Leong Sze Hian / Columnist

I was really tired this morning, when I received a SMS from TOC editor Zheng Xi at 5 a.m. to write on the U.S. congress rejection of the bailout, and TOC deputy editor Andrew Loh’s SMS yesterday to research the power companies’ profits.

Then, the news of JBJ’s demise came – and memories of my 3-hour meeting with him when he invited me for tea last year, broke my lethargy.

I would like to say if I may – that I would like to dedicate these two articles to JBJ.

Electricity crisis?

I refer to the report “Households to see average rise of about 21% in electricity bills from Oct” (CNA, Sep 29).

Singapore Power’s Net Profit After Taxation increased by 72 per cent from $ 630 million in FY 03/04 to $ 1.086 billion in FY 07/08 – an annualised increase of about 15 per cent per annum.

The power generation companies like Tuas Power had a profit increase of about 70 per cent from $ 104 million in 2006 to $ 177 million in 2007 ; Powerseraya’s profitis for FY 07/08 increased by 30 per cent in a year to $ 218 million, Senoka Power’s profits for the year ended 31 March, 2008 was $ 130 million.

The above financial means that the total profits of the power companies was about $ 1.604 billion.

This sum is even greater than the original projected increase in revenue from the 2 per cent increase in GST last July to help the needy.

To what extent has the pegging of electricity tariffs solely to fuel prices, contributed to the high profits of the power companies.

Shouldn’t other factors like increase in profits be considered too ?

If the formula for transport fares can be pegged to average wage increase, average inflation and productivity, why is the electricity tariff pegged only to fuel prices ? (Note : Even this formula has led to ever increasing record profits for SMRT).

Now that two of the three power companies have been sold to foreign companies, and the third one is in the process of being sold, will the profits of power companies continue to rise ?

Since Singapore Power and the power generation companies (before their sale) are in a sense, owned by the state, why is the state making a whopping $ 1.604 billion in profits in a year, from providing a monopolistic essential good to Singaporeans ?

Instead of just announcing tariff increases due to fuel prices, why not require the projected increase in profits to be announced too ?

What’s the point of announcing a 50 per cent increase in the U-Save rebate on national day, only to see it being eroded by the subject tariff increase just a month plus after ?

As to “But the government rebates of $ 310 to $ 330 will more than cover the increases for these households” (one to three-room HDB flats), according to the Department of Statistics (DOS), only 271,650 were 1, 2 and 3-room HDB flats, out of a total of about 1,118,260 residential properties in 2007.

Does this mean that the U-Save rebates are not enough for about 76 per cent of households (846,610 divided by 1,118260) ? (Note : private property households don’t get any U-Save rebates).

I also refer to media reports on the Electricity Vending System (EVS) trial.

Consumers will pre-pay for electricity under the EVS.

If the trial is successful, it is the plan to have the EVS as the electricity delivery system for all consumers, by 2010.

As of June this year, about 13,700 households have been put on a pre-paid metering scheme (PAYU) after they had their power supply cut off or were in danger of having the supply disconnected (“More unable to pay electricity bills”, ST, Aug 29).

Social workers have also said that surprisingly, there has been a 35 per cent increase in 4 and 5-room HDB households, who are unable to pay their electricity bills.

This brings up the question as to whether the U-Save Rebate for utilities are enough to offset the rising inflation of electricity tariffs and bills.

I would think that most households may try very hard to pay their electricity bills first, over other outstanding bills, as I cannot imagine what life may be like when one’s electricity is cut-off.

What will happen to households like the 13,700 who cannot pay now, and new households who may be unable to pay in the future, if the EVS is fully implemented in 2010 ?

At least now, if you cannot pay, you can be in arrears, giving one a few months’ grace, before electricity is cut-off, and replaced by the pre-paid metering scheme.

I would like to suggest that the current pre-paid metering scheme, and a grace period for arrears, be continued, particularly for lower-income households.

Otherwise, Singaporeans may become even more financially stressed under the EVS.

It was last reported in the media in 2006 that the number of accounts in arrears exceeding $ 500 for three months and longer is about 3,600, against about 10,000 reported in the media in 2005.

So, why has the number of Pay-As-You-Use (PAYU) meters increased to 13,700 ?

In Malaysia, the government announced on its last national day on 31 August, 2008, that free electricity would be given to all households with electricity bills not exceeding RM 20 to help the needy.

Financial meltdown?

The anticipated bank bailout did not receive the U.S. Congress’ approval and the Dow Jones dropped 778 points.

Is it the end ?

Perhaps we need to start at the very beginning – how and why did the financial crisis start ?

The current financial crisis began with the bailout of Fannie Mae and Freddie Mac (F & F).

Sub-prime and HDB

Are there parallels, historical similarities, contrasts and comparisons, between the bailout of F & F in the United States, and Singapore – in the context of housing policy ?

F & F were founded with the primary aim of helping more Americans to own homes.

The HDB was set up with a similar objective.

Just as F & F enabled poorer Americans to get home financing, where banks had historically been hesitant to lend, by guaranteeing loans, the HDB actually went even further by building the flats and providing the loans.

As it was implicitly perceived that F & F was backed by the U. S. Government, lenders lent to practically anybody (sub-prime), without worrying about the risk of default.

Well, before the HDB introduced recent measures like the loan eligibility letter, it too in its early years sold flats and gave low interest loans to practically anyone who applied.

Now, it will only give HDB concessionary loans to those who upgrade to a bigger flat, but not to those who down-grade or buy a same size flat.

The chairman of the U.S. Federal Reserve (the Fed) had sounded the alarm long ago, that F & F was a monster that may grow out of control.

HDB

In Singapore, I guess, probably the crunch came when it was reported that about 40,000 HDB flat dwellers were in arrears.

The latest HDB Annual Report does not show the number given financial assistance anymore, but the previous Annual Report showed over 26,000.

So, from 1 January 2003, banks were allowed to give loans for HDB flat purchase.

Even those who were eligible for the maximum two times HDB concessionary loan, could choose a bank loan.

In fact, many who were lured into choosing bank loans because of lower interest rates in the first three years, many now be regretting as bank rates are generally higher than HDB’s.

It was reported in the Straits Times this year, that reportedly about 60 HDB flats a month, are foreclosed by banks.

The last reply in Parliament to a MP’s question, was that seven per cent of HDB bank loans were in arrears over three months. The estimated number of HDB bank loans is now about 100,000.

In comparison, even at the height of the sub-prime crisis in the United States, the estimated delinquency rate is 5.12 per cent for home mortgages (“A simple, painless way to tackle the credit crisis”, ST, Sep 22).

According to the Economist (Sep 27), the chart in the article “The doctor’s bill”, shows a 90+ days delinquent rate of only about 4.5 per cent.

In this connection, the HDB said that only 360 flat owners voluntarily surrendered their flats between 2003 and 2006.

From the experience of HDB flat owners who cannot pay, the HDB has asked them to sell in the open market, helps to initiate a valuation of the flat, and allows any loss between the flat sale proceeds and the HDB loan balance outstanding to be paid by installments in the future.

Such “open market” sales by those who cannot pay for their mortgage, are of course not counted as “voluntarily surrendered their flats” statistics.

For private property loans, the first charge was changed from CPF to banks with effect from 1 September 2002.

For pre-1 September 2002 housing loans, only the CPF Minimum Sum will be protected (first charge) from the mortgagee bank, when the borrower reaches age 55.

The above two measures partially solved the problem of defaulted mortgages which had CPF as the first charge.

The U.S. experience of encouraging particularly poorer Americans to own homes has now resulted in the sub-prime crisis, and the bursting of the housing asset bubble.

It is still not known, to what extent the bailout will cost American taxpayers.

In Singapore, to what extent has our over 80 per cent home ownership achievement, resulted in the loss of homes and maybe CPF life savings too ?

We don’t really know, because unlike in the U.S., there are no regularly published break-down statistics on HDB concessionary loans, HDB bank loans, private property loans, arrears, default, foreclosure, CPF losses, negative equity sale losses, etc.

In this connection for example, the last time a reply was given in Parliament to a question – about three per cent of about 11,000 first-timer HDB flat-buyers on bank loans, were in arrears over three months.

One needs to note from this statistic, that it only refers to “first-timers” on bank loans.

Another difference possibly, between the U.S. and Singapore, may be that whilst taxpayers’ money are being used for the F & F bailout to help Americans keep their homes in a rapidly assedeclining environment, perhaps the foresight of the Singapore Government has forestalled the eventuality of a sub-prime or housing asset bubble crisis.

In this regard, perhaps the only slight blur on the silver lining, is that both HDB and private property price indexes now are still below their last highs in 1996.

Another possible difference in future scenarios, may be that the U.S. crisis is more confined to housing, as Americans’ pensions cannot be used for home purchase.

In Singapore, because of the use of CPF for housing, only the future may tell, as to what extent, particularly lower-income Singaporeans, may have difficulty monetising the last reported statistic that even the lower-income have about $ 138,000 of equity in their HDB at retirement.

In this regard, I understand that the HDB may be reviewing its policies, like the 30-month waiting period to rent, buy a smaller new HDB flat, or down-grading from private property, to take into account the financial plight of applicants.

I hope that the HDB’s policy review, will follow the U.S.’s focus and rationale in the F & F bailout, i.e. to help people keep their homes.

According to the article “Too many data cooks” (Newsweek, Sep 15), statistics in many countries are unreliable and may be watered down to look better.

In a sense, we may be better off in Singapore, as some of the above-mentioned remarks on statistics may indicate that not having regular break-down statistics may actually be better than having fudged ones ?

In memory of JB Jeyaretnam.

This article was written on 30 September 2008.

———-