SINGA Bill – Speech by Chua Kheng Wee Louis

Delivered in Parliament on 10 May 2021

Mr Speaker, I would like to declare my interest as an employee of a financial institution in Singapore.

Mr Speaker, I would like to begin by extending my support for the Significant Infrastructure Government Loan Act (or SINGA in short). In October last year, I shared that there is scope to rethink Singapore’s position on debt, instead of funding our expenditures solely with higher cost equity funding or funding from our reserves. This is especially if the funds are being used for quality investment projects that will benefit current and future generations of Singaporeans.

Today’s bill represents an important milestone for us as a country, and while it might have been a little later than some had hoped, it is indeed better late than never.

In finance, we often speak of an optimal capital structure for a firm. The ability to have a proportion of debt and equity, that results in the lowest Weighted Average Cost of Capital (WACC) when making the capital management decision. While certain commentators may liken Government finances to a household budget, unlike a household, firms and countries can be assumed to last into perpetuity.

Debt is not inherently bad per se, and if it can be employed effectively to increase returns, and result in a lower WACC on an overall basis, then it should always be considered as a viable option. Moreover, while we can have a different philosophical view of what the ideal structure should be on the national level, we must be keenly aware that equity funding or funding from our reserves is not free.

I would now like to take the time to seek some clarifications on several points in this bill.

The first is on the capitalisation of expenditure on nationally significant infrastructure. Again, this is another welcome change from an alignment of accounting practices point of view. After all, the long useful lives of infrastructure projects does suggest that they clearly fall under the accounting definition of an asset, as it is a present economic resource, that has the potential to produce economic benefits. This change is in contrast to the current practice of charging off development expenditure annually. As an example, a $1 billion project today with a useful life of 50 years is charged to the financial statements at 2% annually (which represents a $20 million annual depreciation charge). This is a fraction of what it would have been had we stuck to the current accounting treatment.

In FY2018 and FY2019, actual total development expenditure was $20.3 billion and $16.7 billion respectively, while the revised development expenditure in 2020 was $16.4 billion and the estimated expenditure in 2021 will be $19.9 billion.

Mr Speaker, I would like to ask, based on the adoption of capitalising long-term assets as an accounting treatment, how much of our development expenditure in dollar terms would be freed up annually?

The second point I would like to talk about is the type of projects which have been identified for the purpose of SINGA. These include infrastructure intended for a list of specified purposes as listed in section 2, such as transport, water treatment; for the alleviations of floods etc.

The new MRT lines such as the next phases of the Thomson-East Coast Line, the Jurong Regional Line and Cross Island Line as well as the extension of current lines such as the Northeast Line, Downtown Line and projects such as the Deep Tunnel Sewage System as mentioned by DPM Heng Swee Keat are projects that would fall under the scope of SINGA. I would like to ask the Minister, how was the final list of use categories identified and chosen.

My colleague Jamus will speak on the topic of soft infrastructure investment. Indeed, when we look at US President Biden’s $2 trillion-dollar infrastructure plan, we see that it includes a planned funding of the care economy, which includes

$400 billion toward expanding access to quality, affordable home- or community- based care for the elderly and people with disabilities. It will also covers investments in schools, child care facilities and workforce development programs among others.

In a knowledge-based economy, intellectual and human capital are just as important, if not more important that physical hard assets. We should not solely be focusing on conventional property, plant and equipment as possible infrastructure projects to finance with borrowing. As it is, intellectual property and other intangible assets can already be capitalised under a firm’s balance sheet under accounting rules, given the recognition of the economic benefits they generate. As a Government, we should seriously consider this as an extension of the SINGA bill, as compared to only that of traditional infrastructure assets.

Third, I note that these projects need to have a useful life of at least 50 years. Many existing infrastructure projects would not have qualified under this rather long time span. I am concerned about how practical that might be in an era where technological and environmental needs are changing so rapidly. If climate change were indeed a motivating factor for the need for infrastructure changes, it would

be far from accurate to assume that any infrastructure planning now will be useful for the next 50 years.

Rapid technological changes have shaped the tech infrastructure needed to keep our economy competitive. Over the past 20 years, we have moved from an era of 3G cellular networks in the 2000s, to 4G in 2010s and finally the rolling out of 5G networks from 2020. That is a roughly 10-year gap between each generation of cellular networks. It would be extremely difficult for anyone to predict with utmost confidence, if the infrastructure we are building for 5G today would continue to be relevant 10 or 20 years down the road, let alone 50 years at a minimum.

Our MRT systems are yet another example. First constructed more than 30 years ago, the replacement of sleepers, signalling equipment, track upgrading and power supply systems over the last few years, have meant that it is as good as replacing the entire system with a brand-new set. Even power plants, such as one of the newer CCGT plants in Singapore, only have a useful life of around 25 years.

My fourth point covers green financing. We aspire to be a green hub and we have laid out grand plans in our current Singapore Green Plan 2030. From my understanding, some of these green projects such as Tuas Nexus have been identified. In trying to keep in line with these aims, I would like to ask the minister, out of the $90 billion dollars set aside for SINGA, how much of these would be set aside for green infrastructure? As a government, we should aspire to lead by example and set a laudable target for how much we plan to spend on green infrastructure itself.

Further, I believe that the financing of nationally significant infrastructure should be tied to the mandatory completion of rigorous environmental, heritage, and social impact assessments done using the best available science, at reasonable cost. Such studies should be made fully available to the public for feedback and for the public to take any private mitigation measures necessary. This would then allow the full buy-in from society at large on the benefits of such infrastructure projects.

I recognise that advisory services such as the associated design, investigative and engineering studies, survey or research are already deemed as qualifying capital expenditure. The key caveat here of course, is that such advisory services have to be reasonable relative to the total project cost. Even though I am sure there are many considerations and technical challenges to work through, it would be unwise if consultancy fees end up being 90% of the cost of actually building the project for example. I wonder if the Government would also include limits on

how much would be spent on advisory fees as compared to the overall construction cost of the project.

The fifth point I would like to cover looks at some of the numbers as specified within the SINGA bill. The first question is on the $90 billion loan limit which has been put in place. Debt levels in itself cannot be seen in isolation, and we need to assuage Singaporeans that the level of borrowing is not unsustainable. Credit rating agencies often compare debt levels to net worth, or in the case of sovereign credit ratings, usable reserves for example. My question for the Minister therefore is, how much does this $90 billion limit represent, relative to Singapore’s current account receipts and reserves?

Further, Minister Ong Ye Kung has mentioned that we will need to spend more than $60 billion over this decade to expand and renew our rail networks while PM Lee has mentioned that Singapore is probably going to spend $100 billion, possibly more to protect our country against rising sea levels. I would thus like to ask the Minister to put into context, how is the sum of $90 billion dollars of debt financing determined, and if there are any quantifiable targets such as the total expected infrastructure spending over the next one to two decades, and how much of the funds are already earmarked for specific projects.

On the total effective interest paid or payable of $5 billion, that would imply a total yield to maturity of 5.6% on the loan limit of $90 billion. How does this compare to the current and future expected Singapore Government Securities yields that the Ministry is projecting? Singapore’s ten year bond yields stand at about 1.5% today, while thirty year bond yields are at about 1.9%. Based on my checks, historical average bond yields across varying bond duration are only at 2.5-2.8%, significantly lower than the implied yield to maturity of 5.6%.

Lastly, with regard to the qualifying amount of capital expenditure being at least

$4 billion dollars or more, I would like to ask the minister how this number was derived as well. In 2008, the KPE was built at a cost of $1.8 billion dollars.

Inflation notwithstanding, the value that the project has brought to Singaporeans has been immense, especially for residents staying in the northeast such as our Sengkang residents. In 2014, the 800MW state-of-the-art power plant by Pacific Light was built at a cost of $1.2 billion dollars. Despite the size and value that these projects bring, they hardly come close to the qualifying amount of 4 billion or more.

There is also a question of whether the definition of ‘nationally significant infrastructure’ being defined under Part 1 as being geographically located “in Singapore” may restrict the spending needs from infrastructure that crosses borders. A nationally significant infrastructure, the Linggiu Reservoir, which Singapore built at a cost of more than $300 million dollars in Malaysia comes to mind. Further, should the Government decide to set a much more ambitious renewal energy target, the infrastructure costs for the import of electricity, especially solar electricity from overseas would also not fall within the purview of the SINGA bill.

Mr Speaker I would like to conclude with two parting thoughts. The first is that I agree with DPM Heng Swee Keat that there should be various strict safeguards on the projects that can qualify for borrowing, and the amounts that can be borrowed. Similarly, when it comes to the use of our reserves, via the NIRC, it too has strict safeguards in place. Ultimately, any sound policy decision should have safeguards built in, and hence if we decide to tap on Singapore’s ample fiscal space to fund our investments into our people, we should not fear the slippery slope of there not being any safeguards that can be put in place.

The second is that, again, I agree with DPM Heng that borrowing for nationally significant infrastructure will spread these lumpy expenditure across the generations who will benefit. If we want to be a progressive society that firmly believes in the principle of fairness, we should also be acutely aware that the converse is also true.

Besides Changi Airport Terminals 1 and 2 and the earlier MRT projects, the government has not borrowed to fund any other infrastructure projects. In essence, a generation that came before us, has borne the significant cost of infrastructure development upfront, for our benefit, without having the costs spread equitably across generations. Despite a lifetime of hard work and contribution to our nation, sadly more than half of our seniors do not appear to have sufficient funds to retire comfortably.

We should never forget the sacrifices that earlier generations of Singaporeans have made in building this nation, and must always keep this in mind. Needless to say, we should never contemplate taking any future decision that could potentially add to their tax burden.

Mr Speaker, I support the bill.