Financing Infrastructure

1. Financing Infrastructure

2. Agenda • I. Overview of Singapore’s Fiscal Policy • II. Infrastructure Financing Options • III. Budgeting Systems

3. Overview of Singapore’s Fiscal Policy

4. Macro-economic Fiscal Objectives Short term buffers • Availability of resources for MAS to keep the Singapore dollar stable. • Availability of reserves to help businesses restore cost competitiveness to boost exports and keep employment up through fiscal measures • No need to boost exports through the indirect means of exchange rate depreciation. Long Term Sustainability • Growth in reserves to support a stronger Singapore dollar as economy grows. • No need to borrow, which may lead to future increase in interest and inflation rates, taxes, and downward pressure on the exchange rate

5. Budget Balance over the term of Government • Each new Government must generate its own revenues to finance its own plans • Surpluses accumulated by previous governments are “locked up” • Elected President may veto the budget if the Government is to draw on past reserves or to borrow money

6. No Borrowings for Spending • Government debt is mainly Singapore Government Securities to develop bond markets, and to provide a return to CPF (which invests in the Special SGS to earn a return for CPF members) • Proceeds from borrowings are fully invested (i.e. fully backed by assets)

7. Land Assets not to be sold for Spending • Proceeds from land sales and investments are locked up • Land and investments must be sold at Fair Market Value • Spending of investment returns capped at 50% of expected long term long term rates of return on smoothened net asset base

8. Keeping Government Small

9. Small Government, Low Taxes

11. Revenue Structures (FY2017)

12. Government Debt and Borrowing

13. General Government Cash surplus (% of GDP)

14. Who pay for taxes

15. Who gets the benefits?

16. Infrastructural Financing Options

17. Role of Government • Left to the market, public infrastructure would be underinvested • high outlays at the outset, • uncertainty of financial returns (especially in nascent sectors) • long time frame • Government remains the key supplier of most strategic public infrastructure which are managed by Statutory boards or corporate entities • Processes to manage risks of overspending and unsustainable maintenance costs • Infrastructure that do not meet needs

18. Statutory Boards • Industrial Infrastructure (JTC) • Industrial estates (divested), Biopolis, Jurong Island, Seletar Aerospace, Launchpad for start-ups • Port & Airport • Port Authority of Singapore (eventually corporatized) • Changi Airport initially managed by Civial and Aviation Authority of Singapore, eventually corporatised and managed by Airport Changi Airport Group • Utilities • Water and Electricity • Telecommunications (divested as Singtel) Subject to market discipline to ensure • Operational sufficiency, i.e. ensure that the infrastructures are efficiently managed, and generate revenues from users to be self-sufficient on on-going basis • Some statutory boards borrow from market to fund capital expenditures

19. Cost Recovery for Public Service Provision • Public services are largely delivered at fees charged based on full cost recovery. • Moderate the demand for public services • Public-sector agencies held accountable for maintaining the quality and efficiency of the services which users have to pay for. • Outsourced the provision of various services such as postal services, telecommunications and public utilities • Private sector better placed and organized to deliver such services at lower costs and better quality. • “Yellow Pages” rule, which essentially means that any service that is provided in the private sector and listed in the Yellow Pages (a directory of businesses) should not be provided by the public sector unless there are extenuating reasons to do so, such as in housing and healthcare

20. Merit Goods Infrastructure • Merit Goods with positive externalities • Housing, Education, Healthcare • Overpriced if left to private sector • Underconsumed by people • Government intervention through agencies • Statutory Boards: Housing & Development Board, Publicly Funded Universities, Polytechnics and Institutes of Education • Wholly owned corporate: MOH (Holdings) Hospitals • Co-payment by users: • Entities required to charge full costs of infrastructure • Government partially subsidises through grants to Statutory Boards • Users (fees determined as percentage of costs, and subject to change)

21. CPF Funds Used for Housing and Healthcare

22. Direct Investment of Public Goods Infrastructure • Primary and Secondary Schools • Roads • Usage controlled by Electronic Road Pricing • Public Transport • Bus infrastructure: bus stops, depots, buses and fleet management system • Rail infrastructure: stations, depots, trains and signaling system • Security • Airbases, Army Camps, Naval Bases • Fire Stations • Police Stations • Parks • Community Centres, Markets, Hawker Centres

23. Ensuring Self-Sufficiency • Development Fund Act • Allow financial resources to be accumulated for lumpy development expenditures. • Injections from operating revenues transferred into the Development Fund to finance development plans. • Hold the borrowings undertaken by the Government • Development Fund only used for • Government’s direct development expenditure (construction, improvement, acquisition or replacement of capital assets and land acquisition) • Grants and loans to, or investments in, any public agency or corporation for the development projects. • Re-injections into Development Fund • Re-payments or payments of interest on loans • interest and income from investments of the fund

24. Public Private Partnerships • Tap on assets and expertise of the private sector and smoothen lumpy investments • Sports hub • $1.3billion infrastructure was largely funded upfront by the private consortium which built it • Consortium would have the responsibility of maintaining the stadium with revenues earned by organising sporting events. • Next-Generation National BroadBand Network (NGNBN) • leverage on the existing passive infrastructure assets, such as ducts, manholes and exchanges owned by the private sector and operational expertise • Consortium earn its revenues from telecommunication companies that tap on the NGNBN to provide high-speed broadband services to end-users for a fee. • Government provided a grant of US$2 billion to the consortium to extend the network island wide, and ensure that the network is priced affordably. • Waste and water treatment plant which would be funded, constructed and operated by the developer.

25. Water and Waste Management • Consolidation of City Councils • Centralisation : • Regulation • Planning • Monitoring of standards

26. The Water “Loop”

29. Capital Expenditures

30. PPP for NEWater and Desalination Plants • Concession period : 20 to 25 years • Payment structure: • Fixed capacity payment : • Capital Recovery Charge, Fixed O&M Charge, Fixed Energy Charge • Variable output payment • Variable O&M Charge, Variable Energy Charge Transfer financial, construction and operational risks to company

31. Water Tariffs Fee-Rebates for Water Bills ranging from $40 to $120 per annum, depending on HDB flat type.

33. Overview of Singapore’s Waste Management

34. Waste Management Infrastructure • PPP : Waste-To-Energy Plants • - Gvt bear full capacity costs regardless of utilisation • - Operator bear operational risks to maintain operational standards • Government Managed • - Tuas Marine Transfer Station • - Sarimbun Recycling Park (leased to recycling companies) • - Semakau Landfill

35. Public Waste Collection System

36. Integrated Waste Management (wef 2022)

37. Service & Conservancy Charges The Government provides additional fee rebates based on availability of budget surpluses

38. Public Transport Financing Model • Roads and Rails developed directly by Government Ownerships of assets for public transport operators • depots, stations, bus-stops • operating assets such as buses, trains and the fleet management and signaling systems • Government makes the decisions to build up, replace or upgrade these assets to respond to growing ridership and commuter expectations • Appointment of operators to operate the public transport services efficiently

39. Sustainable Fee Formula • Responsive Fare Formula pegged to: • - Energy Index (electricity and diesel) • - Inflation • - Average Wage • - Productivity Gains Subject to Regular Review (annual)

40. Distance Based Pricing

41. Ensuring Affordability • Monthly Travel Pass to cap travel expenditures • Cross subsidisation by full fare paying commuters

42. Budgeting Systems

43. Evolution of Singapore’s Budgetary Framework • Budgeting in the 1970s-80s • Line Item Budgeting • (up to 31 Mar 1978) • Focus on inputs • Central control over inputs • Programme Budgeting • (from 1 April 1978) • Focus on things to be doneIdentification of programmes to achieve goals & objectives of each ministry/plansFlexibility within programmes • Block Vote Budgeting • (From 1 April 1989) • Agencies given larger blocks based on priorities set top-down • Flexibility across programmes • Current Budgeting Systems • Block Budget • (From 1 April 2000) • Focus on outcomesBlock Budget Framework • (a) establishing expenditure limits • (b) providing for discretion • (c) achieving value for money • Budgeting in the 1990s • Budgeting for Results • (From 1 April 1996) • Agencies treated as autonomous agencies • Operational and financial autonomy • Capital charging including office use, interdepartmental charging • Funding based on pre-specified outputs & performance targets • 3 year review with macro-incremental factor provided

44. sGDP growth rate x% Budget Growth Factor 1+ Budget Growth Factor X = Block Budget FrameworkGrowth factor • Ministries’ budgets will grow by a budget growth factor of x% of the sGDP growth rate.The growth rate is reviewed yearly. • This provides certainty to ministries for their budget planning. New FY budget Previous FY budget

45. Budget Flexibility Mechanisms save borrow save Future years Next year $ $ Future years $ Total budget Operating budget

46. Approval of projects vs Approval of funding

47. Project Level • Development Projects above $80m need to be vetted by MOF and submitted to a Ministerial Committee comprising Minister for Finance, Minister for Trade & Industry and proposing Minister for approval • Large and complex projects above $500m goes through a vetting process by a Development Project Advisory Committee formed by current and former senior civil servants and industry experts to ensure that the project are scoped correctly and risks are identified and addressed • ICT Projects reviewed by Public Sector Infocomm Review Committee • Cashflows and KPIs are identified • Agencies need to submit progress reports and post-implementation review reports for review by MOF

48. Gateway Process

49. Evaluation of Programmes/Projects To set targets, evaluation parameters and to size the amount of funding required Prior to or at the design stage of a programme To monitor programme performance and identify possible improvements To assess achievement of programme results, and to inform and improve policymaking in the future when a programme is being implemented at the closure stage of a programme

50. Thank You