Crude, EMA, SP and Me

ELECTRICITY bills for Singapore households will go up by about 21 per cent from Wednesday – the highest one-time increase in seven to eight years – due to higher oil prices.

With this latest tariff revision, families living in one- to three-room Housing Board flats will see their utilities bills for this year rising from $90 to $223, said the Energy Market Authority (EMA), which regulates the electricity and gas industry here on Monday.

But the government rebates of $310 to $330 will more than cover the increases for these homes.

Those living in larger homes will face higher monthly bill ranging from $316 to $433.

The government rebates for these households range from $130 to $295, hardly enough to cover the increase for half of these homes.

Chief executive of EMA Mr Khoo Chin Hean, said at a press briefing on Monday that the higher tariffs have been due to the increase in oil prices.

EMA said the projected fuel oil price for the next three months is set to jump to $155.14 a barrel, up 38 per cent from $112.35 for the current quarter.

Fuel costs make up about 60 per cent of electricity tariffs, which are reviewed quarterly and adjusted according to changes in the cost of electricity.

The other 40 per cent includes the cost of generating electricity, maintenance and equipment.

Since 2004, electricity tariffs here have been pegged to projected oil prices for the next three months instead of current oil prices.

Mr Khoo said the old practice made the cost of electricity very volatile.

For households, the new tariff will be about 30 cents per kiloWatt-Hour, up from about 25 cents.

http://www.straitstimes.com/Breaking%2BNews/Singapore/Story/STIStory_284015.html

The above was announced in late Sept 2008 to let the public know of SingPower’s price hikes for household electricity prices. Based on EMA’s Forward Fuel Oil Price (FFOP) policy, we pay based on a projected price of fuel, for every quarter (3 months). In other words, we pay the projected fuel price, not the current fuel price. The projected fuel pricetag for the months Oct, Nov and Dec (??) was as above. So your electricity’s bill is based on that price, not the actual price. There is a very interesting article by SkyJuice on the topic of Forward Fuel Oil Price if you want to know more.

Fast forward 2 months and now crude is trading at USD$50. A difference of more than USD$100. In other words, we’re now paying USD$150 for something that costs USD$50. A 300% markup.

Mr Khoo of the EMA says that this system is better as it’s less volatile. Sure… Less volatility in this case also translates to less mobility and flexibility. For a small country like Singapore where everything sways with the global winds, can something as small as a miniscule speck that is the EMA of Singapore afford to be immobile and inflexible? What are our competent leaders for if not to chart the small vessel called Singapore, keeping Singapore agile and mobile in the stormy seas of the global economy? Paying for something at a 300% markup for something so basic as electricity is absurd.

Come Jan 2009, it is very likely crude oil price will hover around this range (if not lower) as the global economy will not be bouncing back until late 2009 earliest. Will the EMA project the fuel price at USD$50? We shall see.

FFOP has only been adopted since 2004 and the current situation shows that being diversified, mobile and flexible are key to survivability. The woes of petrol and electricity have only been of late more and more of concern to the general public. Is this policy really for the better or merely a way to keep EMA employees employed and loafing on the job?

As SkyJuice points out, “The quotation clearly shows that there are not more than 300 bids/offers and 11 deals were settled in the month of July 2008. The highest quote was US$795 per metric tonne (or US$120 per barrel) and the lowest quote was US$698 (or US$105 per barrel). Note that the US$155 per barrel used by EMA is 30% and 50% more than the ICE’s highest and lowest quote respectively.” Indeed.

Perhaps it’s time to rethink.

Early elections?

My 11st November muse was amazingly prescient yet blindsided at the same time. Chua Lee Hoong writes a portent of doom advocating an incumbent government, and the next day the Elections Department is gearing up. The talk of the town now is, will we have an early snap election?

One would only need to profile the mouthpiece of the PAP government (ie ST) for a few days to read the barometer of things to come. It is very likely that an early election is coming. When it’ll be is anyone’s guess, but it certainly won’t be 2011, five years from GE2006. The Elections Department usually gears up 6 to 12 months before an actual election. Will we see it in mid to late 2009? Who knows, except of course the PAP leaders. It’s quite possible those 20000 civil servants called up for duty will have notice of the actual periods of duty. One of them has got to be a blogger!

On a side note, I read with amusement an article from Wayang Party about how the PAP has no right to call a snap election. Amusing, but the author fails to realise that a party-majority government equates to party rule. For Barack Obama’s Democratic Party majority government (the Democratic Party holds majority in the lower and upper Houses), while it is a majority, the political maturity of the USA means any Party Whip will not be a clarion call. But after an 8-year stretch of Republican sickness, the Democrats will take opportunity to use House majority to quickly pass reforms. For a party like the PAP, the Party Whip is truly effective and when it cracks, believe it when the grass sways with the resultant wind.

Call it what you will, but is that not a PAP government?

Yet again ST submits to the call of its political masters

In the 11th November 2008 print edition of The Straits Times, Political Editor Chua Lee Hoong writes an article titled “High growth brings high risks, for nations too“:

High growth brings high risks, for nations too.
By Chua Lee Hoong
Political Editor, Straits Times
11 November 2008

Five years is all it will take to ruin Singapore, MM Lee Kuan Yew said recently.

Watching the financial crisis claim one victim after another in quick succession in recent weeks, I have been wondering if Mr Lee wasn’t being too optimistic. Perhaps it won’t take five years; perhaps a couple of years might be enough!

Lest you think I have taken leave of my senses, let me hasten to add that I make that remark in light of the cataclysmic collapse of Lehman Brothers and the bizarre bankruptcy of Iceland.

Take Lehman Brothers first.

If a 158-year-old investment bank everybody thought was solid as a rock can collapse, can something similar happen to a Singapore institution? And if such a collapse happened, would the Republic be able to survive as a financial centre?

What Lehman Brothers held in liabilities was 3x the total deposits in all the banks in Singapore combined, say some analysts. So the answer to the question – Can the Republic survive? – is “No”. Singapore will go belly-up, like Iceland did last month.

Just a year ago, Iceland was ranked by the UN Human Development Index as the most developed nation in the world. Its per capita gross domestic product was twice that of Singapore’s. It had enjoyed a decade of high growth, fuelled by financial deregulation in the 1990s.

And then it went bankrupt for the oldest reason in the world: It borrowed too much.

Swashbuckling entrepreneurs borrowed to buy up assets in Europe; Iceland’s banks financed their expansion not with deposits but with reckless borrowing from overseas. The central bank allowed it all to happen by keeping interest rates high at 12 to 15 percent, inducing the inflow of deposits from overseas.

Result: Its banks collapsed under the weight of external debt estimated at EU$50bil, compared to a GDP of EU$8.5bil. Iceland now has to borrow from the IMF and Russia to keep its economy going.

If bankruptcy can happen to Iceland, what is there to prevent Singapore, another small nation, from following a similar path?

Nothing very much, really. Except the wits of its political leaders and monetary regulators, and the financial buffer provided by the reserves accumulated over many years.

Singapore’s leaders have reminded the country time and again how important it is to have prudent ministers who will make decisions for the long-term good, and to save for a rainy day.

Let’s fess up, most of us had become tired of hearing those reminders. But the rainy day is upon us, and it would be thoroughly churlish not to say now that those injunctions were right.

All we need is an incompetent leader with no experience in steering the economy or setting monetary policies, and we won’t need five years before we start seeing the negative effects.

I was particularly chilled by a question raised by a visiting American academic the other day: Why has no one attacked the Singdollar?

Why chilled? Because 10 years ago, speculative attacks on the Thai baht led to the collapse of the Thai Economy and the Asian financial crisis.

That someone can ask the question about the Singdollar means that no one should rule out the possibility of it being attacked by speculators intent on profiting from doing so.

I have no knowledge of whether there have been such attacks, but my guess is that there have been few. Speculators know that Singapore can defend its dollar, thanks to its accumulated reserves.

Still, reserves are not finite. A sum of $150b has already been pledged to guarantee bank deposits in Singapore up to 2010. $100b or two here , a $100b or two there, and surely there have come a point when our reserves are significantly less – and we are consequently more vulnerable. It would be foolish to think that the reserves are a bottomless pit.

As the current turmoil has highlighted, being wealthy is no guarantee that you will not be vulnerable.

And Singapore is particularly vulnerable, thanks to its policy of going for high growth and high inter-connectedness with the world economy.

That policy has brought growth of 7 to 8 percent a year when times were good.

Singaporeans have been told this repeatedly and have come to accept it as an article of faith – no connection with the globalised world means no rapid growth.

But what they might not have grasped – until now – is that high returns also means high risk, even for a country.

If Singapore were North Korea or Myanmar, insulated from the global turmoil, it wouldn’t be so vulnerable. But it wouldn’t be very wealthy either.

Once you’ve cast your lot with the global economy, there can be no decoupling.

But would Singaporeans have it any other way?

Probably not, which is why it is so critical how you choose your financial planner – or your political leaders.

It is most amusing to read Chua’s nearly vacuous article of doom and creation of a climate (economic) fear. Chua advocates a stabilising political environment, one bereft of change, to help stave of economic doom. Somewhat similar to Bush’s miraculous 2004 electorial victory. But US citizens have spoken their mind and voted accordingly, seeking fresh blood to fix its problems. Does Barack Obama, a short-term US Senator and one that honestly lacks the relevant experience to be the ruler of the civilised world, have as Chua puts it, “experience in steering the economy or setting monetary policies”? Hardly. However what he would have would be a team that does, including Warren Buffet.

Do our Finance Ministers past and present possess the training and disciplines to run an economy? No. Political leaders exist to lead politically, but by and large the real decision builders are the people actually in the industry, be it GIC, Temasek, DBS, et al. Suits. A portent of one such as “All we need is an incompetent leader…before we start seeing negative effects” ranks of fear-mongering. Claiming that our political leaders are directly responsible for economic success is blatant stealing of credit. Claiming political wisdom when times are good and uncontrollable global waves beyond the powers of our political leaders when times are bad really have to stop. However it must be admitted that the accumulation of reserves is a good and far-sighted move by MM Lee, as in Nation Building 101 (of which MM Lee could be co-author), that is one of the bedrocks of a nation of zero resources.

Chua herself admits nothing will help Singapore stave off a global economic meltdown, but the difference between Singapore and Iceland is that Singapore did not carry our reckless practises. Similarly, the US did what it did, but China didn’t. Size and any alleged similarity between Iceland and Singapore are moot. Actions alone determine who survives and who doesn’t. Does Singapore have better regulation or policies differentiating itself from Iceland? Different yes, better, maybe not. The lack of a regulation resulting in the current High Notes 5 fiasco and the resultant action needed by the Government to back $150b of deposits is a sure sign of that.

Temasek is looking to lose big in ABC Learning. Are our political leaders to be blamed for this, as our competent leaders? Did the regulators, our political leaders, the suits not see the heavy liabilities or asset leveraging that ABC Learning had done? Or are they to be forgiven for uncontrollable global forces?

There is nearly no clear link between staving off economic doom and voting for our incumbent political masters that Chua has brought up. One really wonders what the purpose of the article is for.