Leong Sze Hian

Foreign reserves: More transparency may not be good?

I refer to the article “SWFs to reveal investment size and formation – However, their strategies will not be disclosed: IMF” (BT, May 13).

It states that “Sovereign wealth funds may agree to reveal the size and composition of their investments though not their strategies as part of a voluntary code being developed with the International Monetary Fund (IMF)”.

In this connection, I also refer to media reports about the Prime Minister’s remarks that GIC will not be as open as its sister fund, Temasek, in disclosing details about its portfolio, despite pressure from Western lawmakers, and the Minister Mentor’s recent remarks that there are good reasons for GIC not to be too transparent.

(“GIC will not be as open as Temasek: PM”, New Paper, May 7, and, “MM: Good reasons for GIC not to be ‘too transparent’”, ST, May 1.)

The Minister Mentor has made a very good point, that being too transparent may allow others to anticipate the GIC’s moves.

I would like to suggest a balance to satisfy the call for more transparency and the need to forestall others anticipating GIC’s moves – why not disclose on a delayed 2-year basis ? Historical information which is more than two years old, are of no use to others, and will also improve Singapore’s international standing and reputation for disclosure and transparency.

MM’s point about being too transparent may raise people’s expectations for the Government to spend GIC’s returns is also a valid concern. However, the fact that GIC and Temasek’s returns were 8.2 and 18 per cent, for the last 25 and 33 years, respectively, may have raised the people’s expectations even more, such that even MPs have been asking in Parliament for more of the returns to be spent.

By disclosing annual returns and more information, people may then realise that the returns actually fluctuate and can be negative. So, this may even temper expectations and calls to spend more of the reserves.

This may also help Singaporeans appreciate the difficulty of managing our foreign reserves as highlighted by Dr Tony Tan, deputy chairman of the GIC (“Managing foreign reserves gets tougher: GIC”, ST, May 10).

So, the above may, in a way, be like “the best of both worlds”.

Since the legislation already allow half of the GIC’s returns to be spent, more transparency may make this rule even more acceptable to the people. After all, being less or more transparent may not make any difference at all, in this regard.

According to the book “Banking, Finance & Monetary Policy in Singapore”, by Luckett, Schulze and Wong, “Unfortunately, GIC operates in extreme secrecy and does not circulate its annual reports to outsiders. No data is available to assess its financial position or to analyse the breakdown of investment types and their returns”.

The numbers

The above book cites data from the Yearbook of Statistics, 1991, that Singapore’s Official Foreign Reserves 1981 – 1991, was $ 15.5 billion in 1981 and $ 55.8 billion in 1991 (Total Official Foreign Reserves).

GIC’s return was 8.2 per cent over the 25 years, to March 2006 (According to GIC’s web site).

Even assuming zero injection of new funds, at 8.2 per cent, the $ 55.8 billion would have grown to $ 213 billion, by 2008.

If we assume just an average injection of $ 1 billion of new funds every year, at 8.2 per cent, it would have grown to $ 250 billion now.

According to the article “UBS to sell stakes after $ 10 billion in writedowns” (Bloomberg, Dec 10, 2007), “Singapore’s GIC, (which) oversees the island nation’s foreign reserves of more than $ 100 billion.” (S$ 135 billion)

According to a Channel News Asia (Jul 12, 2006) report, the foreign reserves was US $ 128.9 billion (S$ 174 billion) in May 2006.

So, although the amount of foreign reserves is secret, I guess and estimate that it is probably around $ 250 billion now.

However, the Minister Mentor said in the high profile court case with Dr Chee Soon Juan and Miss Chee Siok Chin:

Global financial services assess Singapore to have sovereign wealth funds of over $300 billion.

Therefore, the average annual injections to GIC may be about $ 2 billion, instead of the $ 1 billion estimate I used in my above computation.

Transparency and debate on sale of power companies?

I refer to Temasek’s sale of Tuas Power Ltd to China Huaneng for S$4.2 billion.

I understand that Singapore power companies have been very profitable, making almost record profits practically every year.

At least currently, such profits may be deemed acceptable, because they belong to Temasek, which ultimately flow back to the Government and citizens.

By this sale, does it mean that future profits will accrue to the new foreign owners?

In this connection, Temasek plans to sell all its three power generating companies eventually.

Tuas Power alone has a capacity of 2,670 megawatts and accounts for about a quarter of Singapore’s electricity generation.

The three companies together generate about 90 percent of Singapore’s power.

I understand that most countries may be quite sensitive about the sale of utility companies to foreigners.

Will this issue be raised for debate in Parliament?

In this connection, “under Japan’s national security laws, foreign investors are required to seek approval if they want more than a 10 per cent stake in companies deemed crucial to national security and public order such as power and military-related firms” (“Japan accused of blocking foreign funds”, ST, May 5).

For the financial year ended 31 March 2007, Tuas Power Ltd’s Net Profit for the Year was $ 177 million, an increase of 70 per cent, over 2006.

Isn’t this increase very high ?

For financial Year 2006/07, Singapore Power Group’s Net Profit After Taxation was $ 905 million.

Its ratio of Net Profit After Taxation over Revenue ($ 5.24 billion) was 17 per cent.

Isn’t this quite high ?

If the profits of Singapore Power and just one of our power generation companies is already more than $1 billion, how much in total are the profits of all power and utilities companies?

The Straits Times reported:

If your latest power bill gave you a jolt, you had better get used to it because there is more to come. Soaring crude oil prices drove the benchmark market price of electricity to a record last month, and there is not much relief in sight.

(“Expect to pay higher electricity bills : No relief soon as high oil prices push up costs for power companies”, ST, May 9)

As oil prices rose over the last two years or so, with consumers reeling from higher electricity tariffs, and now inflation at 26-year highs, why is it that power generation companies, like Tuas Power’s profits can increase by 70 per cent ?

Not asking for subsidies but temporary halt to ever-growing profits

In the Philippines, the Government is asking businesses, like power companies, to try to charge lower electricity prices to the lower-income (“Coping with rising costs: Manila may act to cut power rates”, ST, May 16)..

So, can we try to ask Singapore power companies, to try to earn a little less now?

The Minister Mentor recently said:

Singapore‘s problems cannot be solved by giving subsidies, but by having a dynamic economy… I read many letters in the press urging subsidies for all manner of things – seat belts for school buses, food for the poor, medical fees and so on.

(“MM Lee says giving subsidies will not solve Singapore’s problems“, CNA, May 25)

I think Singaporeans are not asking for subsidies for food, transport, utilities, etc, but just a temporary halt to the ever-growing profits of our transport, utilities companies, etc, to help us cope with rising inflation now.

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