Towards a competitive power market in Singapore

Business Times 18 Mar 08;

HUANENG'S clinching of Tuas Power (TP) after a hotly-contested sale last Friday is a precursor to several other upcoming developments which should reinforce the power sector here.

They mark important milestones in the liberalisation of Singapore's electricity and gas markets. The $4.2 billion purchase of TP by Huaneng, China's largest power producer, is significant in that it is the first time a major power station here - previously always state-owned - has passed into private hands.

In TP's case, the genco will now be 100 per cent Chinese-owned. The government's earlier argument for opening the genco sale to foreign investors was that no one can walk off with a power station. Besides, Huaneng, from all the indications, intends to be a long-term power player here. Temasek Holdings' divestment of PowerSeraya and Tuas Power is up next, with the entire exercise to be completed by mid-2009.

Why is the genco divestment important? Together, the three account for over 80 per cent of Singapore's electricity generating capacity. So private ownership - with new capital injections for expansions - will hopefully spark off even keener competition (than already exists) among the trio. TP and PowerSeraya, for instance, plan to build new cogeneration plants on Jurong Island to supply other utilities, like steam and cooling water, to industries there.

Will privatisation result in lower electricity bills? Realistically, there is unlikely to be cheaper electricity, at least not in the short-term - no thanks to the relentless climb in oil prices. (This impacts also current piped gas supplies from both Indonesia and Malaysia, as the gas contracts are pegged to oil prices.) Nevertheless, competition - including from smaller players like SembCorp and KepCorp - should at least help ensure tariff increases are kept relatively modest and in check.

The impact of the genco divestment will perhaps be more apparent in the medium to longer-term, when expansion projects or upgradings by the new owners - with experience in other technologies, like say coal, or with access to cheaper fuels because of economies of scale - result in greater operating efficiency. Temasek has said as much - that TP will benefit from the experience and resources that Huaneng brings. Next month, Singapore will also pick a sole buyer or aggregator for liquefied natural gas (LNG), imports of which will start here in 2012. LNG will then supplement both imported fuel oil and piped natural gas.

This will help stem power outages arising from any disruptions in piped gas deliveries, as has happened before. Besides, Indonesia and Malaysia will want to keep some of their gas for their own future needs. Finally, to ensure the gas market operates competitively and freely, the Energy Market Authority is also putting the final touches to a gas network code here - expected to be ready around July - governing players' market behaviour.

By then, all earlier snags - like new players' inability to access incumbents' gas pipelines - should have been ironed out for a truly competitive power market here.