Friday, March 29, 2019

Hyflux Saga - Role & Responsibility of PUB, EMA, SP and MAS

Hyflux Saga - Role & Responsibility of PUB, EMA, SP and MAS

First of all, the board of management of Hyflux has to bear the most responsibility in creating such a big mess.They have made a lot of assumptions when they bid for the tender to build and operate the desalination plant.

For every assumptions made, there will always be risk involved that such assumptions may not hold at all. And with numerous assumptions made, the risk will be compounded exponentially.

Basically, the problem of the whole Hyflux saga is due to the system of pricing. Hyflux is trying to juggle around a few important variables. A fixed water price given by PUB for 25 years, a variable fuel price (gas in this case), variable labor and material cost, a variable electricity price, a required fixed output of electricity with variable demand and uncontrollable number of electricity producers, a Monopoly buyer for water PUB, a Monopoly buyer for electricity Singapore Power... etc. In economics terms, this is a formula for disaster.

We must recognize PUB, EMA , SP and MAS as government entities. They are not private companies. They have public administration roles and responsibilities.

MAS should not even allow retail investors to invest in perpetual bonds at all as the risk is higher with higher complexity of the structure. MAS should not even allow CPF to be used for such investment at all. Here again, like Minibond saga which happened 10 years ago, MAS must be sleeping on the job.

EMA allowed too many electricity producers to exist in Singapore, so much so that there is 80% overcapacity! Did they even plan and forecast properly? The rigidity in the rules and regulation coupled with a complex pricing mechanism has resulted in electricity producers losing big money. This is not sustainable at all.

One may be puzzled why our electricity tariffs over the few years were so high despite the fact that there is great overcapacity and wholesale pricing given to these producers are too low and breeding them badly! The result is obvious. SP, as the sole owner of the power grid and sole distributor of electricity to household (it is only now it was opened up), is the one which gained the most from such arrangement.

However, we must remember that SP, as a government agency, should not only look at profit maximization at the expense of all other electricity producers. The system is unsustainable and eventually, these producers may go bust. It will cost great disruption to our electricity supply if that happens.

Similarly for PUB. It should not always look at profit maximization at all cost. Water is even more strategic than electricity and it must make sure that any system of supply within its supply chain, must be sustainable.

Furthermore, PUB should not cannibalize on Hyflux when it is down and out. The logic of commercial valuation of Hyflux's desalination plant as "negative asset" is totally flawed.

First of all, there is a conflict of interests here. The desalination plant is considered as "negative asset" is due to the fact that the contractual price which PUB paid to Hyflux for the water is under cost and unsustainable.

While I do not agree for PUB to use taxpayer's money to bail out Hyflux, but neither do I agree for PUB to cannibalize on Hyflux either. The Fair Price for PUB to pay for the desalination plant should be the opportunity cost of building a brand new one by PUB itself to supply the same amount of portable water, plus the opportunity cost of waiting for another few years for the new plant to be completed.

It doesn't make sense for Hyflux to basically give PUB its plant FREE for PUB to continue produce water and make money by selling water to consumers!

Hyflux could have dismantle the whole plan and sell the parts to other people, sell the land .... etc so to repay its debts. Why would it just give away to PUB FREE to make money?

The logic of commercial valuation of Hyflux's plant may base on commercial terms but it is morally flawed and unethical for PUB to take full advantage of Hyflux.

Paying a Fair Price for Hyflux's plant, the intrinsic value of the plant, does not mean PUB is losing any money at all because the plant could well provide earnings for PUB in the long run.

The proper thing to do is either for PUB to renegotiate with Hyflux on the pricing mechanism or simply pay a fair price for the whole plant.

The primary aim and objective of PUB should focus on maintaining adequate supply of water instead of maximization of profit by cannibalizing Hyflux while it is in trouble. Paying a Fair Price instead of getting the plant free may cause the cost price of this 70 million gallons of water per day slightly more expensive but I believe PUB will still be earning a hefty profit because the water tariff is really high in Singapore with PUB as the sole monopoly of water supply.

PUB, EMA along with SP have been maximizing their profits acting as powerful monopolies. They are Monopolies as buyers as well as sellers of water and electricity. It is time to redefine the roles and responsibilities of these entities.

This Hyflux saga has exposed not only the incompetency of Hyflux board of directors but also the terrible greed and cannibalism tendency of PAP government agencies. They will do everything to squeeze the suppliers of water and electricity while on the other hand, instead of passing the savings, they maintain extraordinary high tariffs of water and electricity to us.

Some may think this Hyflux only affects those perpetual bonds investors but the implications are far more complex. It basically reflects on the kind of government Singaporeans have voted in. If they can do this to Hyflux, in such unethical manner, they can do it to any Singaporeans out there. The unfair bullying tactic of cannibalism is really disgusting.

Goh Meng Seng

Thursday, March 14, 2019

TOTD: PAP's Irresponsible Embarrassment

Thought of the Day - PAP's Irresponsible Embarrassment

When the Maritime Dispute was flared up back in late 2018, PAP Ministers, MPs and even IBs were making war cries all over.

PAP government even went to the extend of "demonstration of war preparation" by inviting the Main Stream Media to do the First of the kind of report on the Open Mobilization of the Airforce.

Live Firing exercises were carried out subsequently.

Along with the Main Stream Media and its IBs, PAP went on whipping up Nationalistic sentiments against Malaysian's "Intrusion of Singapore's Water".

PAP government has put it in no uncertain terms that the area in dispute is within our maritime boundary.

I was curious about that and did a series of research which I have posted on my Facebook here. It turns out that there is no Internationally recognized Maritime Boundary in that area of dispute!

In fact, the delimitation negotiation which Singapore held with Indonesia has stated very clearly that they could not confirm the maritime boundary which borders Indonesia, Malaysia and Singapore basically because Singapore has yet to negotiate and confirm with Malaysia government the exact maritime boundary between the two countries. Thus, the maritime boundary between Singapore and Indonesia stopped short at the western part of Singapore.

It basically means that PAP government actually KNEW that we do not have an official boundary drawn and confirmed with Malaysia in that area of dispute.

I would regret to say that Malaysia was right to say that the disputed waters should be considered as "International Waters" as there isn't any recognized boundary confirmed by any party.

Due to some strange unknown reasons, after more than 50 years of independence, PAP government did not initiate any formal negotiations with Malaysia on delimitation of the maritime boundary in that area.

If PAP knew these facts but yet, went on a series of actions to make war cries, then I have to ask, is that what a responsible ruling party should do?

Many people attacked me for "siding with Malaysia" but the truth is, it is always easier to be populist by hitting the Nationalistic drums rather than looking at the issues objectively and do our own research on these issues to come to a sensible conclusion.

I have stated very clearly in my previous FB posts, the only rational thing to do is to start negotiation with Malaysia to determine and finalize the maritime boundary in that disputed waters, instead of doing war cries which will result in irreparable damage to bilateral ties between the two people across the causeway.

Well, finally PAP comes to their senses and stop their irresponsible nonsense of Nationalistic adventure.

But I have this to say, PAP always tries to portray Opposition parties as "populist", "extremist" or even "irresponsible" but it seems that PAP is guilty of all these traits and Singaporeans should remember this, without a strong, rational, reasonable and critical opposition in parliament, any ruling party like PAP might just goes rogue and become irresponsible, endangering the safety of this nation with their nonsensical self-serving stunts.

Goh Meng Seng

PUTRAJAYA — Within a month from Thursday (March 14), Malaysia and Singapore will revert to their original port limits after both governments agreed to suspend the previous extensions of their port limits.

They also agreed not to authorise and to suspend all commercial activities in the area as well as not to anchor any government vessels in the area.

These were among the five recommendations by a bilateral working group that both countries will implement with effect from Thursday, announced Singapore's Foreign Affairs Minister Vivian Balakrishnan and Malaysia's Foreign Affairs Minister Saifuddin Abdullah in a joint press statement on the same day.

The other two recommendations are: Vessels of both countries will operate in the area based on international law including the United Nations Convention on the Law of the Sea.

Relevant government agencies on both sides will "work out practical modalities to avoid untoward incidents in the area", said both ministers.

In the last of the five recommendations, both sides will set up a joint committee chaired by the permanent secretary of Singapore's Ministry of Foreign Affairs (MFA) Chee Wee Kiong and Malaysia’s foreign ministry secretary-general Muhammad Shahrul Ikram Yaakob.

This committee will look at the "boundary delimitation", which will ensure that the other recommendations be implemented within one month. Once that has been done, negotiations for maritime boundary delimitation in the area will commence within the following month.

“These measures taken by both countries shall be without prejudice to Malaysia's and Singapore's respective maritime boundary claims in the area,” said the joint press statement.

In the event that the committee is unable to reach an amicable solution on delimitation, the ministers added that both countries “may mutually agree to resort to an appropriate international third-party dispute settlement procedure on terms to be mutually agreed by the parties”.

“Both Foreign Ministers agreed that these measures were vital to de-escalate the situation on the ground and pave the way for maritime boundary delimitation of the area,” the statement said.

“These measures also demonstrate the commitment of both countries to work together to preserve a strong and positive bilateral relationship on the basis of equality and mutual respect, and to resolve bilateral issues amicably in accordance with international law.”