Cost Efficiency of Large Infrastructure Projects

Ms Sun Xueling asked the Minister for Finance what are the specific measures in place to ensure that costs are judiciously managed in the construction of large infrastructure projects, such as Changi Terminal 5, Tuas Mega Port and the Jurong Lake District.

There are comprehensive measures in place to ensure the cost efficiency of publicly funded infrastructure projects, with greater scrutiny on projects that are of higher value or risk.

Projects that exceed $100 million, which make up over two-thirds of our infrastructure expenditure, are subject to scrutiny by the Ministry overseeing the project as well as the Ministry of Finance (MOF) before they are allowed to proceed. To help MOF perform this role, the Centre for Public Project Management (CP2M) was set up in 2011 with a multidisciplinary team of architects, engineers and quantity surveyors who review the scope, design and cost reasonableness of the proposals. Changes may be made to revise the project scope or optimise the project design to achieve greater value-for-money. After the project passes the review by MOF, approval must be obtained from the Development Planning Committee (DPC), which comprises three Cabinet Ministers.

If a project is estimated to cost above $500 million, it is put through a rigorous Gateway Process. This includes projects like Changi Terminal 5 (T5) and Tuas Port. Such projects undergo a few stages of reviews by the Development Projects Advisory Panel (DPAP) supported by CP2M, before they are submitted to the DPC for approval. DPAP comprises senior public officers, academics and industry practitioners with deep technical expertise and experience in major infrastructure developments. This allows us to draw on the expertise and best practices in both the public and private sectors. The first stage of review assesses the strategic business case of the project and allows MOF and DPAP to be involved upstream in project planning. The second stage seeks to refine and optimise the overall design, including the space take-up, construction method and procurement approach, to achieve greater value-for-money.

The Gateway Process also allows agencies to work with DPAP to come up with alternative solutions that can achieve better or similar outcomes at lower costs over its lifecycle. One example is the construction of the Tuas Terminal Phase One where the Maritime and Port Authority of Singapore came up with a method of reusing excavated and dredged materials from other sites for its land reclamation. This saved a few hundred million dollars by reducing the amount of sand needed.

The measures to manage large infrastructure project costs do not end at project approval. When a tender is called by the project agency, this is usually done through competitive open tender which allows price discovery. There is also a robust assessment of the cost-benefit tradeoff before an award decision is made by the tender approving authority, which typically comprises senior officials. For example, the award decisions for large infrastructure contracts called by the Land Transport Authority are approved by its governing Board.

At any stage after a project is approved, re-approval is required if there are material changes to the project scope, or cost increases exceeding 10% or $100 million, whichever is lower. The agency involved is required to provide justifications for the changes, which are scrutinised again by MOF before seeking re-approval from DPC.

I thank the Senior Minister of State. Should the public be interested to track the yearly outlay on these mega infrastructure projects, how would they be able to see that in the yearly Budget release, given that the combined infrastructure spending budget for the Ministry of National Development (MND) and the Ministry of Transport (MOT) was only $15 billion in 2016, whereas the expected spending on these mega infrastructure projects are in the tens of billions?

Mr Speaker, the projects are reflected in the Budget Book, which is year by year. So, each year, you look at the relevant Ministries' budgets. For mega projects, it is spread out but, typically, will be found in the budgets for MOT, MND and for the Ministry of the Environment and Water Resources. If the Member is asking whether the Budget Book sets out the expenditure in the next 15 or 20 years, you will not get that. What you will get is the expenditure for that year, but you can track it on a yearly basis.

A point of clarification for the Senior Minister of State in view of the comments made yesterday about the funding of T5 and the views of the International Air Transport Association (IATA) that T5 should not be pre-funded with taxes or a tax levied on passengers, for example. Does the Ministry have any position on this?

Okay. My comments at this stage would simply be that when it comes to mega projects, we have to look at what is the most optimal way to do the funding. We are still in the process of doing that. We do not rule out different ways of doing the funding but we are not committed to a single model. So, in short, we will try and find the most optimal way to do the funding and spread it out over the proper period of time.

I thank the Senior Minister of State for her answers. I was wondering, in terms of cost efficiency, to what extent is the lifetime maintenance cost of a large infrastructure project considered as part of that efficiency, given that these projects may last many years and the design of the project may impact the ongoing cost required to upkeep and maintain it for future years.

That is a very valid and pertinent question, and it is something that MOF is studying. Because our view is that when you look at the cost of a project, you must consider not just the initial development but how much that project is going to cost you over time. So, we are looking to see how that should be dealt with and reflected.