windscale (1959).  Tokaimura (1999).  David-Besse (2002).  Forsmark (2006).  Krümmel/Brunsbüttel (2007).  And still others, including those that were not widely publicised.

Nuclear power plants come with significant risks, including risks relating to the long-term disposal and/or storage of spent fuel rods.  Such risks are not acceptable in places where the plants or storage facilities are located near population centres, as they will be in Singapore.

The Japanese government established a 20 km evacuation zone around Fukushima.  Although it had previously agreed that it was adequate, the US government subsequently told its troops and other citizens to stay at least 50 miles (80 km) away — about twice the longest distance across Singapore.

We should not delude ourselves into thinking that these and other events were the result of special factors that are not likely to be repeated.  For example, the plants were old or the events were the result of earthquakes, tsunamis, terrorist attacks, mischief, human errors or some other extenuating circumstances.  Or that scientists and engineers have learnt from the events and that newer designs are fail-safe or idiot proof; highly complex systems are vulnerable in ways that cannot be anticipated.  Perhaps, stress tests can be performed to give regulators comfort or assurance, but such comfort or assurance is not absolute and stress tests are designed by humans for events or sequence of events that humans can anticipate.

We should not delude ourselves into thinking that no nuclear power events will ever happen because we (Singapore or Singaporeans) are smart enough, prepared enough, stringent enough or careful enough.  We are not different.

As an editorial in The New York Times put it: "It is sobering that such calamities could so badly hurt Japan, a technologically advanced nation that puts great emphasis on disaster mitigation.  Japan’s protective seawalls proved no match for the high waves that swept over them and knocked out the safety systems that were supposed to protect nearby nuclear reactors from overheating and melting down.

"It is much too early to understand the magnitude of what has happened.  But, as of now, this four-day crisis in Japan already amounts to the worst nuclear accident since Chernobyl in 1986.

"From early reports, it appears that the troubled reactors survived the earthquake.  Control rods shut down the nuclear fission reactions that generate power.  But even after shutdown, there is residual heat that needs to be drawn off by cooling water pumped through the reactor core, and that’s where the trouble came.

"The nuclear plant lost its main source of electric power to drive the pumps, and the tsunami knocked out the backup diesel generators that were supposed to drive the pumps in an emergency.  That left only short-term battery power that is able to provide cooling water on a small scale but can’t drive the large pumps required for full-scale cooling."

Nuclear power is not an undeniable reality for Singapore.  We should be rational and accept the fact that it is something that we simply cannot afford to have.

We are told to be rational and not to let our emotions override pragmatism.  Those who say this are wrong.  We are emotional and we are right to be emotional because this is our home, our only home.

Fukushima is a timely reminder, and one that we should not allow to fade away.

---------------
Notes

1.  Speech by Lee Hsien Loong, Prime Minister, at Singapore International Energy Week (1 Nov 2010).

2.  "Nuke Power: An Undeniable Reality" The Straits Times (9 Nov 2010).

3.  Prime Minister of Singapore Lee Hsien Loong's Written Interview with Korean Newspaper Joongang Ilbo (24 Dec 2010).

4.  "An Account of Events at Nuclear Power Plants since the Chernobyl Accident in 1986" Residual Risk (May 2007).

5.  "Japan's Multiple Calamities" The New York Times (14 Mar 2011).

6.  "11-050: NRC Provides Protective Action Recommendations based on US Guidelines" US Nuclear Regulatory Commission (16 Mar 2011).


This posting was originally published on 13 March 2011.

What Constitutes a Strong Citizen Core?

Singapore should have a "strong citizen core".  This means citizens forming more than half the population, according to Deputy Prime Minister Wong Kan Seng.

As at 30 June 2000, citizens formed 74.1 per cent of the population, 4,027,900 people.

As at 30 June 2005, citizens formed 72.2 per cent of the population of 4,265,800 people.

As at 30 June 2010, citizens formed 63.6 per cent of the population of 5,076,700 people.

Coincidentally or otherwise, the 3,230,700 citizens in June 2010 will form just about half of the 6.5 million population that the Government has said that Singapore eventually needs.

As Minister for National Development Mah Bow Tan put it: "Do we need a larger population?  Most definitely...

"A larger population and greater economic activity will bring about greater buzz, vibrancy and energy, which in turn will attract more people and new opportunities.

"Major global cities like London, New York, Tokyo and Hong Kong have populations ranging from about seven million to 12 million.  So, too, newly emerging cities like Chengdu and Mumbai.  These cities are abuzz with life and vibrancy.

"Singapore must remain competitive as a city in which people want to work and live."

London, New York, Tokyo and Hong Kong may have large populations in which foreigners form significant percentages or even the majority.  But they are cities within much larger countries, not city states.

Can Singapore retain its identity when only half of its population are citizens?

---------------
Notes

1.  "Singapore's 'strong citizen core' defined" The Straits Times (26 Feb 2011).

2.  Department of Statistics Population Trends 2010.

3.  Department of Statistics refined the population estimates from 2003 onwards to exclude Singapore citizens and permanent residents who had been away from Singapore for a continuous period of 12 months or more as at the reference period.

4.  Mah Bow Tan, Minister for National Development "Why We Need 6.5 Million People" Petir Mar/Apr 2007.

12 March 2011

The Politics of Ruling Instead of Opposing

The following events illustrate the difficulties faced by Democratic Party of Japan after assuming power.  It ousted Liberal Democratic Party out of almost unbroken power since 1955

30 Aug 2009  Democratic Party of Japan (DPJ) won Japan's general election by landslide victory, securing 308 seats in the 480-seat Diet.  Liberal Democratic Party (LDP) won only 119 seats and its smaller ally New Komeito won 21 seats.

16 Sep 2009  Mr Yukio Hatoyama was elected Prime Minister.  Analysts believed that his coalition faced challenges coordinating its policies with those of the two minor parties, which held different positions on foreign and national security issues.

Dec 2009  Prime Minister Hatoyama was accused of not properly reporting funds received as donations, primarily from his mother.  Prosecutors decided that there was insufficient evidence to pursue criminal charges.

6 Jan 2010  Finance Minister Hirohisa Fujii resigned, citing poor health.

9 Mar 2010  Land Minister Seiji Maehara suggested that scandal-tainted DPJ Secretary-General Ichiro Ozawa should consider stepping down from the post in light of the party’s need to fulfill its mission.

28 May 2010  Consumer Affairs Minister Mizuho Fukushima was sacked for refusing to sign, as leader of Social Democratic Party, a Cabinet resolution on relocating Futenma air base off Okinawa.

30 May 2010  Social Democratic Party voted to leave the ruling coalition because it opposed Prime Minister Hatoyama's decision not to move the Futenma air base off Okinawa.

2 Jun 2010  Prime Minister Yukio Hatoyama resigned to take responsibility for breaking an election pledge to move Futenma air base off Okinawa.

4 Jun 2010  Mr Naoto Kan succeeded Mr Hatoyama as Prime Minister.

11 Jun 2010  Financial Services Minister Shizuka Kamei, chief of People's New Party, resigned to protest DPJ's failure to fulfil an accord between the two coalition parties on a postal reform bill.

11 Jul 2010  In elections for 121 seats of the 242 seat House of Councillors (Sangiin), DPJ lost eight seats, instead of gaining two that it had hoped.  It won 44 seats, fewer than the 52 won by LDP and its allies.

26 Aug 2010  Mr Ichiro Ozawa, considered to be a power broker in DPJ, said that he planned to run against Mr Naoto Kan for the presidency of DPJ, a position that would ensure his appointment as prime minister.  Mr Ozawa, who is credited with DPJ's rise to power in 2009, has been increasingly critical of Mr Kan since the party lost ground in the July 2010 elections.

14 Sep 2010  Members of DPJ elected to retain Mr Kan as its president by a margin of 721 points to 491.

17 Sep 2010  Prime Minister Kan reshuffled his cabinet.

21 Nov 2010  Justice Minister Minoru Yanagida resigned after he was accused of making light of the parliamentary process with an ill-judged remark about how “easy” his job was.

14 Jan 2011  Prime Minister Kan reshuffled his cabinet.

31 Jan 2011  Mr Ichiro Ozawa was indicted for alleged false reporting by his fund management company.

6 Mar 2011  Foreign Minister Seiji Maehara resigned over illegal donations.

10 Mar 2011  Prime Minister Kan said he would not resign even after acknowledging that his campaign office had unknowingly received illegal donations from a foreign supporter.

11 March 2011

Only Authoritarian Rule is Suitable for China

Chairman of the Standing Committee of National People's Congress Wu Bangguo stressed that only authoritarian rule was suitable for China, and ruled out any shift to multi-party democracy.

Mr Wu said in his annual address to the legislature on 10 March 2011 that abandoning the Communist Party-dominated system could lead to chaos and loss of the fruits of development.

China's circumstances precluded it from engaging in multi-party rotations of political power, engaging in a diversity of guiding political ideologies or adopting concepts such as separation of powers.

China should not mechanically copy foreign legislative features.  Its laws must strengthen and improve the Communist Party's leadership.

Premier Wen Jiabao had said last August that China must reform its political system, increase citizens' democratic rights and place checks on the state's power.

We should not be surprised by Mr Bangguo's position.

Many regimes consider their countries' situations as being unique.  Many regimes, not necessarily authoritarian ones, consider theirs to be the best and the only one for their countries, and consider alternatives to lead to possible disaster and ruin.  And no political party wants to see itself out of power, much less actively create the conditions that may facilitate or lead to its ouster.

Impact of Fuel Oil Price on Electricity Tariff

Parliament was told on 4 March 2011 that the current volatility in the global markets for oil would not fully translate into higher electricity tariffs for households.

It was attributed to several factors.

The Singapore dollar is strong

To cushion the impact of higher prices, the Singapore dollar has not only to be strong, but also to keep strengthening against the US dollar.  However, the Singapore dollar probably cannot continue appreciating without affecting export competitiveness.

Natural gas is the primary fuel for electricity generation

We have been told repeatedly that the industry practice in Asia is to peg the price of the natural gas used for generating electricity to the price of fuel oil.

The fuel cost component (in cents per kWh) of the low tension tariff was closely correlated to the price of fuel oil (in S$ per bbl) in the past two years, as may be seen from the table below.  (The tariff itself does not change at the same rate as the price of fuel oil because fuel cost accounts for just about half the tariff.)

In light of the peg, it is puzzling why the fuel cost component of the tariff will not fully reflect the price of fuel oil.

CCGT (combined cycle gas turbine) plants are very efficient

Higher prices of fuel will be mirrored in the fuel cost component of the tariff unless the efficiency of the existing CCGT plants is rising or there is increased use of CCGT plants away from less efficient alternatives.

The efficiency of Singapore's power generation plants appears to have had little impact in recent years.  For example, comparing the tariffs for Q1 2011 and Q3 2007, we find that the fuel cost component of the tariff has risen (28.2 per cent) by almost the same percentage as the price of the fuel oil peg (28.4 per cent).

The electricity market is competitive

Almost four-fifths of the tariff is currently paid to the generating companies, comprising fuel cost (mentioned above) and non-fuel power generation cost.  The latter covers the generating companies' depreciation, rental, manpower costs and profit, among others.

The non-fuel power generation cost has increased steadily and significantly, rising 46 per cent from 4.51 cents per kWh in Q3 2009 to 6.59 cents per kWh in Q1 2011.  This is an annualised rate of increase of 29 per cent, a surprisingly high figure in a regulated market.

If we assume that all consumers, not just non-contestable households and small businesses, pay some form of non-fuel generation cost, the generating companies would have collected $445 million in non-fuel generation cost in Q3 2009 and will collect $693 million in Q1 2011 (based on Q4 2010 demand).











--------------
Notes

Speech by Mr S Iswaran, Senior Minister of State for Trade and Industry, during the Committee of Supply Debate Head V (Ministry of Trade and Industry) 4 March 2011 Ministry of Trade and Industry. 

08 March 2011

The Price of Water

Parliament was told on 5 March 2011 that the expiry of Singapore's 1961 Water Agreement with Malaysia on 31 August 2011 would not impact the country's water supply or water tariffs.

Will it impact Singapore's water supply?

Over the years, Singapore has developed, and continues to develop, alternative sources of water that are sufficient to replace water imported under the 1961 Water Agreement.

Will it impact Singapore's water tariff?

The 1961 Water Agreement (Tebrau and Scudai Rivers Water Agreement) gave Singapore the right to draw up to 80 million gallons per day (0.36 million cubic metres) of water for 50 years up to 2011.  Singapore pays 3 Malaysian sen per 1,000 gallons of water (0.30 cents per cubic metre in 2002).  Singapore also agreed to provide Johor with a daily supply of treated water up to 12 per cent of the raw water it drew, subject to a minimum of four million gallons (18,184 cubic metres), and at a price of 50 sen per 1,000 gallons (5.0 cents per cubic metre).

Treatment of the water to potable standards was said to cost RM2.40 per 1,000 gallons in 2002.  Singapore incurred a loss of RM1.93 per 1,000 gallons of water sold to Johor.

Assuming Johor bought the maximum quantity of water from Singapore under the agreement, the actual cost of raw water would have been 29.3 sen per 1,000 gallons (2.9 cents per cubic metre) consumed in Singapore, and the actual cost of treated water would have been RM2.69 per 1,000 gallons (27 cents per cubic metre ) consumed in Singapore.

Assuming Johor bought the minimum quantity of four million gallons per day and Singapore drew 80 million gallons per day, the actual cost of raw water would have been 13.2 sen per 1,000 gallons (1.3 cents per cubic metre) consumed in Singapore, and the actual cost of treated water would have been RM2.53 per 1,000 gallons (25 cents per cubic metre ) consumed in Singapore.

What were the prices of reclaimed water and recycled water?

The first year (2003) tender price of NEWater (ultra-clean reclaimed water) was 30 cents per cubic metre.  That was also the first year (2010) price of NEWater at PUB's newest plant.

The first year (2005) cost of desalinated water at Singapore's first desalination plant was 78 cents per cubic metre.  PUB will buy desalinated water from the country's second and larger desalination plant (a design, build, own and operate model) at 45 cents per cubic metre in the first year of operation (2013).

The cost of importing and treating raw water from Johor seems comparable to the current cost of reclaimed water and desalinated water.

Price of water sold to households

PUB sells potable water to households at $1.14 per cubic metre, plus 30 per cent water conservation tax and 7 per cent GST for the first 40 cubic metres of monthly consumption.  Consumption above 40 cubic metres per month is charged at $1.40 per cubic metre, plus 45 per cent water conservation tax and 7 per cent GST.  The tariff accrues to PUB while the conservation tax accrues to the Government.

Singapore's water demand is approximately 1.7 million cubic metres per day.

---------------
Notes.

1.   PUB is Singapore's national water agency, and is responsible for the collection, production, distribution and reclamation of water in Singapore.

2.  Statement by Dr Yaacob Ibrahim, Minister for the Environment and Water Resources, Committee of Supply Debate, 4 March 2011.

3.  "Singapore-Malaysia Water Agreements" Singapore Infopedia National Library Board.

4.  Public Utilities Board annual report 2009/2010.

5.  "Sembcorp NEWater to start building Changi NEWater Plant in April" Public Utilities Board press release (28 Feb 2011).

6.  "PUB Selects Hyflux as the Preferred Bidder for the Second and Largest Desalination Plant in Singapore" Public Utilities Board press release (7 Mar 2011).

7.  Statement by Minister for Foreign Affairs S Jayakumar in Parliament, 25 Jan 2003.

8.  Cecilia Tortajada "Singapore: An Exemplary Case for Urban Water Management" 2006 Human Development Report.

07 March 2011

Late Night Shopping

Stores along Singapore's Orchard Road said that staying open until 11 p.m. on Saturday nights did not make business sense.

One may admire Singapore Tourism Board and Orchard Road Business Association for trying to inject life and vibrancy into Singapore's main shopping belt.  However, once the novelty of late night shopping wore out, the result from a business perspective was quite predictable.

---------------
Notes.  "Orchard Road Late Night Shopping: From Sizzle to Fizzle" The Sunday Times (6 Mar 2011).

04 March 2011

The Plight of Needy Families Seeking Affordable Accommodation

2,200 old HDB apartments slated for demolition under SERS are being used as rental apartments for up to three years while redevelopment plans are being finalised.

Some apartments are leased to private operators, which are responsible for refurbishing, maintaining and managing the apartments.  They pay HDB (Housing and Development Board) $700 a month on average for each apartment.  They can decide how much to charge their tenants, who must be Singapore citizens, permanent residents, students or those with employment or S Pass permits.

1,400 apartments are offered at market rental rates.  A 3-room (i.e., consisting of two bedrooms and a hall-cum-dining room) apartment may be rented for $1,500 a month.

The remaining 800 apartments are offered as interim rental housing for needy families.  A bedroom in an interim rental housing apartment may be rented for $300 a month, compared to market rent of $500 to $600.

HDB said that the apartments are not suitable for use as public rental apartments for needy families, because they are slated for demolition.  Chairman of Government Parliamentary Committee for National Development, Member of Parliament Cedric Foo was concerned that such families might get entrenched in the area or might get used to living in the apartments and HDB might find it difficult to relocate them when the apartments were ready for redevelopment.

Mr Foo said that a more effective solution was to look at the root of their financial difficulties and help them find jobs and give them subsidies and grants to help them with the cost of living.

That is a good short- to medium-term solution.  But needy families that are desperate for an affordable roof over their heads can hardly look beyond today's challenges.  The solution to the accommodation problem that they face today is obvious — allow them to occupy these old apartments at subsidised rents until the apartments are ready to be redeveloped.

---------------
Notes.

1.  "To be Demolished Soon... For Rent in the Meantime" The Straits Times (2 Mar 2011).

2.   HDB is Housing and Development Board, Singapore's public housing authority and a statutory board under Ministry of National Development.

3.  SERS is HDB's Selective En-bloc Redevelopment Scheme under which clusters of old HDB apartment blocks are repurchased from their owners, demolished and redeveloped.

4.  An employment pass may be issued to a foreigner to work in Singapore in a professional, managerial, executive or specialist job.  An S Pass may be issued to a foreigner to work in Singapore; criteria may include a fixed monthly salary of at least $1,800; a degree or a diploma.

Salaries of Civil Servants and Political Appointments

Deputy Prime Minister Teo Chee Hean told Parliament on 2 March 2011 that Civil Service wages had to be competitive to attract and retain able and committed officers.  Salaries were therefore benchmarked against the private sector.  Civil Service remuneration fell during the recent recession.

Mr Teo, who is also the Minister-in-Charge of the Civil Service, was responding to Member of Parliament Jessica Tan (People's Action Party), who raised the issue during the Budget debate.

Member of Parliament Low Thia Khiang (The Workers' Party) had earlier observed that there was a 30 per cent increase in FY2010 in the estimated salaries for political appointments.

Mr Teo said that the Singapore economy recovered strongly in 2010 and the labour market had tightened.  The resignation rate for the Civil Service rose from 3.5 per cent in 2009 to 4.7 per cent in 2010.  Resignations in the Management Executive Service rose in 2010, with attrition rate highest at 17 per cent for the younger graduate officers.  (Although not stated explicitly, these turnover rates are probably annual turnover rates.)

The average monthly resignation rate for Singapore's labour force was 2.1 per cent in Q3 2010, and 1.8 per cent in 2009.  The average monthly resignation rate for professionals, managers, executives and technicians was 1.6 per cent in Q3 2010.

Hudson Highland Group found that 23 per cent of companies it had surveyed in Singapore experienced staff turnover during a six-month period (probably Q2 and Q3 2010) in excess of 10 per cent, but this was lower than that in other markets surveyed in Asia.  39 per cent of companies surveyed experienced staff turnover between 6 per cent and 10 per cent.  The remaining 38 per cent of companies surveyed experienced staff turnover 5 per cent and below.  (Although not stated explicitly, these turnover rates are probably six-month turnover rates.)

Employees resign for a variety of reasons.

The prospect of getting higher pay elsewhere is one of the most common contributors to staff turnover at all levels, from executives and generously paid professionals in high-stress positions to entry-level workers in relatively undemanding jobs, according to Singapore Human Resource Institute.  However, money is often not the root cause of turnover, even when it is a factor in an employee's decision to quit.  High turnover persists in certain jobs and organisations, and money is a convenient and sometimes compelling justification.  Turnover tends to be higher in organisations where employees feel they are taken advantage of, where they feel undervalued or ignored, and where they feel helpless or unimportant.

It may even be good when some employees leave, allowing the organisation to recruit new blood.

One can probably understand Mr Teo's remarks regarding resignations from the Civil Service and the consequent need to pay civil servants competitive salaries, but what has that to do with salaries for holders of political appointments, which was the thrust of Mr Low's observation?

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Notes

1.  Speech by Deputy Prime Minister Teo Chee Hean and Minister in Charge of the Civil Service, Committee of Supply, 2 March 2011.

2.  The Hudson Report: Employment and HR Trends October-December 2010, Singapore Hudson Highland Group, Inc.

3.  "Staff Turnover Not Always Motivated by Better Pay: SHRI" ChannelNewsAsia.com (28 Oct 2010).

4.  Labour Market, Third Quarter 2010 Ministry of Manpower.  The average monthly resignation rate during a calendar quarter is defined as the average number of persons who resigned in a month during the quarter divided by the average number of employees in the establishment.  The annual figure is the simple average of the quarterly figures.

$500,000 Baby Bonus

Citing a straw poll which he conducted, People's Action Party Member of Parliament Zaqy Mohamad told Parliament on 2 March 2011 that some childless women would change their minds when offered a baby bonus of $500,000 per child, with no strings attached.

One wonders whether $1 million will convince even more childless women to change their minds.

One cannot but feel very sorry for these women, and their husbands, if their decision whether to bear children is based on receiving a $500,000 gift for each child.

What sort of parents will these couples be?  What sort of values will they impart to their children?  What sort of adults will such children turn out to be?  What sort of society will Singapore become?

Quite apart from whether Singapore can afford to pay $500,000 for each citizen baby, it may be better to forgo these incremental babies rather than to be held hostage to such demands, which can only escalate as the years go by, or to encourage such undesirable behaviour.

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Note.  "More Initiatives Could Help Raise Fertility Rate", TODAY (3 Mar 2011).

03 March 2011

Hong Kong's Government Responds to Feedback

23 February 2011
In his budget speech, Hong Kong's Finance Secretary John C Tsang proposed a one-off injection of HK$6,000 into each worker's retirement accounts.  To assist more citizens in preparing for retirement, no salary ceiling would be imposed.  The proposal would not increase inflationary pressure.

24 February 2011
Mr Tsang faced the wrath of callers in a radio phone-in programme, who were disappointed with the government handouts.  Many criticised him for opting to inject the HK$6,000 into worker's retirement accounts, instead of giving them direct cash handouts.  The former would have tied up the money until they retired, while the latter would have given them immediate relief to rising inflation.  Mr Tsang defended his decision and said that cash rebates would worsen inflation.

2 March 2011
Under mounting public pressure, Mr Tsang announced that every permanent resident over 18 years old will get HK$6,000 cash, instead.  Salaried workers would also receive a 75 per cent income tax rebate capped at HK$6,000.

Mr Tsang brushed aside more measures to offset inflation.

It is apparently very rare for the Administration to amend its Budget in this manner, but Mr Tsang has been under pressure from legislators and the public.  Lawmakers had threatened to veto the bill in Parliament, while protesters were planning a mass anti-Budget rally.

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Notes

1.  Speech by the Financial Secretary John C Tsang moving the second reading of the Appropriation Bill 2011, 23 February 2011.

2.  "Hong Kong Finance Secretary under Fire Over Budget", Channel News Asia, 24 February 2011.

3.  "HK Bows to Pressure, Offers Handouts in Budget U-Turn", Channel News Asia, 2 March 2011.

02 March 2011

How Fare Reviews Affect Public Transport Operators

The review mechanism for fares that public transport operators (mass rapid transit and/or buses, but not taxis) in Singapore are allowed to charge shows the challenging constraints of operating in a regulated environment.

Frequency of review of fares can be changed
Public Transport Council, a body established by an act of parliament, typically reviews fares annually in time for the revised fares to be implemented in July.

However, the dates of the review and/or implementation can be changed, and have been changed in the past.

The review was brought forward in 2009 to allow a fare reduction to be implemented in light of the recession.

This year's review has been deferred to Q4 because of the impending opening of phases 4 and 5 of the Circle Line, an orbital line that connects all the existing rail lines into the city, in Q4.  PTC prefers to have only one fare change in a year.

It is difficult to understand PTC's rationale for deferring the fare review.  Although phases 4 and 5 of the Circle Line will result in some change in commuting patterns inasmuch as it allows commuters to bypass the city centre mass rapid transit exchanges to reach their destinations, PTC's vast database of commuting patterns should enable it to quite accurately forecast the change by mathematical modelling.

PTC's decision means that the public transport operators will miss out on a likely fare increase for possibly three to six months.  What will happen if phases 4 and 5 of the Circle Line are not opened as scheduled?  Will the fare review and fare increase be deferred again?

When a fare review is postponed, the public transport operators face the risk that circumstances may change when the time for the previously postponed review comes around.  If economic conditions deteriorate, will the quantum of the fare increase, if any, be commensurate with that based on the fare review formula (see following discussion on formula)?

The fare review formula
The maximum fare adjustment is 0.5 ΔCPI + 0.5 ΔWI - 1.5%
where:
ΔCPI is the change in Consumer Price Index over the preceding year
ΔWI is the change in Average Monthly Earnings (Annual National Average) over the preceding year, adjusted to account for any change in the employer's Central Provident Fund contribution rate
1.5% is productivity extraction based on half the average productivity gains achieved by public transport operators.
Fare adjustment ceiling
The maximum fare adjustment is "the overall quantum of change in fare revenue that is generated by the changes in fare levels and the corresponding ridership" [1].

When considering any application for approval of any fare, PTC is required by Public Transport Council Act (Cap. 259B) to take into account inter alia "the need for public interest to be safeguarded" and "the need for the [public transport operator] to remain financially viable" (PTC states the latter responsibility as "ensuring the long-term viability of public transport operators" [2]).

PTC will protect commuters' interests by varying or rejecting the fare adjustment in extenuating circumstances such as adverse economic conditions or a significant deterioration in the overall affordability of public transport fares [3].

PTC need not approve a revision equal to the maximum.

Although not every company can always raise the price of its goods and services to fully offset increases in its costs, many companies can, and do, raise the price of their goods and services to fully offset, or more than fully offset, increases in their costs when the circumstances are perceived to be right (typically when the percentage increase in price is greater than the percentage fall in demand).  Otherwise, it is only a matter of time before they fail.

Unlike these companies, public transport operators have no opportunity to raise their fares beyond what PTC is prepared to approve, and that is capped.  Nevertheless, the public transport operators can derive some comfort from PTC's having to take into account the need for them to remain financially viable.

Cumulative effect of annual adjustments
The difference between the maximum allowable fare adjustment and the actual fare adjustment has a cumulative effect over time.

To see this, assume that the maximum allowable fare adjustment is 1.5 per cent and the approved fare adjustment is 1.1 per cent in Year 1.  At the fare review in Year 2, the fact that the 0.4 per cent was not awarded to the public transport operators in Year 1 is not taken into account; it has vanished forever.  If there is another difference of, for example, 0.3 per cent in Year 2, this again represents another 0.3 per cent revenue that could have accrued, but did not accrue, to the public transport operators.

Because the actual fare adjustment is always less than, or equal to, the maximum allowable fare adjustment, the difference between the two increases, rather than approach zero, over time.

CPI and WI
The formula assumes that wages account for 50 per cent of the expenses of the public transport operators for 2008 through 2012.

The formula also assumes that changes in the non-wage costs (depreciation of rolling stock and buses, fuel or electricity etc.) of the public transport operators are adequately accounted for by ΔCPI.  However, CPI is the consumer price index.

To the extent that these relationships do not hold, the public transport operators have to manage their costs within the limits of the approved fare adjustment if they wish to remain profitable, or sufficiently profitable.

The ΔCPI and the ΔWI used in the formula are the ΔCPI and the ΔWI of the preceding calendar year.  The revised fare typically takes effect in July of the current year through to June of the following year.

Productivity gain extraction
The maximum allowable fare adjustment extracts a 1.5 per cent productivity gain (or half the recent annual productivity gain of 3 per cent).  The aim is to motivate the public transport operators to be efficient in their operations and encourage productivity improvements.  Whilst PTC does not have to adjust fares upwards by the full value of 0.5 times ΔCPI or 0.5 times ΔWI, PTC must adjust fares downwards by the full 1.5 per cent productivity gain.

Fares will be adjusted downwards unless the annual productivity gain of the public transport operators exceeds 1.5 per cent (before taking into account ΔCPI and ΔWI).

This is a very interesting way to impose productivity gains on the public transport operators, even if they had managed to achieve gains of such magnitude previously.  If they raise their productivity, the productivity extraction may be higher when the formula is reset; the productivity extraction factor was only 0.3 per cent from 2005 to 2007.  If they do not maintain their past productivity, their profitability may be affected.  In the decade ending 2009, the national annual productivity gain in Singapore was only 1 per cent [4].

Public transport operators are required to meet quality standards.  The more frequently buses or trains run, the lower their productivity if ridership is unchanged.

Finally, the productivity extraction is made at the top line (i.e., revenues) whereas productivity is typically measured in terms of value-added.  SBS Transit's value-added was 58 per cent of revenues [5] and SMRT's was 69 per cent of revenues [6].  Assuming value-added of 60 per cent of revenues, the productivity extraction of 1.5 per cent requires the public transport operators to achieve productivity gains of 5.0 per cent per annum.

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Notes:

1.  "Annual Fare Review Process" Public Transport Council website.

2.  "Fare Regulation Framework" Public Transport Council website.

3.  Report of the Committee on the Fare Review Mechanism (Feb 2005).

4.  Report of the Economic Strategies Committee (Feb 2010).

5.  SBS Transit Ltd annual report 2009.

6.  SMRT Corporation Ltd annual report 2010.


This posting was originally published on 2 February 2011.

Lowering GST Rate to Help Lower-Income Families

During the budget debate in Parliament on 28 February 2011, Member of Parliament Low Thia Khiang (The Workers' Party) said that the more should be done to tackle inflation from every possible angle.

As Goods and Services Tax ("GST") was at the centre of everything the people consumed, he reiterated The Workers' Party's call for the government to reduce the GST rate by 2 percentage points from the current 7 per cent and waive GST on basic necessities.  Both would benefit all sectors of society.

Lowering the GST rate by 2 percentage points would reduce the receipts for FY2011 by an estimated $2.4 billion, or $0.85 billion if the one-off "election-year" Growth Dividend of $1.55 billion was ignored.  A balanced budget could still be achieved by trimming the budgets of some bloated ministries, a possible increase in consumption stimulated by a lower GST rate, and the expected increase in tourist receipts from the fully operational integrated resorts.

Mr Low said that there was a need for a concerted effort to address the rising cost of living at the fundamental level, which was to control the price increase of essential items like food, transportation, education and health care.  Rebates and subsidies could only ease the people's hardship in the interim.

People's Action Party Members of Parliament Khoo Tsai Kee and Christopher De Souza responded by pointing out that the revenue collected from GST has been redistributed by the Government to benefit those in the lower income through programmes such as ComCare and the Public Assistance Scheme.

Mr Khoo said that the government's policies were designed to protect the lower-income group.  If the government lowered GST, those who would benefit were the rich Singaporeans.  As such, The Workers' Party was not defending the lower-income group but the higher-income group.

Mr de Souza pointed out that it was not the first time that The Workers' Party had raised issues with the GST.  They were old issues, and had been ventilated, discussed, voted on and implemented for the benefit of Singaporeans.


Lowering the GST rate and waiving GST on basic necessities benefit everyone, not just the rich.  Although rich families consume more than the lower-income families and therefore will benefit more in dollar terms, the rich consume a smaller percentage of their income than the lower-income, and therefore the impact of any reduction in GST will be more significant and more meaningful to the lower-income.

Furthermore, there is a limit to how much more of basic necessities such as rice, sugar, and milk powder the rich can consume if GST is waived on such items.  The lower-income families may be able to consume more, inasmuch as they may not be able to afford to do so now.

Technology has come a long way since GST was first introduced in 1994, and it should not be too difficult to consider different GST rates for different classes of goods and services.

As for The Workers' Party's having raised the subject of lowering GST and waiving GST on basic necessities previously, it is perhaps time that the government seriously considered the suggestion.

It is not clear why Mr Khoo claimed that revenue collected from GST has been been redistributed by the government to benefit those in the lower income through social welfare programmes.  The government's stand has always been that all receipts by the state are credited to the consolidated revenue account to meet outlays by the state.  Receipts from one source are commingled with, and indistinguishable from, receipts from another source once they have been credited to the consolidated revenue account, and no receipts from any source are earmarked to meet any specific outlay.  Therefore, one cannot claim that GST revenue has been redistributed to the lower-income group.  Furthermore, the government does not need to rely on GST revenue to assist the lower-income group inasmuch as it has sizable budget surpluses in most years.

Finally, the estimated basic budget deficit of $2.2 billion and overall budget surplus of $0.1 billion for FY2011 (without taking into account Mr Low's suggestion) were arrived at after putting back into past reserves $4.0 billion that was drawn down for the Resilience Package (comprising the Jobs Credit Scheme and the Special Risk Sharing Initiative) in FY2009, and after giving out the $1.55 billion Growth Dividends.  Although few people would argue against putting back into reserves what was taken out, the ability to do so is evidence of the underlying strength of the economy.

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Notes.  "Bread-and-Butter Issues in the Spotlight: Housing, Foreign Workers, Income Gap Dominate Budget Debate" TODAY (1 Mar 2011).