Capital Reserve in PUB's Accounts

Mr Speaker, I would like to thank the Member for raising this question. There has been some confusion about what the "Capital Reserve" in the Public Utilities Board's (PUB's) accounts represent. Mr Pritam Singh referred to it in his speech during the Debate on the President's Address, and I note that the Workers' Party subsequently posted a video clip on its Facebook page questioning why the water price increases were necessary when the PUB's Capital Reserve has increased from $3 billion to $5.3 billion over the last decade.

Mr Speaker, the Workers' Party and Mr Pritam Singh have interpreted the PUB's Capital Reserve as a hoard of cash surplus that the Government is keeping in PUB's accounts. But this is completely inaccurate and demonstrates a basic misunderstanding of accounting fundamentals.

The Capital Reserve does not represent surplus funds that PUB has at its disposal. Rather, most of the funds are already invested in PUB's Property, Plant and Equipment – in accounting terms, it is PPE – and that includes the upgrading of waterworks, water reclamation plant expansions and investment in water treatment processes. These are important investments to ensure a secure and sustainable water supply for Singapore. Therefore, the increase in PUB's Capital Reserve from $3 billion to $5.3 billion over the last decade must be seen in conjunction with PUB’s growing asset base, specifically its PPE, which has grown from $3.9 billion to $7.1 billion over the same period.

In fact, the Capital Reserve alone has not been sufficient to fully cover PUB's investments in water infrastructure. And that is why in the Committee of Supply (COS) debate earlier this year, I explained that PUB has had to borrow from the capital markets for its investments and it will continue to do so going forward.

In short, there is no surplus cash in PUB. It is either ignorant or disingenuous to link the water price increase with the PUB's Capital Reserve, as there is absolutely no basis to do so. I hope this clarification will set the record straight. I also hope the Workers’ Party will refrain from distorting the facts to mislead the public. In fact, having posted the video on its Facebook page and demanded that the Government clarify the matter, I hope the Workers' Party will now also post this explanation on Facebook to correct the record.

Mr Speaker, I want to thank the Minister for his clarification so that we can avoid all these very creative interpretations of accounts statements by the Statutory Boards.

I just want to follow up with a question to the Minister. Given the rising demand for water in the coming years, what are the upcoming major investments in the water supply infrastructure in the next decade? What amount of capital expenditure is the Government envisaging? And how are we going to fund them? Is this going to be from PUB’s balance sheet, or from the Government’s injections?

Mr Speaker, Sir, for the period from financial year (FY) 2017 to FY2021, PUB will be investing another $4 billion worth of infrastructure in the water domain. In fact, I mentioned this figure during the COS debate as well. These are investments for the development of the new Tuas Reclamation Plant, the renewal of Chestnut Avenue and Choa Chu Kang Waterworks and other pipeline projects. The investments will be financed through a combination of either accumulated surpluses – where there are – and borrowings, because these accumulated surpluses from previous years, as I have mentioned, are not sufficient to finance all of our infrastructure needs. So, PUB will have to borrow in order to finance these future investments. That is the investment quantum that we are talking about from FY2017 to FY2021.

Going beyond that, there are also other major projects that are in the pipeline, including, for example, Phase 2 of the Deep Tunnel Sewerage System, as well as the redevelopment of Kranji Water Reclamation Plant and the expansion of Changi Water Reclamation Plant. These are in the pipeline, and the specific quantum and details will be announced at an appropriate juncture. The bottom line is that we still need to make investments in our water infrastructure and these are very important investments to ensure that we have a secure and resilient water supply, both today and into the future.

Mr Speaker, Sir, I would just like to seek some clarification from the Minister. The PUB Annual Report 2017 does not refer to notes on Capital Reserve, like its Annual Report in 2016. Let me just read out that short note that appears in the 2016 Report, but not the 2017 Report. On capital reserve, just a short paragraph, "Section 40 of the Public Utilities Act 2002 requires the Board to finance a reasonable proportion of its capital expenditure from internal sources. The capital reserve has been utilised to account for the yearly transfer of the retained earnings to finance the Board’s property, plant and equipment", just like the Minister mentioned. And then it goes on to say, "The capital reserve comprises the accumulated transfers from retained earnings and amounts paid by Government bodies and private developers towards the capital outlay for the provision of utility, facilities completed before 1998." Can the Minister please share some information on the last aspect of this note, how much is this amount that has been transferred prior to 1998; what are we talking about here?

Mr Speaker, Sir, I think if you were to look at the figures, specifically, if you were to look at the Capital Reserve in PUB's books, indeed, they have grown from $3 billion to $5.3 billion over the years. And as the footnote explains, these are accumulated surpluses over the years that PUB has been able to earn. But none of these surpluses are left in cash. In fact, over that same period of time, a large part of the accumulated surpluses has been used to invest in water infrastructure, and that is why the PPE has grown correspondingly from $3.9 billion to $7.1 billion. That is the essence of what I am trying to say. The word "reserves" is misleading. We think of reserves as cash, but Capital Reserve happens to be an accounting term. It means that the funds were used to invest in PPE, and there are some technicalities about the specific assets, the date of the assets, but those are technical points because the main thrust of what I am trying to say is that there is no surplus cash lying around in PUB's books for PUB's disposal. All of it is being invested in water infrastructure already and we will need more of that for our future water supply as well.

I would like to seek a clarification from the Minister on the Government's position on such so-called PUB's investment in infrastructure. So, all these investments will be solely borne by Singaporean consumers through water price hikes, or should the Government also provide grants, some capital grants, for instance, for the investment, thereby lightening the consumers' burden?

Mr Speaker, in fact, we do a combination of both. For the water treatment plants, water works, water operations, indeed, PUB charges consumers, rightfully so, and then recovers the costs in order to continue to finance future investments. But there is another part of infrastructure which is not charged directly to consumers, and that is our drainage systems, sewage systems, which are an essential part of our water system. And PUB continues to receive Government grants in order to finance that part of the water system. So, when you look at the water system today, there is a component which is charged out to consumers, PUB recovers the costs, the revenues, and then uses that to finance part of the water system. But there is also a significant part of the water system which is already financed by the Government through the taxpayers.

I would like to ask the Minister what is the water borne fee for that you charge? I thought it is for infrastructure. It was increased significantly, I think, a few years ago, if I remember correctly.

Mr Speaker, as the water operations are charged out through water tariffs through water borne fee, so that, indeed, covers the operating costs of operating the water system. But there are significant amounts of drainage assets and sewage assets, as part of our water system, which the Government continues to fund through grants to PUB. In fact, these details are in PUB's accounts. You can see very clearly what is the amount that is charged out to consumers and are taken in as revenue on PUB's books, and the amount that is taken as grants from the Government.