Hansard, 1998-10-12

Under the provisions of clause 2(d) of Article 46 of the Constitution of the Republic of Singapore, the following Members have been granted permission to be or to remain absent from sittings of Parliament (or any Committee of Parliament to which they have been appointed) for the periods stated: NameNameFrom 19981998 Prof S Jayakumar13 Sep7 Oct Mr Lim Hng Kiang16 Sep19 Sep 3 Oct10 Oct Mr Tan Soo Khoon17 Sep19 Sep 15 Oct23 Oct Mr Loh Meng See17 Sep20 Sep Mr Ang Mong Seng18 Sep20 Sep 27 Oct31 Oct Mr Inderjit Singh18 Sep20 Sep Mr K Shanmugam18 Sep24 Sep Mr Shriniwas Rai19 Sep26 Sep Mr Koo Tsai Kee19 Sep27 Sep 12 Oct17 Oct Mr Mah Bow Tan19 Sep28 Sep NameNameFrom 19981998 Mr Lew Syn Pau20 Sep22 Sep 23 Sep24 Sep 8 Oct11 Oct Mr Goh Chok Tong20 Sep7 Oct BG George Yong-Boon Yeo21 Sep26 Sep 19 Oct28 Oct Mr Chew Heng Ching21 Sep26 Sep 29 Sep3 Oct 7 Oct10 Oct Mr Zulkifli Baharudin22 Sep27 Sep 2 Oct6 Oct Dr Toh See Kiat23 Sep25 Sep Mr Bernard Chen24 Sep29 Sep 15 Oct18 Oct Mr Kenneth Chen Koon Lap24 Sep20 Oct Mr Hawazi Daipi27 Sep30 Sep BG Lee Hsien Loong28 Sep1 Oct 11 Oct13 Oct Mr Choo Wee Khiang28 Sep1 Oct Mr Tay Beng Chuan28 Sep1 Oct 16 Oct31 Oct Mr Yeo Guat Kwang28 Sep2 Oct Dr Wan Soon Bee2 Oct4 Oct Mr Goh Chee Wee2 Oct4 Oct 8 Oct11 Oct 22 Oct25 Oct Dr Hu Tsu Tau, Richard4 Oct10 Oct 18 Oct22 Oct Dr Michael Lim Chun Leng4 Oct11 Oct Mr Lee Yock Suan5 Oct9 Oct Dr Teo Ho Pin5 Oct11 Oct Mrs Lim Hwee Hua5 Oct11 Oct Mdm Claire Chiang See Ngoh7 Oct17 Oct Mr Lee Kuan Yew7 Oct1 Nov Dr Wang Kai Yuen8 Oct13 Oct 22 Oct24 Oct Mr Tang Guan Seng8 Oct14 Oct Mr Yeo Cheow Tong11 Oct14 Oct Mr J B Jeyaretnam12 Oct13 Oct Mr Heng Chiang Meng13 Oct19 Oct Dr Tan Cheng Bock13 Oct25 Oct Mr Lim Boon Heng14 Oct16 Oct Mr Abdullah Tarmugi14 Oct17 Oct Mr Sin Boon Ann15 Oct22 Oct NameNameFrom 19981998 Mr Peh Chin Hua15 Oct24 Oct RAdm Teo Chee Hean17 Oct19 Oct Dr Tony Tan Keng Yam19 Oct27 Oct 5 Nov18 Nov Mr David T E Lim24 Oct31 Oct Mr Wong Kan Seng29 Oct1 Nov TAN SOO KHOON Speaker Parliament of Singapore

The following Bills were assented to by the President of the Republic of Singapore on the date stated: 23 September 1998 (1) Immigration (Amendment) Bill 1998; and (2) Boundaries And Survey Maps Bill 1998. TAN SOO KHOON Speaker Parliament of Singapore

asked the Deputy Prime Minister, in the light of recent changes imposed by Malaysia on the currency and stock market rules, what steps are being taken by the Monetary Authority of Singapore and the Stock Exchange of Singapore Ltd to provide a better sense of direction and assistance to the public so that they will be adequately prepared.

asked the Deputy Prime Minister (a) how many investors suffered losses from trading in Clob due to the financial control measures announced by Malaysia recently and what are the estimated losses of the investors; and (b) to what extent will the closure of Clob affect the revenue of the securities industry and Singapore as a financial investment hub.

asked the Deputy Prime Minister whether Government will consider taking steps to see that the investors' interest in the Central Limit Order Book System is protected.

asked the Deputy Prime Minister what are the effects on the financial sector and the Singapore economy with the closure of Clob International.

Deputy Prime Minister): Mr Speaker, Sir, may I have your permission to take Question Nos. 1 to 4 together?

Yes.

Mr Speaker, Sir, the recent closure of trading of Malaysian shares on Clob, after Malaysia imposed capital controls and new rules on the clearing and settlement of Malaysian shares, has highlighted the risks of investing in shares. There is a price risk inherent in any share. But in addition, shares listed on overseas exchanges are subject to regulatory risk arising from changes in rules by the overseas exchange. The Government cannot protect investors from such risks. Investors have to keep their eyes open and judge for themselves whether the returns are adequate to justify the risks. The Malaysian government's opposition to trading of Malaysian shares on Clob is long standing, and has always been reported in the press. When the SES established Clob in January 1990, after Malaysia unilaterally delisted all Malaysian shares from the SES, the KLSE objected strongly. It declared publicly that Clob was an unrecognised market, and warned investors of the dangers in trading Malaysian shares on Clob. As recently as August 1998, the National Economic Action Council of Malaysia called for the closure of Clob. The SES responded that Clob would remain viable only so long as there is demand from investors for its services. This exchange was widely reported in the press, and put investors on notice of Malaysia's intentions. The SES has issued a statement explaining why it did not stop trading of Malaysian shares on Clob earlier, for example, immediately after the KLSE announced its new rules on 31st August 1998, or even before that. It apologised for not reassuring investors earlier than 7th September 1998 that the Malaysian actions had not made their shares worthless. However, this omission did not make a material difference to Malaysian share prices on Clob. Even after the SES had given repeated assurances to investors that their shares were not worthless, shares on Clob continued to trade at a deep discount1 to prices on the KLSE. Once the Malaysian measures were announced, nothing the SES did could prevent a decline of share prices on Clob. Many investors evidently preferred to sell their shares on Clob and receive the proceeds in Singapore dollars, rather than wait to dispose of their shares on KLSE and retain their proceeds in Ringgit accounts in Malaysia for one year, as required under the new Malaysian rules. 1 On 28th August 1998, Clob shares were traded at a discount of only 9% on average, compared to the prices of the shares on the KLSE. Following the amendment of the Malaysian measures on 31st August 1998 and 1st September 1998, the discount on Club prices widened to 49% on 3rd September 1998. Club was suspended from trading on 4th September 1998, and subsequently reopened for 5 trading days from 9th to 15th September 1998. At the end of the trading period, the discount on Clob shares averaged 42%. As at 31st August 1998, 197,000 investors held Malaysian shares on Clob. 90% were Singaporean investors. Many Clob investors sold their shares after the Malaysian measures were announced, including 24,000 who sold all their Malaysian shares. They would have made losses. But for every seller there was a buyer, hoping to make a gain by buying the shares and subsequently selling them on the KLSE. Most such investors, be they buyers or sellers, were Singaporean. The closure of trading of Malaysian shares on Clob is a loss to Singapore's financial sector, but the loss is not significant relative to the size of the financial sector. In 1997, the stock market accounted for 10% of the financial sector's value added, or 1.1% of overall GDP2. Clob represented about 24% of the SES' turnover at that stage. But more recently from June 1998 to August 1998, Clob's share had declined to only 3-8% of the total turnover in the stock market. Moreover, since the closure of Clob trading of Malaysian shares, some retail investors have channelled their interest into Singapore shares3. 2 In 1997, the share of the stock market in the financial services sector was 9.9%, and the financial services sector in turn had a share of 11.4% in overall GDP. 3 For the period from 1st September 1998 to 15th September 1998, the average daily turnover of Singapore shares was $190.3m. This has increased to $201.1m during the period from 16th September 1998 to 30th September 1998. Over the years, the SES has taken steps to develop the market for local and foreign shares. Clob is not a market solely for trading Malaysian shares, although because of historical reasons and investors' familiarity, the bulk of the trade on Clob has been in Malaysian shares. The SES will continue its developmental efforts to provide investors with a broad range of options for trading of Asian shares. Singapore's financial sector provides a wide range of services and products, and serves a large pool of investors, borrowers and financial intermediaries. The regional crisis has shrunk the volume of financial activity, but the sector has remained resilient. Some financial activities have continued to grow despite the slowdown. A recent Bank for International Settlements survey found that daily turnover in the Singapore foreign exchange market has increased by 32% since 1995, whereas turnover in the other major Asian financial centres declined. SIMEX is also experiencing a record year in trading futures contracts. Investors increasingly appreciate our AAA country risk rating, and the transparent, predictable and open business environment that Singapore offers. We are therefore confident that despite difficulties and occasional setbacks, Singapore is strengthening its position as a financial hub in the region.

Mr Speaker, Sir, on 3rd September 1998, SES announced that Clob would continue as long as there is demand. On 4th September 1998, it suddenly decided to suspend trading and close Clob. Would the Minister explain what situational changes between 3rd and 4th September resulted in SES making an about-turn? The second supplementary question is: why did SES wait until 7th September 1998, about a week after Malaysia announced the new measures, to assure the investors that their shares would not be worthless? Was SES itself not sure, prior to 7th September, about the status of the shares traded in Clob? The third supplementary question is: was the Government aware, during the setting up of Clob, that Clob itself could face eventual closure under some circumstances if Malaysia were to take extreme measures?

When the Malaysians first made the announcement, as SES explained in the press statement, SES could not straightaway close the market. There was no reason for it to do so. As Members will remember, subsequently, the Malaysians also imposed currency controls and, as a result, that removed the arbitraging between the Singapore Clob and the KLSE. When that happened, it became obvious that Clob could not continue any more and that is why SES suspended trading to make the announcement that trading would continue for another five days, after which the nominee accounts would be migrated to the KLSE. I think SES has responded correctly at every stage. The key issue is when to suspend trading on stock exchanges. This is something that you cannot take lightly and I think SES made the right decision in providing an orderly and free market so that investors can trade in the securities. But when conditions became clear that it no longer could trade any more because the arbitraging between the two exchanges could not take place, SES had to suspend trading and close down Clob. This explains the about-turn. It is not just the closure of Clob but also the imposition of currency controls. Mr Low also asked why it took one week. This is because of the announcement subsequently by the Malaysian government on the currency controls. His third question was, if we knew that Clob could be closed, why did we not take measures to prevent it. SES has explained that Clob exists only to service investors. As long as there is a demand for its services, there is a reason for Clob to exist. Clob also services the Malaysian investors by providing liquidity and more volume. So it is a win-win situation for both sides in having Clob. But once the Malaysians decided on currency controls, then they are prepared to accept the disadvantages of not having Clob, in having lower liquidity, etc. They are prepared to take that loss in furtherance of their overall currency controls and, under such circumstances, Clob cannot exist any more.

I do not think the Minister has answered my question. My question is: why was there an about-turn between 3rd and 4th September 1998? On 3rd September, SES announced that Clob would continue as long as there is demand. The currency controls imposed by Malaysia was announced on 1st September 1998. After this announcement of currency controls, SES announced that Clob would continue trading. Then on 4th September, it was suddenly decided to close down Clob. My second question is: why did Clob not assure investors earlier that their shares would not be worthless? Why wait until 7th September? Was SES itself not sure about the status of the shares?

With hindsight, it is always possible to raise these questions. These events took place rather rapidly, and as the market adjusted it was not possible for SES to intervene and make an announcement and unsettle the market. When the announcement was made about the rules for Clob, SES responded by saying that it would remain open and it would trade as long as there is demand for its services. When the currency controls were imposed and the differences started to widen between the two markets, it became obvious, as the days went on, that they could not arbitrage any more. Therefore, the very vital feedback link was no longer there and you were just trading within yourselves without taking advantage of the price changes in the KLSE. That is why on 4th September, SES decided that it was no longer possible to continue with Clob and had to suspend trading and close down Clob. You do not make that kind of decision immediately. You have to weigh the pros and cons and you have to assess the impact. You do not immediately close Clob. What happens if that was the wrong decision? Then investors would be disadvantaged. I think it is fair for SES to make its decision after consultation with all the players and after assessing the impact of the currency controls. His next question was why SES did not tell the investors that their shares were not worthless. I think SES did not realise that Singaporeans thought that their shares were worthless. These were controls imposed by KLSE. If you are an informed investor, you know there is an omnibus account, of which your own stocks can be migrated to the KLSE MCD. Therefore, there is no reason for Singaporeans to think that their stocks were worthless. There were two things happening in the market during that period. First, there was a lot of uncertainty. The KLSE was changing rules practically every other day. So there was a lot of uncertainty and confusion. Second, there was a great premium to get out of the market. As Members could see, the difference between the share prices in Clob and the KLSE prices widened to 49% and even at the end of the trading, it ended at 42%, which shows there was a high premium. Singaporean investors have decided that they wanted to get out of it and they wanted to take their proceeds in Singapore dollars. Under such circumstances of uncertainty as well as a high premium on getting out and having the proceeds in Singapore dollars, it was not obvious to SES that people were trading below the value of KLSE just because they thought that their shares were worthless. The interpretation is that Singaporeans wanted to get out their proceeds in Singapore dollars and therefore were prepared to accept the heavy discount.

It seems to me, from the Minister's answer, that SES was not able to fully appreciate the market situation as well as the rules that would affect the trading. Would it not be more prudent for SES then to suspend trading on Clob on 1st September after knowing the effect and at the same time assessing the impact on Clob rather than to suspend trading later?

As I have said earlier, a decision to suspend trading is something that you do not take lightly. In fact, SES has suspended trading on the market for only three days in 1985, and that is to SES' credit that we keep the market open. That is the role of the Exchange, ie, to keep the market open. As long as there is equal information available to buyer and seller, the role of the Exchange is to keep it open. The Exchange only suspends trading if it is assessed that there is inequity in the availability of the market information. In this case, buyers and sellers were operating on the same level playing field. The announcement was made by the Malaysians. It is up to you to decide whether to buy or sell and whether you are going to make money or lose money. For every seller, as long as there is a buyer, there is a basis for the market. But if SES feels that the information is only available to one group and not to the other group, then, of course, to be the referee, it ought to suspend trading on the market. So such conditions were not there on 1st September and there was no reason for SES to suspend trading on the market.

Sir, will the Minister remind the House that when trading on the stock market in 1985 was suspended by the Stock Exchange, Singapore was subjected to a great deal of criticism for doing so? So I think there is a very high price to be paid for the suspension of trading on the stock market.

When the SES suspended trading on the market in 1985, because of the Pan-El crisis, that decision was also criticised by many investors.

asked the Minister for Trade and Industry what is the extent of the impact of Malaysia's currency control measures on our economy.

asked the Minister for Trade and Industry whether Malaysia's imposition of capital and exchange controls will have any adverse effect on economic cooperation in ASEAN.

Mr Speaker, Sir, may I have permission to answer Question Nos. 5 and 6 together, as they are related?

Yes.

Given the close interdependence of the Singapore and Malaysian economies, it is inevitable that Singapore will be affected by Malaysia's capital and exchange control measures. The closure of CLOB is an immediate consequence. Activity in Singapore's foreign exchange market has been reduced by the cessation of Ringgit trades. However, trading in Ringgit had already declined over the past months and was only a small proportion of total turnover just prior to the exchange controls. There will also be some loss of business for our banks and fund managers as they can no longer accept Ringgit deposits or trade in the currency. Offshore loans to Malaysia through Singapore's Asian Dollar Market, albeit a small share of total offshore loans, could also be affected. The measures are also likely to affect bilateral trade. Companies with substantial Ringgit contracts have to re-negotiate their contracts and financing arrangements. There will be additional administrative costs as all settlements must now be in foreign currency. A double conversion cost is incurred as traders have to convert their export earnings into Ringgit and convert their Ringgit to foreign currencies to pay for imports. The ease of getting Bank Negara's authorisation for obtaining foreign exchange for trade and for profit repatriation purposes will be critical. Any bureaucratic delay will mean higher business costs. About 60% of our trade with Malaysia are intra-firm, intra-MNC trade. These are mainly denominated in US Dollars. These operations are unlikely to be affected much by the recent measures. Only about 6% of bilateral trade are denominated in Ringgit. The measures will also mean a drop in Malaysian investments into Singapore as there will be limits imposed on Malaysian investments abroad. However, such investments account for only a very small percentage of total investment inflows into Singapore. Another concern is the potential downgrading of investor interest in the region. The outlook for foreign investment has already weakened because of the regional crisis. Uncertainty arising from Malaysia's capital controls may further discourage foreign investors. Malaysia's capital controls represent a step backwards in ASEAN's efforts to liberalise its trade and investment environment. ASEAN will have to work harder to bring back investor confidence into the region. The ASEAN Economic Ministers who met last week in Manila have endorsed the Framework Agreement on the ASEAN Investment Area to enhance the investment climate in ASEAN. Singapore will continue to work with other ASEAN members to press ahead with further economic cooperation and trade liberalisation. On the positive side, if the measures are temporary in nature and the Malaysian government makes use of this period of stability to bring about the necessary reforms, we can look forward to an earlier recovery of the Malaysian economy.

Will the Minister be able to quantify what is the direct impact?

Sir, it is too early to make an accurate assessment. I do not have any figures at the moment.

Is there any sense that the other ASEAN countries are slowing down on their liberalisation momentum because of this recent event, including Malaysia's imposition of exchange controls?

Mr Speaker, Sir, I just came back from the Manila meeting last week. My assessment is that the ASEAN Economic Ministers are aware that, in fact, with this current crisis, it is all the more important for them to open up their markets and stay on track as far as trade liberalisation is concerned. Of course, they are closely watching the Malaysian situation. And even Malaysia is keen to attract foreign investments. So we were discussing the possibility of maybe bringing forward the implementation of the ASEAN Free Trade Area as a strong signal to the market that we are on track and, if anything, we want to push forward even more vigorously with trade liberalisation.

Is there any sense that there is a thinking among the ASEAN countries to impose capital controls as well?

Apart from Malaysia, my assessment is that countries like Thailand, Indonesia and the Philippines and others, are not taking up capital controls. I think Mr Ginandjar has mentioned something about the possibility of getting their traders to convert their export earnings back to rupiah. So this is something that has to be watched. But the overall tone is that they are aware that these capital controls, in fact, will be a step backwards and it is better to keep the market open and leave the current situation on exchange controls as it is.

asked the Deputy Prime Minister what is the status of non-domestic non-performing loans (i) in absolute terms; (ii) as a percentage of non-domestic loans; and (iii) as a percentage of total loans; and whether recent capital control measures in Malaysia and further deterioration in regional economic conditions will raise the level of non-performing loans.

asked the Deputy Prime Minister if he will give an update on the latest position of the exposure of banks in Singapore as a result of the further decline in the property value and economic conditions in neighbouring countries.

Mr Speaker, can I have your permission to take Question Nos. 7 and 8 together?

Yes.

As at 31st August 1998, the six local banking groups had exposure of S$37.3 billion (or 15% of their total assets) to Malaysia, Indonesia, Thailand, Korea and the Philippines. Excluding the assets of Thai Danu Bank acquired by DBS in March 1998, the total exposure of the six local banking groups was S$31.3 billion. This is a 16% drop from the December 1997 figure. The non-performing loans of the six local banking groups to these five countries amounted to 17% (S$5.9 billion) of their loans to these countries as at 31st August 1998. As a percentage of the local banks' total loans, the ratio was 2.7%. Including domestic loans and other global loans, the total non-performing loans of the local banks amounted to 6.1% as at 31st August 1998. In view of the public's and market's interest in the level of non-performing loans of the local banks, MAS will release such data henceforth on a quarterly basis. The Singapore banks' non-performing loans in the region are likely to rise. The banks have set aside substantial provisions for this reason, and are likely to make further provisions so as to maintain their conservative stance towards possible loan losses and to preserve market confidence. The level of non-performing loans, present or projected, does not threaten the financial health of any of the local banks.

Mr Speaker, Sir, may I ask the Minister what he thinks is the percentage of the projected non-performing loans in the next six months or so?

I do not have the figure with me. But even if I do, I am not likely to release it.

The following Question stood in the name of Mr Tay Beng Chuan - 9. To ask the Deputy Prime Minister (a) whether the financial crises spreading over Russia and Latin America together with the near-collapse of the US hedge fund Long-Term Capital Management signal a possible global financial crisis; and (b) what monetary policies and measures Singapore intends to put in place to stave off any adverse repercussions.

Question No. 9, Sir.

The Asian financial crisis has indeed become globalised. Through the inter-linkages of the financial markets, the crisis has affected even countries with strong policy regimes such as US and Europe. President Clinton himself has acknowledged that this is the "biggest financial challenge facing the world in half a century" . Among the G-7 countries, there is a greater sense of urgency and the recognition of the need for action with respect to the crisis. However, there is no reason to be unduly pessimistic. The US economy remains robust and Europe continues to grow strongly. In their latest meeting on 3rd October, the G-7 nations have also expressed their commitment to promote financial stability and global economic recovery. The US, Canada and UK have pledged to maintain conditions for sustainable growth. The continental European nations have committed to implementing urgent structural reforms and reducing unemployment. Such measures will form the basis for a continuation of solid economic growth in the industrialised countries and thus support recovery in the rest of the world. Despite Singapore's strong fundamentals, we will not be insulated from developments in the world economy. This reflects the high degree of openness of the Singapore economy. In fact, external sources of demand account for almost two-thirds of the total demand for our goods and services. Should the financial crisis worsen and lead to a widespread downturn in global economic activity, the expected recovery in Singapore and the rest of the Asian region will be postponed. Given our small size and heavy dependence on demand conditions in global export markets, we are restrained in our ability to pursue specific unilateral policy initiatives. We need to be realistic and recognise that ultimately the external environment must improve before an enduring economic recovery in Singapore can take place. Nevertheless, the Government will take the necessary steps to help alleviate some of the short-term pain as the economy adjusts to the shock of the financial crisis. On the exchange rate policy, the Monetary Authority of Singapore has been managing the Singapore Dollar exchange rate with greater flexibility. The objective is to maintain price stability with a view to ensuring the conditions for sustainable economic growth. On fiscal policy, the Government is pursuing somewhat more expansionary policies, for example, in increased spending on economic infrastructure. However, because our economy is so dependent on external demand, we cannot hope to pull ourselves out of the downturn by just stimulating domestic spending. Thus, the main focus of the Government's response is on reducing business costs in Singapore, with a view to sustaining our competitiveness. The Committee on Singapore's Competitiveness is undertaking a comprehensive review of measures to reduce business costs decisively and its recommendations will be ready by the end of the year.

The following Question stood in the name of Dr Wang Kai Yuen - 10. To ask the Minister for Communications whether the Government will consider refunding in cash the scrap value of a car being scrapped.

Question No. 10, Sir.

Mr Speaker, Sir, the Preferential Additional Registration Fee (PARF) scheme was introduced in 1975 as a concession to encourage timely replacement of cars, so that our car population remains young and roadworthy. The concession is given in the form of a rebate that can be used to offset the Additional Registration Fee (ARF) of a new car. The Government has considered refunding the PARF benefit in cash but decided against it. This is because it creates a potential cash liability in the Government's budget. A large amount would have to be set aside to ensure that there would be sufficient funds to meet the liability, in case many owners de-register their cars at the same time. This amount would have been better allocated for other worthwhile expenditure, instead of being locked up as a contingent liability. The Government is aware that with the current economic situation, some car owners are not getting the full benefit of the PARF value. The Government has therefore decided to allow greater flexibility in the use of the PARF certificate. We will: a) Allow the PARF certificate to be used to offset the various one-time upfront vehicle taxes and fees, namely, the ARF, the COE and Registration Fees (RF), at the point of registration of a new car. b) Allow the use of more than one PARF certificate per car, and conversely allow the PARF benefits to offset the ARF, COE and RF of more than one new car. c) Extend the validity period of PARF certificate from the current 6 months to 12 months. The extension of the validity period of all unused existing PARF certificates will be with immediate effect. The other measures will be implemented from 1st November 1998 after the computerised vehicle registry system is amended. LTA will announce details of these measures shortly.

I would like to ask the Minister whether he thinks it is fair for the Government to budget for revenue from COEs and the import tax of cars but at the same time it cannot budget an amount to pay back the scrap value of cars in cash.

I think the Member does not understand the concept of PARF. It is not a question of fairness. It is a policy measure to encourage car owners to scrap their cars before 10 years. It is a concession. It is not a deposit that people have to put with the Government and before 10 years, if they scrap their car, they are going to get this amount back. That is the first point. The second point is that in terms of prudent financial budgeting, we must provide for a contingent liability because in the case of people wanting their money back, we must be prepared to give it to them, if we decide to give back in cash. You could argue that in the case where there is the same number of people registering new cars and the same number of people scrapping their cars, that the money from PARF can be offset by ARF. That may well be so now. What happens if we have a situation, one could argue that it is an extreme situation, where everybody wants to scrap his car but nobody wants to register new cars? You can say that is extreme. What happens if it is close to that situation? Do you know how much money the Government would have to set aside? Billions of dollars. Why don't we want to do that? Because every cent that is put into contingent liability is money that cannot be used for other worthwhile purposes. So we recognise the problem but we think this is a better and more practical and safer way to solve the problem. The measures that will be implemented will actually make the PARF certificate more valuable and even in these extreme economic conditions, people will be able to make full use of the PARF certificate.

Would the Minister make an exception, particularly for those who are retiring or retirees above the age of 65? Would he consider alternative measures for them?

What has he in mind? If we have a policy, we should have a policy that applies to all. Whether it is for retirees or not, that is a separate matter.

But in keeping with the policy to take cars off the road, retirees do not want to drive any more. Would the Minister consider their case for cash payment?

With the new measures, it is not too difficult for the retirees to be able to redeem their full cash value.

asked the Minister for Communications (a) how much has been spent on implementing the Electronic Road Pricing (ERP) System so far; (b) how much will be the annual operating cost of the system and how it campares to the annual operating cost of the old manual system; and (c) in terms of revenue per month, how much is collected under the ERP system compared to the sale of monthly and daily coupons under the old system.

asked the Minister for Communications whether his Ministry will consider lowering the Electronic Road Pricing rates for commercial and industrial vehicles so as to reduce business costs in Singapore.

asked the Minister for Communications whether his Ministry will consider (i) reducing road taxes or other statutory charges for private and goods vehicles; and (ii) reducing/adjusting the Electronic Road Pricing charges for optimizing traffic flows, in order to reduce business costs for businessmen and individuals.

Mr Speaker, Sir, may I have your permission to take Question Nos. 11, 12 and 13 together as they are related?

Yes.

Sir, let me first reiterate the objective of the Electronic Road Pricing (ERP) System. It is to keep our roads free-flowing, in order to reduce the overall cost of transporting goods and people. It does so by using price to spread traffic on our roads evenly throughout the day. The purpose of ERP is not to generate more revenue. That is why, as part of the implementation of the ERP, we have reduced the upfront and annual costs of vehicle ownership. Reducing upfront taxes/ERP rebates/Phasing-in ERP charges To answer Mr Chay, under the new vehicle tax structure that has been implemented since 1st April this year, upfront taxes such as Registration Fees (RF) and Additional Registration Fees (ARF) had been reduced drastically for the majority of vehicles. For example, the RF for heavy goods vehicles was reduced from $14,000 to $140 (99%). The ARF for tourist coaches was reduced from 55% of OMV to 5% of OMV, resulting in savings of about $28,000 per vehicle. In addition, most vehicle owners enjoyed savings from reduction in their annual road tax or diesel tax, ranging from an average of $280 per year for car owners to a few thousand dollars for goods vehicles and buses. We are also giving ERP rebates to motorists over the next few years, starting with $200 per PCU for the first year of ERP implementation starting 1st September this year. For those motorists who do not need to or decide not to pass through ERP gantries, and these motorists are in the majority, this rebate is a bonus. To help businesses adjust to the ERP system, we have phased-in the rates for taxis and commercial vehicles over the next four years. Taxis are currently levied one-third while commercial vehicles pay only one-quarter of their respective ERP rates. The entire package of road tax reduction and ERP rebates, not taking into account revenue from ERP, will save motorists and businesses about $1.5 billion over the next five years. Cost/revenue of ERP System Mr Lew asked about the cost of ERP. The development and implementation of the ERP system cost about $213 million. This includes the cost of fitting the In-vehicle Units (IUs) onto 653,000 vehicles during a 10-month long IU fitting exercise. The annual cost of operating the ERP system is about $9 million. The manual Area Licensing Scheme (ALS) and Road Pricing Scheme (RPS) cost $17 million per year, mainly in manpower cost. While the primary objective of ERP is not cost reduction per se, nevertheless, it is less labour intensive, and therefore more cost-effective in the long run. In terms of revenue, the Government is collecting less from the ERP than from the old system. In September 1998, revenue collection from ERP was about $6.6 million, which is 23% less than the average monthly revenue of $8.6 million under the old system. ERP implementation The implementation of the first phase ERP since 1st September 1998 has led to a significant improvement in traffic conditions within the CBD. Traffic volume entering the Restricted Zone has been reduced by about 24%, while traffic conditions on the ECP and PIE have also remained good. However, on the CTE, traffic congestion has worsened, with average traffic speed falling to 35-50 kph, which is below the optimal level of 50-55 kph. This is primarily due to the substantial increase in the number of taxis and commercial vehicles using the CTE . To fully realise the benefits of the ERP system, we must ensure that rates are set such that roads and expressways are neither overly congested nor under utilised. If so, then adjustments to the ERP rates will have to be made to achieve better traffic conditions. Over time, traffic conditions will also change. ERP rates must respond accordingly. To make full use of the flexibility of the ERP system, reviews of traffic conditions will be carried out regularly and rates adjusted, if necessary. LTA has noted that the traffic patterns in the CBD and expressways have stabilised. It is currently reviewing the rates to bring about more optimal use of the roads. Where and when the roads are under-utilised, ERP rates will be lowered. Conversely, where and when the congestion levels are unacceptable, the rates will be adjusted upwards. LTA will finalise the changes in the ERP rates and announce the details soon. Cost-cutting measures Finally, in response to Mr Cyrille Tan, let me stress that we must not mix the objectives of ERP with that of the cost cutting measures that Government is implementing to help business. With the ERP, we can rely more on usage measures to manage traffic and this will allow us to further reduce upfront taxes like ARF. Indeed, the sooner and the more fully the ERP system is implemented, the more leeway the Government will have to reduce these statutory charges on vehicles, and hence the overall cost of owning vehicles. But let me end by saying that the greatest contribution of the ERP system really is its ability to keep our roads free-flowing, in an efficient and effective manner. We take our traffic conditions for granted. Yet, many cities around the world are grappling with the problem of congestion and the costs it imposes on their economies and their societies. The ERP system that Singapore has put in place after many years of planning and implementation has been acknowledged and recognised by international traffic management experts and policy makers as an effective and fair way to solve the problem of congestion. So, let me take this opportunity to acknowledge the efforts and the contributions of all those responsible for successfully and smoothly implementing the ERP system, especially the contractors, the media, the staff and all motorists for their understanding and cooperation.

The Minister has said that the CTE has become more congested. What is the Government doing about it?

Sir, we have just spent the last eight years trying to solve the problem of congestion through ERP. I think the CTE problem is a unique one which has to be tackled specifically because the other two expressways are not so congested. LTA will be looking at this in closer detail in terms of the types of vehicles using it and the times they are using it. LTA will then make the necessary adjustments to ERP rates in order to smoothen the flow.

The problem is probably due to too many COEs being released. There are too many cars on the road. That is why you are getting congestion.

Sir, I am glad to hear the Member talking about car population control as one of the ways to ease congestion on our roads. Because that is precisely what we are doing. We are using the COE system as well as the ERP system to control congestion on our roads. One or the other alone will not do. So ERP alone is not going to solve the problem. COEs plus ERP will solve the problem. I would like to thank the Member for re-emphasising that point. But having said that, the total number of COEs being issued is based on very rough global estimates of how many cars Singapore roads can accommodate. As to where and when these cars travel, I think it is not possible for us to determine how many COEs should be issued for people living in Potong Pasir, for example, because they happen to be congesting the CTE. But I think the ERP will solve the problem of localised congestion, whether it is on the CTE. So if we use both these measures judiciously, COEs to control overall car population and ERP to control localised congestion, I think we will be able, most of the time, to control the congestion problem in Singapore. I say "most of the time" because there will be other situations when there are traffic jams due to accidents, bad weather and so on, which are beyond our control.

Sir, I would like to ask the Minister whether he would agree that the ERP system will actually transfer loading of the transportation cost from the non-business sector to the business sector. In the process, actually the cost to the business sector is increased, which in turn is against the current Government's intention to lower overall business cost for the business sector.

Sir, I dispute that entirely because, as I have indicated, for the bulk of the industry, their transportation costs have actually been lowered. There is a small sector of the business community which depends on very frequent use of ERP-controlled roads which will see an increase in their transportation cost. I think it is inevitable in a situation like this that there will be some businesses which cannot lower their transportation cost, even if they try to change their travel patterns, but these are, I submit, in the minority. The indications are that the bulk of businesses are actually saving and some of them are saving very substantial amounts. So, the question really is: what do we do with the very small percentage of businesses which are affected by this higher business cost? I would say that the first thing that they would have to do is to relook at their business conditions and see whether there is a way for them to reduce cost by making less use of ERP-controlled roads, by changing their travel patterns, by relooking at the total logistics system. But we cannot change the entire system just because a small percentage of the business community is adversely affected. Indeed, the fact that ERP is successfully keeping our traffic flowing smoothly is benefiting the overall business community. If we were to ditch that, how is it going to help Singapore, when roads are heavily congested, when people take inordinate amounts of time to get to work or meetings, when goods are stuck on the way to the port and to the airports or on their way to the factories? I think the cost to Singapore will be much, much higher, especially the cost to business.

Sir, I understand that since the implementation of the ERP, there is a shortage of taxis in the CBD. For businesses like taxis and courier companies, I do not know whether it is possible for the Minister to impose a certain maximum deduction from the ERP cashcard per day, so that we cap their cost for entering the CBD per day. This would help them to contain their cost. The second question is that since the ERP started, the ring roads around the CBD like Scotts Road, for example, which is within my constituency, have been really congested during the daytime whereas Orchard Road, which is just around the corner, is empty. It appears to me that actually there is a bit of mispricing problem. Perhaps during the off peak hours and during the day -

Order. Mr Lew, what is your question?

Sir, I would like to ask the Minister to perhaps consider changing the pricing of ERP during off peak hours so that at least the traffic along the ring roads will be evenly spread out.

As far as pricing is concerned, as I have indicated, LTA is now reviewing the traffic flow in the CBD area as well as along the expressways and, if necessary, adjustments will be made. In so far as capping the maximum amount of ERP rates is concerned, to do that would be defeating the purpose, because the idea of charging per pass is really to let individual motorists who are passing through the gantry take considered decisions as to whether they wish to make that number of trips or not. As I indicated earlier, there will be some businesses including taxis which will be making multiple passes. But for taxis, if they pass through with a passenger, the passenger is the one who is paying. And to help ease in the implementation, we have kept the rates to one-third. So they are actually paying one-third what the car should be paying. As for the times when they go in without a passenger, I think this is for the taxi drivers and the taxi companies to decide how they wish to resolve the problem, because since 1st September fares have been deregulated and they are now free to reconfigure the tariff structure to resolve this problem.

asked the Prime Minister whether a voting system will be implemented for eligible voters who are overseas and, if not, why.

Prime Minister): Sir, our existing voting system is simple, transparent and effective. On average, 95% of eligible voters cast their votes in elections. The system achieves foolproof voter verification. Except for the blind, every voter marks his ballot paper himself. There is complete transparency, because candidates and their polling and counting agents can be physically present to witness the voting and vote counting. There is also absolute security of the cast ballots, from the polling station all the way to the counting table. The Elections Department has studied the issue of overseas voting since 1983, and examined how other countries do it. There are various methods - voting in overseas missions, electronic voting, postal voting, or proxy voting. However, each has limitations and operational difficulties. We only have 26 overseas missions. Many electors will not live or work close enough to one of them to go there to vote, especially in a large country like China or the United States. Electronic voting looks attractive, but at present still has fundamental technical deficiencies. Elector verification is not foolproof, and there is no trail or hard evidence like a marked ballot paper to refer to in case of a dispute. Overseas voters are a very small minority. Elections Department estimates that only 3.5% of electors are unable to vote because they are overseas. It is therefore better not to complicate the voting system for the sake of this small number of electors. However, the issue is not just numbers or operational difficulties. The 3.5% of Singaporeans who are overseas are away for various reasons. 1.4% are away on holiday and 0.7% are studying overseas. The remaining 1.4% are working or living abroad. Some are on overseas postings, perhaps working for the Government or for Singapore companies in their regionalisation efforts. But others have emigrated. They may be waiting to take up foreign citizenship, or they may have gone abroad many years ago and lost touch with events back home, even though they have not given up their Singapore passport. The case for overseas voting is stronger for some of these groups than for others. But, in practice, it is difficult to distinguish between them. So we have kept the requirement that a Singaporean must return home to vote, as a practical test of whether he still maintains his links to Singapore and will make the effort to exercise his duties as a citizen. Sir, the Government has therefore decided not to implement a system for overseas voting. However, it recognises that this is not a static situation. With globalisation, more Singaporeans will work abroad, and the case for overseas voting may change. We will therefore review the issue from time to time.

Sir, I want to know the number of estimated overseas voters. The Minister quoted the percentage.

Sir, let me take the 1997 general elections and using the percentage I mentioned earlier, about 31,000 out of the 765,300 electors did not vote in the 1997 elections. Among them were about 9,300 who were elderly infirm or those who were sick and unable to vote. About 4,340 of them were studying overseas; about 8,680 of them were holidaying abroad and about 8,680 were either working or living abroad, more or less permanently. So if the Member is talking about people who are working overseas or staying overseas permanently, the number is about 8,600.

Sir, would the Minister consider the use of exit voting, given that canvassing for polling is only nine days and people may already have work or other commitments to be abroad?

Sir, the Elections Department has also studied exit voting, in other words, people going overseas and they want to vote before they go away. I think there are also other complications and we have decided to stay with the present system. Polling Day is fixed. If a person decides to make a trip abroad because he cannot change the date, so be it. He goes. Otherwise, he could make an alternative arrangement, which is to stay at home and vote on Polling Day.

asked the Deputy Prime Minister and Minister for Defence how the Malaysian Government's decision to terminate various arrangements governing the use of Malaysian airspace by the Republic of Singapore Air Force (RSAF) will affect RSAF training and operations and Search and Rescue, and what measures were taken up by the RSAF to deal with this development.

asked the Minister for Defence, with the restrictions imposed on the usage of Malaysian airspace, what measures are being considered by the SAF to (i) work around the restrictions; and (ii) improve on their search-and-rescue operations.

(for the Deputy Prime Minister and Minister for Defence): Sir, may I have permission to take Question Nos. 15 and 16 together?

Yes.

Thank you, Sir. Sir, Malaysia's decision to terminate the various agreements and arrangements have not affected the RSAF's training and operations, but it will have an adverse effect on search and rescue operations. On 17th September this year, Malaysia informed the Ministry of Defence that it was terminating various agreements and arrangements governing the RSAF's use of Malaysian airspace. Their decision came into effect on 18th September, giving us less than 24 hours notice. This was a unilateral decision by Malaysia. We were not given prior notification nor consulted. Malaysia's decision affected the agreements and arrangements covering: (1) RSAF flights through South Johor to the South China Sea Training Area; (2) RSAF training within Malaysia's Low-Flying Area; (3) RSAF navigational training flights in Peninsular and East Malaysia; (4) RSAF aircraft taking off from Tengah Airbase using South Johor airspace; and (5) The combined Search and Rescue operations and exercises.

MINDEF and the SAF plan for all contingencies and Malaysia's decision has not curtailed the RSAF's training and operations. When the decision was conveyed to us, the RSAF immediately implemented alternative arrangements. Today, the RSAF conducts its training and operational flights with the same frequency and tempo as before. RSAF aircraft proceeding to their training areas no longer transit through Malaysian airspace but take alternative routes. In doing so, we have not compromised on safety. The RSAF has been working closely with CAAS to ensure the proper sequencing of RSAF flights and civil air traffic so that air safety is not compromised. We have also minimised the number of RSAF flights over built-up areas. However, the adjustments in flight paths could mean some inconvenience to those living on both sides of the Johor Straits as more aircraft now have to fly over Singapore's territorial waters in the Straits. In fact, several of the arrangements which Malaysia terminated had been designed to reduce the aircraft noise level. The RSAF does not depend on any one country for its training needs. The RSAF has established extensive overseas training arrangements. These have provided valuable training areas and also the opportunity to train and exercise with other highly professional air forces. We will continue to look for new training areas in other parts of the world. In addition, we have invested heavily in advanced training simulators. We will continue to conduct more sophisticated training and exercises and make more extensive use of simulators to ensure that the RSAF's operational and training effectiveness continues to be of the highest standard. MINDEF would like to clarify some of the misconceptions about the agreements and arrangements covered by Malaysia's actions. First, the arrangements did not allow RSAF aircraft a free run of Malaysian airspace. For safety and other reasons, the arrangements - 1.30 pm

Order. It is 1.30 pm. End of Question Time. [Pursuant to Standing Order No. 21(3), Written Answers to Question Nos. 15-20, 22, 24-26, 28-29 and 33-47 are reproduced in the section,"Oral Answers To Questions Not Reached (Cols. 1125-56). Question Nos. 21, 23, 27 and 30-32 have been postponed to the next sitting of Parliament.]

"to amend the Supreme Court of Judicature Act (Chapter 322 of the 1985 Revised Edition)", presented by the Minister for Law (Prof. S. Jayakumar); read the First time; to be read a Second time on the next available sitting of Parliament, and to be printed.

"to amend the Civil Law Act (Chapter 43 of the 1994 Revised Edition) and to make consequential amendments to certain other Acts", presented by Prof. S. Jayakumar; read the First time; to be read a Second time on the next available sitting of Parliament, and to be printed.

"to establish a new law for trade marks, to enable Singapore to give effect to certain international conventions on intellectual property and for matters connected therewith, to repeal the Trade Marks Act (Chapter 332 of the 1992 Revised Edition) and to make consequential amendments to certain other written laws", presented by Prof. S. Jayakumar; read the First time; to be read a Second time on the next available sitting of Parliament, and to be printed.

"to provide for the protection of geographical indications in relation to goods", presented by Prof. S. Jayakumar; read the First time; to be read a Second time on the next available sitting of Parliament, and to be printed.

"to amend the Estate Duty Act (Chapter 96 of the 1997 Revised Edition)", recommendation of President signified; presented by the Minister for Finance (Dr Richard Hu Tsu Tau); read the First time; to be read a Second time on the next available sitting of Parliament, and to be printed.

"to amend the Accountants Act (Chapter 2A of the 1988 Revised Edition)", presented by Dr Richard Hu Tsu Tau; read the First time; to be read a Second time on the next available sitting of Parliament, and to be printed.

"to amend the Currency Act (Chapter 69 of the 1998 Revised Edition)", presented by Dr Richard Hu Tsu Tau; read the First time; to be read a Second time on the next available sitting of Parliament, and to be printed.

"to amend the Retirement Age Act (Chapter 274A of the 1994 Revised Edition)", presented by the Minister for Manpower (Dr Lee Boon Yang); read the First time; to be read a Second time on the next available sitting of Parliament, and to be printed.

Order for Second Reading read.

Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time." The Bill before the House mainly deals with the transfer of the undertakings and employees of POSBank and Credit POSB to DBS, the dissolution of POSBank and the repeal of the Post Office Savings Bank of Singapore Act. It transfers POSBank's existing property, rights and liabilities to DBS, excluding a list of assets and liabilities and makes the necessary arrangements for the transfer. The Government announced the privatisation of POSBank and its acquisition by DBS for $1.6 billion on 24th July 1998. DBS will pay for it with new non-voting convertible DBS preference shares. I would now take the House through the rationale underlying the privatisation of POSBank. Rationale for privatisation POSBank was set up in 1972. Its specific purpose was to promote thrift and saving among Singaporeans. POSBank has fulfilled this function very well. The objective of encouraging savings remains valid today. However, the banking environment has changed substantially since POSBank's inception more than 25 years ago. The large mass of depositors now have access to the local retail banks, which are able to offer them a full range of competitive services. Not being a commercial bank, POSBank cannot offer the full range of services such as fixed deposits, foreign currency deposits, asset management services and so on. At the same time, it is facing tough competition in its core business, ie, its deposit-gathering business, which it is not in a strong position to counter. POSBank's depositors have become more sophisticated. As other banking avenues have opened up, they are much more aware that they may be better served elsewhere. For instance, when the gap in interest rates on savings deposits between POSBank and commercial banks increased last year, these depositors were quick to move their deposits to the commercial banks. Government has concluded that the idea of a limited function savings bank is largely out of step with the times. There can be a continuing role for POSBank, but only if it is competitive with full banks. We believe that enabling it to compete as a full bank via merger with DBS is the best way forward. This would enable Government to lift the fetters that have constrained its operations and distorted market signals and consumer behaviour. It is also useful to note that most developed countries, and many of our Asian counterparts, no longer operate post office savings banks or national savings banks. The list includes USA, Australia, New Zealand, Hong Kong, Taiwan, and Indonesia. Norway and Germany's national savings banks are also being privatised, with commercial banks likely to take control. In the region, only India, Japan and Thailand still operate national savings banks. Transitional arrangements The tax exemption on POSBank deposits is one example of how the constraints on POSBank, built up over time, had led to a situation where our regulations increasingly risked losing their original purpose. The reason for granting POSBank's tax exempt status was to encourage small depositors to save. However, over the years, personal income tax rates have been brought down to such a degree that nowadays, most small depositors no longer pay any income tax, and so do not benefit from the tax exemption. POSBank's data show that some 85% of their depositors do not pay income tax. The tax exemption therefore ended up benefiting only 15% of POSBank's depositor base, primarily the large depositors with high income and high marginal income tax rates. This is not the group that the tax exempt status was intended to help. We are therefore no longer serving the original policy intent. To compound the problem, Government had imposed constraints on POSBank's investment and lending activities in the belief that POSBank's tax exempt status should not unfairly disadvantage the commercial banks. This led to product limitation, low savings interest rates, and a lack of alternative uses for its deposits. This in turn resulted in Credit POSB pricing its mortgages below market rates, in its drive to gain market share within POSBank's limited scope of business. In effect, the good intentions of the tax exempt status had resulted in Government providing subsidised mortgage financing for private housing. This was not Government's intention. There is little public policy justification for it. The Government recognises that these market distortions have to go. However, to ease the burden of adjustment in this privatisation exercise, we are taking care to ensure that painful disruptions for POSBank's depositors and borrowers are minimised. We therefore set out a transitional arrangement to help all parties adjust over time. For depositors, the removal of tax exemption will be phased over a period of six years; it will be entirely removed only from 1st January 2005 onwards. To ease the burden of adjustment for existing borrowers, the Government has asked DBS to maintain the differential gap between POSBank and DBS mortgage rates of between 1.5% and 1.75% until the end of 1999, and thereafter to close it gradually over a three-year period. This four-year transition is more than fair. No better alternative to merging with DBS A viable future for POSBank requires it to be competitive with full banks. But the financial services environment today is a very tough place. With rapid developments in the variety and complexity of financial products, banks can only compete effectively by having the strength to carry increased market and currency risks, and larger asset size to reap economies of scale. This is why the Government has been encouraging our local banks to consolidate. Within this framework, it makes most sense for POSBank to merge with a successful local bank than to strike out on its own. This route would best enable it to serve its customers better. This would of course also help set the pace for the other banks. DBS was a natural choice as the most suitable partner for POSBank. Since the Government is a major shareholder of DBS, it can be more confident that DBS will preserve the spirit of POSBank's social responsibilities. The merger will at the same time significantly strengthen Singapore's banking sector for international competition. Specific provisions of the Bill I shall now proceed to explain the specific key provisions of the Bill, which are: (a) Clauses 3 and 18: Transfer/Dissolution dates Instead of the usual practice of dissolving the statutory board and simultaneously transferring all the assets and liabilities to the successor company, the transfer date and the dissolution date will be distinct. This is to allow Government to comply with Presidential safeguards on the protection of reserves, which will be covered in the Second Reading speech on the Constitution of the Republic of Singapore (Amendment No. 2) Bill. (b) Clause 4(3): Excluded assets and liabilities DBS will not be taking over all the undertakings of POSBank in this transaction. There will be some assets and liabilities left with the Government, including the POSBank Tower and some equity and bond investments. DBS has asked the Government to retain POSBank Tower, which is still under construction, as DBS has no need for another large Headquarters Building. The equities and bonds held back by the Government are to enable DBS to comply with section 31 of the Banking Act, which requires that the investments of a bank should not exceed 40% of its capital funds. The assets retained by Government amount to about $1 billion. The list to be specified under this clause spells out the assets and liabilities that are being retained by the Government; all other assets and liabilities will legally be transferred to DBS. (c) Clause 7(7): Supplementary provisions on disclosure of information The secrecy provisions contained in section 47 of the Banking Act, which does not apply to POSBank prior to the transfer, forbids banks to reveal any information on their customers' accounts, unless, among other conditions, the customer or his personal representatives had given written permission to do so. Therefore, POSBank's terms and conditions for its accounts as well as Credit POSB's loan agreements, unlike the commercial banks, generally do not contain disclosure authorisation clauses. The POSBank accounts, including Credit POSB's loan portfolio, to be transferred to DBS will be subject to this provision. Like most banks, DBS obtains its customers' written consent as a standard feature in its account documents and loan agreements. To put POSBank customers on the same footing as existing DBS customers, DBS can write to every POSBank customer to seek written permission, but it would be obviously impractical to do so. There is no guarantee that these customers will agree or even bother to reply to give consent. This clause therefore allows DBS to disclose information only for the administration of POSBank customers' accounts, and only insofar as it is in line with DBS' existing practice. I should point out that in practice, this clause is not a material change because POSBank has had, and has been disclosing such information to third parties all these years where required in the normal course of its work. The proposed amendment essentially ensures that DBS would be able to administer the POSBank accounts after the transfer, in a manner which complies with the Banking Act and with minimal inconvenience to POSBank's 3 million customers, so that the transfer of POSBank to DBS is as seamless as possible. (d) Clause 8: Staff provisions. As with other privatisation exercises, all POSBank and Credit POSB staff would cross over to DBS at existing terms and conditions of service. DBS has stated that, as far as possible, it will retain and re-train POSBank staff, to provide them with better prospects and broader career opportunities. (e) Clause 15: Consideration shares. DBS' purchase consideration would be offered to the Government in the form of non-voting preference shares, instead of ordinary voting shares. These preference shares enjoy the same dividend rate as ordinary shares. They will not be listed on the Stock Exchange, but would be convertible to ordinary shares which can then be sold. However, the Government has committed not to sell the shares until 2002 at the earliest. The preference shares will be convertible on a 60(Local):40(Foreign) ratio so as not to upset the existing Local/Foreign tranche balance. (f) Clause 18: Repeal of the POSBank Act. This Bill will repeal most sections of the existing POSBank Act with effect from the Transfer Date. However, certain sections of the Act will still be retained, and will only be repealed upon POSBank's Dissolution Date. This is to allow POSBank to remain as a shell statutory board to see through the disposal of its residual assets and to finalise any management issues remaining. (g) Clause 19 and the Schedule: Consequential amendments to other laws. The Income Tax Act will be amended to allow for the extension of tax exemption on POSBank savings deposits, for both existing and new POSBank accounts. Consequential amendments are also made to other Acts. Sir, I beg to move. Question proposed.

Mr Speaker, Sir, the object of this Bill is to implement the Government's decision to allow DBS to buy POSBank. As explained by the Minister, this move to merge the two large Government-owned financial institutions is motivated by the desire to create a new super Singaporean bank to support and spearhead the plan to push Singapore as a regional financial centre. My view is that this objective can be supported. A larger, better capitalised Singapore bank will therefore have better resources to compete in the regional markets. Local depositors will also get to enjoy a wider range of financial services and facilities. However, the merger of POSBank with DBS will mean the dissolution of one of the most loved and trusted financial institutions in Singapore. The POSBank has been a symbol or icon of the virtue of thrift in Singapore. We lament the passing of this powerful icon of thrift for Singaporeans. We can recall the days in the seventies when as young students, we were encouraged by our schools and parents to save a little of our daily pocket money and deposit them into POSBank. Over the years, we have learnt to save and put out trust in POSBank. The merger of DBS and POSBank would mean that a larger bank will serve the local depositors. But I would like to point out that a larger bank does not necessarily equate to better facilities or a safer bank for depositors. Allow me to elaborate. No doubt there will be better resources and with more advanced computer technology, the enlarged DBS can create more services and facilities. However, many of the original POSBank customers, especially the older folks, would not go near an ATM and they would prefer their monies to be put and recorded in POSBank passbooks, instead of holding them as passcards which they cannot read and see. The POSBank customers are also quite satisfied with the service provided by the friendly smiles of the POSBank tellers and the 133 conveniently located branches. This large pool of housewives and older folks do not need better services. They are indeed very happy enough with the present services of POSBank. It also does not mean that a super bank is a safer bank. Super banks can make super mistakes. There were instances of large banks around the world, eg, in America, Europe, Japan, where they have to be rescued by the government on the brink of collapse. Hence, many of our local depositors see the POSBank, which is Government-owned and Government-backed, as a AAA credit-rated savings bank that they can trust fully. Now the enlarged DBS may not give them the same sense of security. POSBank depositors do not mind the slightly lower interest rates in return for better security and better convenience, and they can sleep well. As reported in the press, DBS' acquisition of POSBank has raised two main concerns. One is the possibility of higher home loan interest rates and the loss of the Government's guarantee on deposits which POSBank offers. The Minister has just a moment ago explained how DBS will take certain measures to alleviate the above worries of depositors. I hope the Minister can do more.

Sir, the Post Office Savings Bank is an institution in Singapore which is synonymous with saving. Saving is, of course, a virtue which the State should inculcate among its citizens. The State wants its citizens to save. That is why it gives incentives for people to save. The deposits in the POSBank accounts are tax exempt up to a limit. Almost every man in the street in Singapore in his lifetime has a POSBank savings account. But with the merger, the image of the POSBank as the people's bank shall be taken away. The tax exempt concession enjoyed by Singaporeans for the last 26 years shall also come to an end, except for those below 21 years of age and those who are serving National Service. This concession has very little benefit because most of those who are below 21 years of age have not started working. As for those serving National Service, their NS pay is very low. Hence, even if they save the whole of their NS allowance, the amount of interest accrued is very little. All in all, the tax concession given to those below 21 years of age and those serving NS is insignificant and not meaningful. The people who are most unhappy are the people who have taken loans from Credit POSB to buy homes of their own and future purchasers of property for their own use. The POSBank is a source of cheap funds for people who want to purchase a property. The difference of interest rate between that offered by Credit POSB and the commercial bank is about 1.5%. Credit POSB's rate is lower than the commercial banks' rate. In view of the high property prices, up to January of last year, the amounts borrowed by home purchasers are very high. The monthly interest paid is correspondingly high. The home owners have to seek loans from private commercial banks when the grace period given by Credit POSB ends on 31st December 2002, and they have to pay substantially more. It was reported in the Straits Times of 28th July 1998 that home owners had to pay between $78 and $103 more a month for every $100,000 loan when Credit POSB's cheap housing loans are phased out by 2002, provided interest rates remain the same. Those who have taken a 25 or 30 years' loan shall be the most hard hit as their monthly repayment amounts are higher. With the economic downturn and property values have also nose-dived, the banks are not going to show magnanimity. They want their customers to top up or make bigger monthly repayment amounts. In one Straits Times' report, a borrower was asked by the bank to pay $4,000 more each month. This may be an exception but such horror stories go to make people aware that once property prices fall, all kinds of hardship can occur. In the light of the bad economic situation, I would urge the Minister to extend the grace period of increasing the interest rates of Credit POSB to those of the commercial ones to six years rather than four years. As regards the purchase of POSBank by DBS, newspapers had commented that DBS got POSBank rather cheaply at $1.6 billion. The purchase price paid by DBS for POSBank is 1.37 times of its tangible asset value, and this is said to be below the norm, which is about 2 to 2.5 times for banks. I would like the Minister to comment on this. I would also like to ask the Minister why is the takeover of POSBank taking place at this point of time. Has DBS lost too much money in its overseas investments and needed help? We all know that POSBank has about $25 billion of depositors' cash. Is DBS eyeing that amount of money to bail itself out of its losses? I wish the Minister could enlighten us.

Mr Speaker, Sir, thank you for giving me this opportunity to speak on the Bill. I am in support of the Bill, although I have some reservations with some clauses which I will come to later. Sir, the proposed merger of the Post Office Savings Bank with the Development Bank of Singapore has drawn a great deal of public interest. This is because POSBank has been regarded as a national institution. Though the Act came into being only 25 years ago, the institution has existed for almost a century. Many of us remember starting our savings through the Post Office bank accounts. In the early days, we used to buy stamps and we would stick them to a book. Of course, new Members may not realise it, but this is the way we were encouraged to save. Sir, a larger question that the House would be interested in is that, in the interest of the financial institutions in Singapore and the banking industry in particular - I have mentioned this earlier and I reiterate - we should have not more than two to three banks, and the signal should be sent to the other banks that they should consider merging in the greater interest of financial institutions in Singapore. This trend is seen all over the world, in USA and Japan. In fact, recently in India, there was a report on banking. They too encourage merger. I think it is timely. Of course, I share some of the grievances Mr Chiam has mentioned earlier. I urge the Minister to consider the grace period. He has asked for six years. I think it is a fair figure. At least it should be more than four years. Sir, members of the public have asked why is there a need to have this merger now. Is it to bolster the DBS' financial position? The Minister should state the position to this House so that, once and for all, we have these doubts cleared in the minds of the public. The other question which many people have asked is why did Post Office Savings Bank go with DBS, and why not other commercial banks. This is like a marriage. You do not propose yourself to many suitors. You look for suitors and then decide. Both of them share a common background, being Government-linked companies. So I do not see any wrong. In fact, it is quite appropriate for these two institutions to merge and the public should take it in this spirit. I am sure when the other banks are going to merge, they would merge with those banks which are near and dear to them. They are not going to marry somebody who is not close to them. Sir, there is another aspect which I would urge the Minister to convey to DBS. I have been a user of Post Office Savings Bank, and the friendly service is something which I hope would be continued by DBS so that the man-in-the-street will find the service as good, if not better. On that note, I support the Bill.

Thank you, Mr Speaker, for allowing me to join in the debate on the Bill. Sir, it is indeed a pity to dissolve POSBank. POSBank has tremendous historical value, a long history, and a lot of people are associated with it. If you ask the account holders whether POSBank should be closed, I can tell you that they will say that it should be kept going. And I feel, at this stage, it is more important to see that we do not short-change the account holders of POSBank. Sir, there are about 3 million POSBank account holders and that is a tremendous following which we should recognise. We also know that POSBank has been making money and for a bank which has been making money, I do not understand the reason why it should be closed down. I could understand the need for amalgamation. But if we so decide to amalgamate, it is important to look at this transition to ensure that the 3 million account holders are to an extent supported and the transition does not bring serious impact on them and they will support the change. This is a crucial issue that the Minister should look into. I see that there are many people in the working class who are associated with POSBank and their sentiments and loyalty should be appreciated. I hope DBS will continue to provide the same service and maintain the relationship that has been established with many people in the working class who are account holders. POSBank, as Members know, has a very wide reach. It reaches the old, the young, and the housewives in the many housing estates. And I hope that with this amalgamation, DBS would be able to find the same reach to the neigbourhoods in the housing estates. There are concerns that the reach may not be there and it may cause dislocation, particularly to the older account holders, and the young ones too. POSBank has become very visible. If you move around the various housing estates, you will find POSBank in many locations, and that is the widest reach that we should look at. That would be the objectives for which banks should strive to meet and it is important to look at the dislocation it would cause as a result of this change. There are several implications that one needs to pay attention to. One is the service charge, ie, whether service charge to small account holders could be reviewed and whether DBS could be advised that the service charge would not be raised unnecessarily at the expense of the small account holders. Secondly, housing loan. It is very important to examine the housing loan issue because many of those who have taken housing loans with the expectation that loan changes would not be that dramatic. I personally feel that the terms of the housing loans of these people should be honoured. The agreement which they have entered with Credit POSB should be honoured by DBS itself, at least for a longer period. For these people, there should be no changes in loan terms which have been accorded by Credit POSB. That I think would be keeping in good faith with these people who have taken their housing loans with Credit POSB. The third area is to ensure that the banking service to ordinary account holders, particularly the old, young and children, would not be displaced as a result of these changes. I hope that would be taken into serious account in this transition. The Minister should ensure that DBS looks into the question of support for the ordinary account holders who have given well-established support over a long period of time.

Sir, I rise to support the Bill. I am pleased that, despite the trying times that our economy is going through, the Government has the foresight and determination to ensure that Singapore comes out of this crisis stronger and better able to meet the challenges of the changing world. The commercialisation of POSBank is timely as it forces our GLCs and our banking system to be more efficient, enabling the domestic market to employ capital more effectively so as to compete on the same footing as the larger players in the global market. We cannot afford to allow subsidies in the cost of capital to distort investment decisions of our GLCs or even purchase considerations of individuals financing their homes. Our GLCs would have to be able to make commercial decisions based on market realities so as to realise their full potential and not be molly-coddled by easy access to cheap funds. Similarly, cheaper access to credit from Credit POSB could have contributed to the present housing market over-shooting in the mid-1990s with the resultant effect being a drag on the economy and on the individuals. In specific, Sir, the resultant DBS-POSBank entity would have the capacity to undertake larger projects as Asia rebuilds itself and serves as a spur to encourage other Singapore banks to consolidate in line with the global trends in the financial industry. It is indeed critical that for Singapore to be a major financial centre, we should have the infrastructure in place and the underlying efficiency in our domestic banks and the capital markets to cater for this development. The sale of POSBank to DBS would serve as a catalyst and as a spring board for faster progress in these fields. There has been some disquiet over the specifics relating to the sale of POSBank to DBS. Most of the public concerns are with regard to the possible rise in the cost of servicing their Credit POSB mortgages. I am appreciative that the Government has mandated DBS to start re-pricing the mortgage rates to market levels only from the end of 1999 onwards over the next three years, as the Minister has explained. Effectively, this allows for a four-year transition period and presumably the Minister is assuming that economic recovery will happen, perhaps in the Year 2000, for this transition period to take place. By removing subsidies across all levels and benefiting the majority of POSBank depositors, the Government has indeed been very astute in nipping a potential problem in the bud. This could ensure that our financial system remains strong, our banks remain healthy and we can thus avoid the pitfalls of potential bank failures that are dragging down some of the economies in the region. However, given that there is no clear end to the current economic crisis, I want to ask the Minister whether it would be possible to have perhaps a caveat or provision put in place. That caveat or provision is that the present four-year transition period will hold, subject to a review at the end of 1999 whereupon, if the economic crisis worsens or deepens, and if economic recovery is further delayed, then extend the transition period accordingly, beyond four years, maybe five, six, seven or eight years. I believe this would alleviate some of the present concerns of the public over the commercialisation of POSBank as it would be a clear indication that the Government is prepared to be flexible should circumstances require. Further, whilst the Bill deals extensively with the transfer of business undertakings to DBS, there is no mention in the Bill with regard to the tenure of employment for employees of POSBank save to say that the existing employment contracts would be continuing under the DBS entity. Would the Minister consider it necessary to include provisions in the Bill for POSBank employees in order to safeguard their employment interests in this period of uncertainty, at least for a minimum period of one year, ie, would the Minister ensure that these POSB employees would not be retrenched for at least a period of one year following the merger of the two banks? Finally, the Minister has said that POSBank was offered only to DBS as the latter bank was the natural choice because of a common denominator - Government ownership. May I suggest that the Minister give a full explanation on this, because the concern of the public, the citizens at large, is that the Government could have obtained a higher price for POSBank through a more transparent and open tender system, and this will benefit the majority of the taxpayers. Would the Minister shed more light on this?

Sir, the Minister has given us a compelling economic case for the acquisition of POSBank by DBS. Liberalisation of the financial services sector under the auspices of WTO and information technology will redefine the nature of banking and the recent mega-mergers in North America and Europe are symptomatic of these changes. Therefore, an entity with the combined strength of DBS and POSBank will certainly be in a better position to compete in this brave new world of financial services. And that is why I support this Bill. Nothwithstanding, these forceful cerebral arguments, it is with a tinge of sadness and nostalgia that I join this debate. Indeed, the Minister's speech sounded much like a requiem for a national institution. POSBank, as many of my colleagues have already said, has been an indelible part of Singaporeans' life and it has offered a friendly and non-threatening face in what would otherwise be a cool, if not cold, world of banking. And this has encouraged many, including the young and perhaps those not so accustomed to the world of finance, to take up savings. The acquisition of POSBank by DBS begs the question how the Government can ensure that savings and thrift continue to be promoted amongst Singaporeans, particularly the young. One of the key lessons of the current regional economic crisis is the value of savings and the habit of thrift. We can argue that Singaporeans are more sophisticated but even in sophisticated economies, saving is not a necessary factor of their lives. It is important that we continue to imbue our young with these values. I do not mean to suggest that commercial banks do not do this but this is not their raison d'etre. After all, we do not hear commercial banks telling us or urging us to save for tomorrow because tomorrow is worth saving for. Sir, on the point of tax exemption and the liberalisation of mortgage rates, as I understand it, tax exemption will be completely lifted from 1st January 2005. Tax exemption on interest earned on POSBank savings deposits will continue on all deposits till the end of December 2001 and thereafter, it will be extended to the first $100,000 in the balance of each POSBank savings account depositor. This means that this merged entity will enjoy a subsidy of sorts from the Government till the end of 2004, albeit at reducing levels. On the other hand, Credit POSB's home loan mortgage rates will be allowed to gradually rise to competitive market rates from 1st January 2000. Sir, I wonder whether it is not possible for Credit POSB's mortgage rates to be sustained at current levels vis-a-vis DBS' commercial rates, at least until the first tier of tax exemption is removed on 1st January 2002. After all, I think the bank enjoys a certain subsidy and it seems out of sync that, on the one hand, the banks receive a subsidy which will be gradually removed but, on the other hand, the liberalisation of its mortgage rates is executed much earlier. I would appreciate it if the Minister could comment on this. I would also like to declare my interest as an employee of Temasek Holdings.

Mr Speaker, Sir, I rise to support this Bill. Nevertheless, there are some concerns which I would like to raise for the Minister's consideration in the implementation of the provisions of this Bill. The passing of the POSBank will be a social and historical milestone. Singaporeans will have many sentimental memories of POSBank, which has been the national savings bank for decades. Set up by the British in 1877, it was operated as an arm of the Post Office and intended to be the poor man's bank. The modern POSBank began on 11th July 1966 with an initial staff of 35 and became a statutory board in 1972. It played an important role in the shaping of Singapore as we see it today, particularly in amassing the small savings of individuals in the whole nation for the building of national infrastructure. As some of my colleagues have also pointed out, the POSBank was a non-intimidating place in the neighbourhood where those without very much money could go in to obtain banking services without fear of embarrassment, humilation or having to be sophisticated. The Bank's objective was clearly defined in 1872 as, "to encourage those in receipt of small incomes to practise economy by affording them a safe investment for small amounts at a fair rate of interest, and also of affording borrowers opportunities of obtaining loans at lower rates of interest than were procurable from other sources." According to the Post Office Savings Bank Act, which will be repealed today if the Bill is passed, the principal objective of the Bank shall be "to provide means for the deposit of savings and encourage thrift; to mobilise domestic savings for the purpose of public development ." The corporate policy of POSBank has been reaching a maximum number of people by providing services and incentives in a number of areas related to the promotion of the savings habit. Basic banking services are made easily accessible to the public and convenience to the consumer is a cornerstone of that policy, with branches and automated teller machines (ATMs) in practically every corner of Singapore and especially in the Housing and Development Board estates. As early as 1983 actually, the Government had already considered converting the POSBank into a full commercial bank. However, after a review, the plan was not proceeded with, as it was not in the national interest then. Throughout its history, the POSBank has been a key institution of our financial industry, innovating and pushing the development of services, such as the ubiquitous ATM we have now and the NETS card, when the commercial banks were cautious, reluctant or perhaps even apathetic to the use of new technology and services. They were able to see the wider national interest untrammelled by the desire of their shareholders to minimise risk and costs and maximise profit; and they had vast resources to implement their dreams. If one were to look at this solution that is proposed, we could actually view this as the final sacrifice of the POSBank for the national interest to make our Singapore banks fit to fight the wars that are coming up in the global economy that is broadening. But perhaps it is still necessary for some institution that could serve this role of a catalyst in the banking industry to prod and goad the other banks into doing things that they perhaps are reluctant to do for various reasons. The reasons for the acquisition of the POSBank by DBS have been mentioned by the Minister. Effectively, the Minister says that there are two choices: one is to amend the Post Office Savings Bank Act to give the Post Office Savings Bank wider latitude to offer full banking services; and the other is to merge with a commercial bank because in this world that we have now, size does matter. These objectives laid down by the Minister in his speech are laudable objectives, but this does not mean that the objectives of the POSBank I have enumerated earlier are irrelevant now. The POSBank may need to re-engineer itself in the national interest for the new millennium and the era of the international mega-banks. But we must find alternative sources of low-cost loans and safe investments for the millions of small account holders, the 92,000 small and medium enterprises and the 23,000 hawkers and other sundry shopkeepers and stallholders. For these people, the POSBank has met their needs very well and these are not very sophisticated needs and they see no reason to dissolve the POSBank. There is after all still a social objective that a national institution like the POSBank can serve, the social initiative of promoting thrift and saving. I urge the Minister to educate the public on the existence of the other financial institutions which we have and which I believe will be more than happy to move into the gap left by the POSBank. These are the institutions such as NTUC Income, NTUC Thrift and Loan Society and the numerous other thrift and loan societies, credit unions and cooperatives in Singapore. Alternative financial institutions like these should also be promoted, allowed to expand if need be, be given tax exemptions and the rules for their setting up liberalised so that the original objectives of the POSBank, ie, promoting thrift, savings, safe investments and low-cost loans for the small income earners, all these would remain possible in these troubled economic times. As to its impact on the employees of the POSBank, I am glad to note that clause 8 of the Bill provides that these employees will be absorbed into DBS on the same terms as they received in the POSBank. This is important as they had many of the benefits of statutory board employees which they will now lose with the merger if not for clause 8. There is another concern which is not reflected in the Bill and this relates to the down-sizing and possible retrenchment of the POSBank employees, as some of my colleagues in this House have mentioned. I hope the Minister will assure this House that no undue economic hardship will be laid on the shoulders of these employees. Besides retraining them for new jobs, perhaps a job placement service could also be initiated to assist in their transition. I laud the Minister for the various plans he has already put in place to phase in the changes such as higher commercial lending rates and the loss of tax exemption, and for gingerly balancing the national interest against the interest of the small account holders and small businessmen, so as to smoothen the unhappiness and sorrow at losing a key national institution which, in the public mind, has not lost its relevance yet. But I wish to call for more practical steps to allay the fears of consumers that they would soon be put in severe financial straits and be made bankrupt. One way to do this may be to allow the novation or assignment of the POSBank loans to selected thrift and loan societies where the circumstances permit it, rather than force all the accounts to be transferred to DBS. This gives the consumer the choice of the financial institution he wishes now to put his trust in. The future, Mr Speaker, Sir, is a frightening prospect, and even big banks in other countries have collapsed, as some of my colleagues have mentioned in their earlier speeches. I urge the Minister to ease the pain for the POSBank small account holders and employees. Ease them gently into the dark night that they face and give them a strong light to guide them through. 2.30 pm

Mr Speaker, Sir, I support the Bill. The acquisition of the POSBank came as a surprise to most Singaporeans. For the keen observers of the financial sector, this acquisition may have been anticipated once the Keppel Bank-Tat Lee Bank merger was announced. A merger of smaller banks and the bigger ones is also the new paradigm of the financial services review that is being spearheaded by Deputy Prime Minister. Given the global mega-merger of big banks, one cannot go against the trend if banks in Singapore are to survive. The merger of the Dutch POSBank with NMB Bank and subsequently with Nationale Netherland to form the ING group in Europe and the Travellers Group with Citibank in America are examples of this global trend. I discussed this subject with Dr Wang Kai Yuen, who is a board member of the POSBank since 1987, and he communicated to me many of his views, and I share his views. They are all very valuable. So some of the comments that I make here are also shared by Dr Wang. I have heard comments that the Government by selling POSBank has given up its role in promoting the habit of saving amongst Singaporeans. I do not agree with that as the promotion of the saving habit is already deeply enshrined in our CPF policy. To promote saving in the form of a savings account is a task that now rests on the shoulders of the private sector. In its public statements, Mr Dhanabalan, the Chairman of DBS, has said that POSBank will continue in this role by providing basic banking services at affordable charges. Indeed, for children, students and full-time national servicemen, these services will be free. Moreover, I would like to point out that the idea of privatising an organisation like POSBank is not new. There is a global trend, as more and more governments find it more efficient to focus on the business of the government while privatising other functions such as running their national savings bank. In the early 1980s, the idea of corporatising POSBank was actively evaluated. It received strong support from the management and staff of the bank. I believe this idea was scuttled when it met strong opposition from the local commercial banks who felt that a corporatised POSBank would provide unfair competition. Most Singaporeans, on first hearing of the acquisition of POSBank by DBS, lamented the demise of POSBank. Paradoxically, this is also the strongest endorsement of the Bank. POSBank has been relentless in its pursuit to provide outstanding and convenient service to all its customers, including the small depositors. From a discussion with Dr Wang, I learned that a third of POSBank's customers, including children, students and foreign workers, have deposits of $100 or less. In fact, over 90% of POSBank's deposit base is contributed by only 20% of the customers. Therefore, POSBank's accounts are being subsidised. Moreover, the cost of servicing these accounts has been escalating all these years, as costs of ATMs, staff and premises have gone up relentlessly. POSBank could not have gone on subsidizing such a large proportion of its depositors. The House might be interested to know that the Bank had been considering for some time the recovery of a portion of these costs from its customers. Some measures have already been taken, for example, GIRO charges on service providers and charge for coin exchange. More were being contemplated. As I have indicated earlier, whether POSBank is merged or not, the days of free services from POSBank were numbered. While the POSBank has been outstanding in providing service, it has not been able to match the commercial banks in providing its depositors with a better rate of return. This is so because the investment avenues open to POSBank were severely limited by the Ministry of Finance which is not surprising, because the deposits are guaranteed by the Government. To protect customers' funds, the investments had to be safe and these usually yielded lower returns. The interest earned by POSBank's customers is tax-free. To level the playing field, POSBank penalised its bigger customers by giving a lower interest rate for deposits in excess of $100,000. This is counter intuitive if the goal is to attract more customers with bigger deposits. This principle was laid down by the Ministry of Finance in 1978 and remained unchanged for nearly 20 years. Meanwhile, the environment has changed. Tax rates for individuals have come down. Taxes have gone up. What was considered a lot of money in the past is no longer that much today. Singaporeans have become more sophisticated in their banking needs. There are also more investment options open to them. Therefore, POSBank's two-tier interest rate structure was reversed in the earlier part of this year, the better reward, the bigger depositors. Not responding to changes would have been suicidal in today's most competitive environment. As a statutory board, POSBank has been constrained in its response to changes. The growing financial sophistication of Singaporeans and POSBank's limited product range has already reduced its market share of deposits. If this trend continues, the Bank's relevance in the lives of Singaporeans will diminish over time. One of the major complaints from Singaporeans regarding the acquisition of POSBank is the prospect of paying higher mortgage rates for their Credit POSB's housing loans. The merger agreement stipulated a time-table for the mortgage rates to move progressively towards the market levels. I spoke to Dr Wang who told me that the difference between the rate of Credit POSB and that of DBS today is between 1.25% and 1.5%. As the loan base of Credit POSB is about $7.6 billion, this could potentially mean an additional revenue in the region of between $95 million and $114 million per year for DBS if the rates were completely equalised. I mention Dr Wang here because he had to go to Hong Kong with DPM. Therefore, he is not in this House. So some of the points I have mentioned here were also his. Sir, those who have borrowed from Credit POSB, including Dr Wang himself, will feel the pinch of the higher mortgage rates. However, we should consider this fact. Most of the depositors of POSBank live in HDB flats. They obtain their housing loans from HDB. All the borrowers of Credit POSB are owners of private properties, like condominiums and landed-properties. Mr Fong Yong Kian, Press Secretary to the Minister for Finance, gave the following figures in the Straits Times Forum Page reply of 20th August 1998: "The average Credit POSB loan is $460,000. Out of the 10,900 granted in the last two years, 1,650 loans exceeded $750,000 or 650 exceeded $1 million." I agree with Mr Fong that there is no justification for the Government to provide these borrowers mortgage loans at below market rates. I think it is hard to argue the merit of maintaining the lower than market interest rates of Credit POSB which benefit private property owners and give a higher yield for their depositors who are largely HDB residents. There is an argument that lower mortgage rates help Singaporeans to own homes. But we must bear in mind that these Singaporeans are already in the higher income bracket. Sir, I share Dr Toh See Kiat's concern. Because POSBank is a statutory board it could place national interest ahead of commercial considerations in many of its operational decisions. For instance, it has always taken the lead to bring innovations and introduce IT to banking in Singapore. POSBank was the first local bank to computerise its savings accounts records, thereby paving the way for on-line banking. POSBank introduced GIRO to Singapore in 1974, and direct salary crediting as early as 1972. POSBank pioneered the concept of the self-service banking, being the first local bank to introduce the ATM in 1979, a passbook updating facility in 1993, and a cheque book dispenser in 1995. Even now, POSBank is piloting a three-in-one ATM which allows cash deposits and passbook updating in addition to cash withdrawals, all in one machine. In this way, POSBank is a prime mover of new banking innovations and performs national service. I am concerned that in future no banking institution will be playing this catalyst role. This is important. Unless we keep on harnessing technology to innovate and improve our productivity, we run the real danger of losing our competitiveness and not achieving our objective of becoming the premier financial centre in this part of the world. Sir, I would like to conclude by extending my deepest appreciation to the POSBank staff, past and present, who have built up the Bank from its humble beginnings to the pre-eminent position it enjoys today. We were all once POSBank's savers. I am concerned that this sterling service will not always be remembered by all Singaporeans they have served all these years.

Mr Speaker, globalisation is here to stay. The present crisis is only a correction to its unrelenting growth. Current oppositions to its progress are just aberrations. They will be smoothened out in due course. The process will roll along after this interruption. Hence, our policies are sound and we should stay the course. Singapore will in the future be merged more closely with the world financial system. Foreign banks and financial institutions will make their way here. Our banks and institutions must in turn venture abroad. The competition, both at home and abroad, will become more intense. Size will be a factor in the competition. For a population of just under four million, the number of local banks and financial institutions is too many. They are also small in comparison to those who come in from overseas. I therefore support the merger of DBS and POSBank, and hence the Bill standing before the House. However, it is important to note that this merger came about not because the POSBank is no longer viable. It is to prepare for the coming competition. POSBank is a relevant and useful institution to Singaporeans. It is thus important that the merger does not result in the disappearance of unique functions and activities that it provides to the people in Singapore. Let me now re-emphasise a few of them which several of my hon. colleagues in the House have already spoken on. POSBank is recognised as the bank of the ordinary people. Anyone, rich or poor, young or old, can open an account. You do not have to have a lot of money in the account. This is not how other banks operate. In recent years, many banks have openly discriminated against the less wealthy. If you do not maintain a minimum monthly average of typically a thousand dollars, a service charge will be levied. Their justification is that it is not profitable to provide such accounts. It is well-known that Singaporeans are a people who save their money. The POSBank, I believe, has much to do with Singaporeans having this good saving habit. No matter how much you have, you can squirrel them into your POSBank account. To make it easy for the people, POSBank branches sprout out all over the island. Over time, the amounts in these small accounts built up. Campaigns were developed at the young and adult population. I believe that profit is not the driving force underlying the operations of POSBank. Will this national effort go the way of the dodos if the profit motivation of banks takes precedence? Society will rue the day when this happens. Unfortunately, this harmful effect will only be seen in the long term. I can see another useful role the POSBank has played. Besides giving voice to the ordinary Singaporeans, it has also spurred the services the bank provides to the people. By providing a reasonable alternative to the commercial banks, this must have put a cap to the charges that they have imposed on their services. Due to the high quality of services the POSBank has provided, this must have spurred the other banks to also up their services. What will replace this benchmark with the merger? I would urge DBS to identify these unique functions and services of POSBank. These are strengths of POSBank. Those that are needed by the ordinary people and are deserving of preserving should be preserved.

Mr Speaker, Sir, I thank all the Members who have spoken in support of the Bill, especially Dr Tan Cheng Bock who, in fact, answered half the questions I intend to answer. I particularly join him in thanking the POSBank's staff for their sterling service over the years. The one feature which has been commonly raised by all Members here who have spoken today is the seeming loss of an icon, and there is some suggestion that somehow after the merger, POSB just fades away. I can assure Members that is not the case. The merger or the combination of these two banks achieves a very important objective. It is Government's policy to encourage the growth of strong Singapore banks, and this particular combination is a beginning, so that we have a Singapore bank which can compete effectively in the region and in the world. POSBank was chosen to be married to DBS because they have complementary strengths. POSBank has a very large retail network and extensive coverage. Therefore, it is an excellent retail bank serving a whole spectrum of small and large customers. On the other hand, DBS is a very strong commercial bank with strong corporate accounts. So the merger and the fit is excellent. And I can assure the House that it is not the intention of DBS - I hope they remember this - to make POSBank disappear. Instead, it will build on its strength to retain all the good features of POSBank in order to add to its attractiveness as a combined bank. Certainly the network, the ATMs, will be maintained and DBS has assured us that it will continue to provide services for the small depositors and indeed children up to 12 years, students up to 21 years and full-time National Servicemen will all continue to be able to have a POSBank account without a service charge. In addition, it is also undertaking to retain all POSBank staff on current conditions and there would be no redundancies. Of course, they cannot guarantee this over the long term, because conditions change. But there is no intention of letting anybody become redundant. I share his sentiments about the loss of an icon. It is indeed an institution which is so well known that you see it everywhere. But it is just the thought of an icon lost, because many features of the icon will remain, including the logo and the quality of service which POSBank has built up. Another question asked by Members was why Government selected DBS as the marriage partner instead of getting the best value by tendering the POSBank to all. The reason is that this particular merger did not start off with a purely commercial intent. We were not out to maximise the profits to the Government. The objective, as I have explained earlier, was to build on Government's wish to develop a strong bank in Singapore, and at the same time we wanted to ensure that the range of POSBank's services would be maintained as far as possible. Of course, over time, some things will have to change but, by and large, the best features will be maintained for as long as feasible. The combined bank, headed by DBS, will ensure that POSBank's social functions are retained, and this includes the provision of affordable banking services to small depositors. DBS has also agreed to phase down the mortgage rates currently extended to Credit POSB's borrowers over an extended period of time. The tax exemption features of POSBank will also be phased out over six years. These concessions will allow DBS to commit to the maintenance of POSBank's social function as part of the purchase and sales agreement. Some concern has been expressed as to why the tax exemption period should not be extended. I think six years is more than adequate - three years of tax exemption for all POSBank deposits followed by another three years of tax exemption for the first $100,000 of deposits. It is only by the year 2005 that all tax exemption is entirely removed. We cannot allow, of course, the combined bank to enjoy tax exemption indefinitely because it would be unfair to the other commercial banks. On the question of Credit POSB's mortgage interest rates which are now between 1.5% and 1.75% lower than commercial bank rates, we have said that Government's policy is not to subsidise purchasers of private property. Government subsidies for housing are extended through the HDB housing programme and this is unaffected by the changes in Credit POSB's mortgage interest rates. Dr Tan Cheng Bock has already quoted some published figures which show that the great bulk of the borrowings through Credit POSB is by people buying condominiums and private properties in the range of $460,000, going as high as $1 million. Persons with loans of this size are clearly not from the low-income groups and it is not Government's policy to continue to subsidise such loans indefinitely. The reason why they are currently enjoying lower interest rates is because of the special circumstances of POSBank in which restrictions on its investment opportunities have driven them to gain market share in the housing loan market by offering lower mortgage interest loans through Credit POSB. A phase-down period of four years is considered to be reasonable. The request for the phase-down to be extended from four years to six years, in case the downturn should go beyond the four-year period, would not be fair in that the four-year phase-down was agreed by DBS at the time the sales agreement was signed in July. Changing the terms now would impose an unfair new burden on POSBank. Furthermore, if the economic situation in Singapore should remain bad or even deteriorate after the four-year grace period, we would all indeed be in very serious trouble, in which case it is not just the Credit POSB's borrowers which Government needs to help but the entire Singapore population. So I think we will face that problem when we see it. I do not believe, therefore, we should vary the terms. I will now deal more specifically with the individual questions raised by Members, although some of these have already been covered by what I have said. Mr Leong Horn Kee wants to know whether the removal of Government's guarantee would mean that the new entity would be as safe as POSBank. Obviously, it cannot be as safe as a 100% Government guarantee. But, in practice, I should point out that no commercial bank has ever received a Government guarantee nor does it need to do so in Singapore. Singapore maintains a very tight supervisory oversight on its commercial banks and banks are encouraged to be very careful on their investments and ensure that the security of their depositors' funds is always adequately looked after. There is no reason for savers in the new bank to have concern over the potential for losses to their accounts. However, one issue which has not been raised, but I will mention here, is that the MAS is studying the possibility of introducing a limited form of deposit insurance for banks in Singapore to provide an added measure of protection for small depositors. This would be in the context of Government's intention to open up the domestic banking sector gradually to more foreign competition. The issue is a complicated one and we would not want to rush into it. But it is certainly an option we can consider. I believe that Mr Chiam has misunderstood the tax exemption scheme. The phase-out of tax exemption over six years applies to all depositors, not just to persons below 21 and national servicemen. However, post merger, children, students under 21 and full-time national servicemen are the three categories of customers who will continue to be allowed to open savings accounts without a service charge. Mr Chiam also asked why POSBank was not sold by tender. I have explained earlier that the sale was not treated as a purely commercial transaction. In a sale by tender, POSBank would be sold to any bank which offered the highest price. This was not Government's intention. We wanted to select a bank which could best meet and implement our objectives. As Government had a controlling interest in DBS, there was assurance that DBS, as the acquiring bank, would be best placed to continue to maintain POSBank's social obligations. Once DBS was selected as the potential partner, negotiations for the sale and purchase price was conducted along commercial lines. Mr Rai recommends that after the merger, DBS should emulate POSBank in providing a high quality of service to its customers. I can assure him that the intention is not to degrade the quality of service. Instead, POSBank's quality image will be preserved, together with its coverage network. I think I have answered the question raised by Dr Vasoo. I have also answered most of Mr Chew Heng Ching's questions, including the question raised by Mr Iswaran. I hope Dr Toh See Kiat is satisfied with the answers I have given so far. Because a lot of what he said was also covered by the other Members. I do not think I really need to respond to Dr Tan Cheng Bock. He has helped me to answer most of the questions.

Mr Speaker, may I seek clarification from the Minister? What is the view of the Minister on POSBank signing the merger agreement with DBS before the House passes the Bill today and whether the Elected President was consulted on this merger?

I will answer this when we come to the next Bill.

Question put, and agreed to. Bill accordingly read a Second time and committed to a Committee of the whole House. The House immediately resolved itself into a Committee on the Bill. - [Dr Richard Hu Tsu Tau]. Bill considered in Committee.

Clauses1 to 6 inclusive ordered to stand part of the Bill. Clause 7 -

Sir, I beg to move, In page 13, after line 16, to insert - "(7) The Bank and the persons to whom section 47(3) of the Banking Act (Cap.19) applies may disclose information regarding the particulars of any account transferred to the Bank and the affairs of the customers of that account which the bank normally obtains permission from its own customers to disclose in accordance with its practice as at the transfer date and, in particular, the Bank and such persons may disclose information relating to any such accounts or affairs -

Order for Second Reading read.

Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time." The Bill before the House deals with the amendment of the Constitution to delete POSBank from the Fifth Schedule to the Constitution. The Fifth Schedule lists six key statutory boards, which are MAS, BCCS, HDB, CPF Board, JTC and POSBank, and three Government-linked companies (GLCs) and these are GIC, MND Holdings and Temasek Holdings, whose past reserves are protected by the Constitution. These statutory boards and GLCs are required by the Constitution to ensure that their past reserves are not drawn down without the approval of the Elected President. POSBank is presently in the Fifth Schedule. With its privatisation and subsequent dissolution, POSBank will have to be deleted from the Fifth Schedule. In keeping with the spirit of the Constitution, the Government will remove POSBank from the Fifth Schedule only after all of POSBank's assets have been transferred back to the Government and safeguarded in accordance with the requirements applicable to Fifth Schedule entities. The President has agreed to this arrangement. The transfer will be done in the followings steps: (a) Two Bills have been tabled before Parliament, which are the Post Office Savings Bank of Singapore (Transfer of Undertakings and Dissolution) Bill and the Constitution of the Republic of Singapore (Amendment No. 2) Bill. Both Bills are to be read for the Second and Third time at today's Parliamentary sitting. (b) Once the President has assented to the Bills, the Government will bring into force the Post Office Savings Bank of Singapore (Transfer of Undertakings and Dissolution) Act first, but not the Constitution (Amendment No. 2) Act. (c) The Government will then set the date for the transfer of the undertakings of POSBank to DBS at 16th November 1998. This is the closing date for the transaction with DBS. (d) POSBank will still be in the Fifth Schedule on this transfer date. As the Government and POSBank are satisfied that the transfer of POSBank's undertakings to DBS is at fair market value, and thus will not result in any drawdown on past reserves, the President's approval is not required for the transaction. Nevertheless, given the size and importance of this transaction, the Government has kept the President's Office fully informed of the details of the transaction. It has also informed the President's Office that it will treat all proceeds received from the sale of POSBank as the past reserves of the Government. (e) On the transfer date, POSBank will receive new DBS shares as consideration for transferring its undertakings to DBS. It will also still have residual assets that have not been transferred to DBS. (f) On or after the transfer date, all of POSBank residual assets and DBS shares will be transferred to the Government, in a manner consistent with the constitutional safeguards. I, as Minister for Finance, will give an undertaking to the President in accordance with Article 22B(9) of the Constitution to transfer assets, (including all the new DBS shares) which comprise POSBank's past reserves to the past reserves of the Government. These past reserves will comprise the new DBS shares, and part of POSBank's residual assets. (g) POSBank's current reserves will also be returned to the Government. The Government will voluntarily treat these assets received from POSBank as past reserves of the Government. (h) We expect to finalise the audit of POSBank's residual assets, seek approval from the President's Office for their transfer to the Government and effect the transfer by December 1998 or January 1999. (i) This will leave POSBank as an empty shell. (j) The Constitution (Amendment No.2) Act will then be brought into force through a Gazette Notification, thereby deleting POSBank from the Fifth Schedule. As a final step, a day will also be appointed under the Post Office Savings Bank of Singapore (Transfer of Undertakings and Dissolution) Act to dissolve POSBank. Sir, I beg to move.

The Question is, "That the Bill be now read a Second time." A Division will be taken to ascertain that the Second Reading of the Bill is supported by the votes of not less than two-thirds of the total number of elected Members of Parliament, which is 56 Members, pursuant to Article 5(2) of the Constitution. The Clerk will ring the Division Bells. Question put, "That the Bill be now read a Second time." Division taken: Ayes, 74; No, 1; Abstention, Nil. Ayes Ayes (cont) Abdullah Tarmugi Mah Bow Tan Ahmad Mohd Magad Neo, Lily Ang Mong Seng Ong Ah Heng Chan Soo Sen Ong Chit Chung Chay Wai Chuen Ong Kian Min Chen, Bernard Othman bin Haron Eusofe Chen, Peter Ow Chin Hock Chen Seow Phun, John Peh Chin Hua Chew Heng Ching Ravindran, R. Chin Tet Yung Seng Han Thong Chng Hee Kok Shanmugam, K. Chong, Charles Sidek bin Saniff Choo Wee Khiang Sin Boon Ann Goh Chee Wee Tan Boon Wan Goh Chok Tong Tan Cheng Bock Goh Choon Kang Tan Keng Yam, Tony Harun bin A. Ghani Tan Soo Khoon Hawazi Daipi Teo Chee Hean Heng Chiang Meng Teo Ho Pin Ho Peng Kee Toh See Kiat Ho Tat Kin Vasoo, S. Hu Tsu Tau, Richard Wan Soon Bee Ibrahim bin Othman Wong, Aline K. Inderjit Singh Wong Kan Seng Iswaran, S. Yaacob Ibrahim Jayakumar, S. Yao Chih, Matthias Ker Sin Tze Yap Giau Cheng, Eugene Koo Tsai Kee Yatiman Yusof Lim Boon Heng Yeo Cheow Tong Lim Chun Leng, Michael Yeo Guat Kwang Lim Hng Kiang Yeo, GeorgeYong-Boon Lim Hwee Hua Yu-Foo Yee Shoon Lim Swee Say Zainul Abidin Rasheed Lim T. E., David Lee Boon Yang No Lee Yock Suan Leong Horn Kee Chiam See Tong Lew Syn Pau Loh Meng See Abstention Low Seow Chay Low Thia Khiang Nil

The Second Reading of the Bill has been carried by the votes of not less than two-thirds of the total number of elected Members of Parliament. Bill accordingly read a Second time and committed to a Committee of the whole House. The House immediately resolved itself into a Committee on the Bill. - [Dr Richard Hu Tsu Tau ]. Bill considered in Committee; reported without amendment.

Sir, I beg to move, "That the Bill be now read a Third time."

The Question is, "That the Bill be now read a Third time." A Division will be taken to ascertain that the Third Reading of the Bill is supported by the votes of not less than two-thirds of the total number of elected Members of Parliament, which is 56 Members, pursuant to Article 5(2) of the Constitution. Ring the Division Bells. Question put, "That the Bill be now read a Third time." Division taken: Ayes, 74; No, 1; Abstention, Nil. Ayes Ayes (cont) Abdullah Tarmugi Mah Bow Tan Ahmad Mohd Magad Neo, Lily Ang Mong Seng Ong Ah Heng Chan Soo Sen Ong Chit Chung Chay Wai Chuen Ong Kian Min Chen, Bernard Othman bin Haron Eusofe Chen, Peter Ow Chin Hock Chen Seow Phun, John Peh Chin Hua Chew Heng Ching Ravindran, R. Chin Tet Yung Seng Han Thong Chng Hee Kok Shanmugam, K. Chong, Charles Sidek bin Saniff Choo Wee Khiang Sin Boon Ann Goh Chee Wee Tan Boon Wan Goh Chok Tong Tan Cheng Bock Goh Choon Kang Tan Keng Yam, Tony Harun bin A. Ghani Tan Soo Khoon Hawazi Daipi Teo Chee Hean Heng Chiang Meng Teo Ho Pin Ho Peng Kee Toh See Kiat Ho Tat Kin Vasoo, S. Hu Tsu Tau, Richard Wan Soon Bee Ibrahim bin Othman Wong, Aline K. Inderjit Singh Wong Kan Seng Iswaran, S. Yaacob Ibrahim Jayakumar, S. Yao Chih, Matthias Ker Sin Tze Yap Giau Cheng, Eugene Koo Tsai Kee Yatiman Yusof Lee Boon Yang Yeo Cheow Tong Lee Yock Suan Yeo Guat Kwang Leong Horn Kee Yeo, GeorgeYong-Boon Lew Syn Pau Yu-Foo Yee Shoon Lim Boon Heng Zainul Abidin Rasheed Lim Chun Leng, Michael Lim Hng Kiang No Lim Hwee Hua Lim Swee Say Chiam See Tong Lim T. E., David Loh Meng See Abstention Low Seow Chay Low Thia Khiang Nil

The Third Reading of the Bill has been carried by the votes of not less than two-thirds of the total number of elected Members of Parliament. Bill accordingly read a Third time and passed.

Order, I suspend the Sitting and will take the Chair again at 3.55 pm. Sitting accordingly suspended at 3.28 pm until 3.55 pm.

Sitting resumed at 3.55 pm

Resolved, That the proceedings on the remaining items on the Order Paper for today be exempted at this day's sitting from the provisions of Standing Order No. 1. - [Mr Wong Kan Seng].

Order for Second Reading read.

Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time." Sir, the Bill seeks to amend the Housing and Development Act in three main areas: first, to empower the HDB to raise loans inside and outside Singapore through the issue of bonds and other financial instruments; second, to remove insolvency protection attached to HDB flats in cases where the flats are wholly owned by Singapore permanent residents; and, third, to confer upon HDB limited power to acquire individual strata units within HDB buildings for the specific purpose of upgrading the buildings. First, the issue of bonds - clause 8. The Bill seeks to enhance HDB's flexibility to raise loans from a wider range of sources in any way it deems advantageous. At present, HDB's development programmes and operational requirements are financed mainly by Housing Development Loans provided by the Government. With the passing of the Bill, HDB will launch its first bond issue in the later part of this financial year to fund part of its housing development programme. By tapping the bond market, HDB can reap the benefits of a more efficient financing structure that closely matches its development expenditure needs. The issuing of bonds by statutory boards will also help broaden and deepen the Singapore bond market, adding to its diversity. Let me now turn to the protection of HDB flats owned by Singapore permanent residents - clauses 6 and 10. The present Act protects all HDB flats whether owned by Singapore citizens or Singapore permanent residents (PRs) from being vested in the Official Assignee following the bankruptcy of their owners. It also provides that no HDB flat shall be sold by court order to satisfy a judgment debt. The Bill proposes to remove such protection in cases where HDB flats are wholly owned by Singapore PRs. We want to restrict the scope of the Act in so far as the issue of immunity from insolvency law is concerned to make a distinction between Singapore citizens and Singapore PRs. The amendment will cover all Singapore PR flat owners regardless of when they might have purchased their HDB flats. However, it will apply only to persons who are declared bankrupt after the commencement of the amendment Act. The third change is the acquisition of HDB flats for the purpose of the Main Upgrading Programme - clause 7. The Bill also seeks to incorporate a new provision in the Act to confer upon HDB the limited power to acquire individual strata units within HDB buildings for the specific purpose of implementing the Main Upgrading Programme (MUP). This will be necessary in order to build additional features in some MUP projects. For example, in blocks with no void decks, the ground floor units may need to be acquired and cleared in order to set up communal facilities not provided for in the past, such as a kindergarten or an old folks' corner. Let me assure Members that compulsory acquisition will be carried out only after careful evaluation of the various possible options. Furthermore, the final decision lies with the residents of the block in question who will vote for the MUP package that they prefer. The flats will be acquired only if 75% or more of eligible voters are in favour of a particular upgrading package which involves such acquisition. HDB will give the affected lessees a fair compensation package based on market value similar to that given under the Selective En-Bloc Redevelopment Scheme. In this way, affected lessees will not lose out as a result of the compulsory acquisition. Sir, in addition to the three main amendments I have touched on, the Bill also includes administrative changes to enhance HDB's enforcement of public housing rules and policies. The Bill empowers the Minister to make rules to regulate the carrying out of renovation in properties sold by HDB to ensure compliance with building and safety regulations. This is provided in clause 4. Next, the Bill empowers the Minister to make rules to require that all agreements for private sales of HDB flats shall be in a prescribed form and that all other forms of agreement shall be void. The purpose of this amendment is to protect both buyers and sellers of HDB flats. Another amendment aims to curb speculation by providing that Sales and Purchase Agreements entered into before the seller has occupied the flat for the minimum occupation period shall be void. To improve operational efficiency, the Bill allows HDB to appoint a wider group of persons to sign conveyancing documents on its behalf. This is in clause 2. It also streamlines the procedure for the appointment of HDB's Chief Financial Officer as this post is similar to HDB's other Heads of Department in that all are responsible to the Chief Executive Officer, who in turn is responsible to the Board. Furthermore, the Bill allows HDB, with the approval of the Minister, to enter into and carry out agency agreements that do not relate to housing or building ancillary services. Sir, I beg to move. Question proposed.

Mr Speaker, Sir, I rise to support the Housing and Development (Amendment) Bill. However, I do have some concerns on two of the three main proposed amendments. This Amendment Bill introduces a new provision in the Act to empower the HDB to raise loans inside and outside Singapore through the creation and issue of bonds or otherwise. I would like to ask the Minister how this provision, which gives the HDB added flexibility to raise funds, would translate into better pricing of HDB flats for Singaporeans. Does borrowing from the market mean higher costs versus borrowing from the Government? Currently, how does the Government charge for funds extended to the HDB for its housing programmes? Since the Singapore Government has very large reserves, does it not make sense to borrow from the market only when the Government reserves are in fact earning more than the cost of borrowing from the market? Secondly, are these bonds targetted at institutional or retail investors? For the issue of bonds in Singapore, I would like to urge the HDB to consider issuing these bonds in smaller denominations of, say, even $10,000, so that the Singaporean retail investor can also participate in these bond instruments. This would give the man-in-the-street another avenue to invest his surplus funds which, I believe, will give a slightly higher yield than fixed deposits. Next, the HDB, together with the MAS, should help to create a more liquid secondary market for these bonds for the benefit of retail investors. The HDB should also apply to the CPF Board to allow the use of CPF funds for such investments. Such instruments give a fixed income at much lower risk than the equities market. The amendment to section 65J of the Act confers on the HDB the power to compulsorily acquire the whole of any particular flat in the precinct for the purpose of those upgrading works to be carried out in that precinct. I am very concerned about how this provision will affect certain individual owners who have lived in the precinct for many, many years. One could argue that he would be giving up his flat to benefit the majority, who might be given a kindergarten or an old folks' corner to utilise and enjoy. However, this provision should be used very, very judiciously, and perhaps only with the support of the local Member of Parliament. We should balance the right of the individual to continue living in the precinct that he has chosen many years ago, with the public good and interest. In the case of the acquisition of homes for roads or MRT lines, for example, it is more obvious that many thousands will benefit from the acquisition. In the case of acquisition of a flat for some communal facility, the number of neighbours who will benefit is much smaller and, in my view, less justifiable. If such an acquisition is deemed absolutely necessary for whatever reason, I feel that the compensation should not be at the last transacted price of a similar flat in the precinct or block, or even the average of the last few transactions, but at a significant premium above the market. This will make the HDB think very carefully before acquiring. It will also compensate the affected owner who has to move away from the neighbourhood he has grown accustomed to. Apart from these two comments, I have no other comments on the Bill.

Mr Speaker, Sir, I support the Bill, in particular the provisions enabling HDB to issue bonds as this would have the added benefit of contributing to the development of our capital markets. However, I would like to seek clarification on the amendment set out in clause 7 of the Bill in relation to the compulsory acquisition of flats in upgrading projects. HDB upgrading programmes have, in general, met with good public response since its introduction. Many owners of upgraded HDB flats testify to the greater enjoyment of their improved homes and surrounding environment as well as the appreciation in the values of their flats. This is despite the fact that inconvenience and disruption may be caused to carry out the upgrading works. For example, it is sometimes necessary to gain access into individual flats in order to carry out the works on other parts of the building. In such cases, the Board is presently empowered under section 65J of the principal Act to authorise entry into any flat for the purpose of carrying out such works. Under the proposed amendment to section 65J, the Board is to be given a further power to compulsorily acquire HDB flats for upgrading works to be carried out in an approved project. In view of the broad wording of this section, could the Minister give assurance to the House that this power of acquisition will not be exercised by the Board for situations other than those which he had mentioned just now? One fear I have is that for practical reasons, the contractor may wish to have access to a particular flat to carry out upgrading works to other parts of the building and therefore it may be expeditious for the contractor to lobby the HDB to acquire the flat for him to carry out the works in other parts of the building. Could the Minister assure us that this will not be the case and that the power of compulsory acquisition will not be exercised in such situations? Where the flat unit is needed to become part of some communal facilities under the upgrading plan, the flat, as the Minister has pointed out, would be acquired by the HDB for the use of the flat to be changed. The main concern of the flat owner would then be the amount of compensation which he will receive. In this regard, could the Minister clarify the basis upon which HDB will determine the compensation to be paid? Would the quantum of compensation be based on valuation of the unit as an HDB flat as provided by qualified HDB valuers, or its value as part of a kindergarten or senior citizen's corner, for example? Further, the new subsection 9 provides that the owner may object to the compensation offered by the Board by stating his grounds in writing. I have some queries in relation to this issue. What are the grounds of objection which can be validly raised by the owner? Is it a valid ground that the market valuation obtained from qualified HDB valuers is higher than those offered by the HDB? Sir, I have raised the above issues in relation to the compulsory acquisition of flats because I feel that it is important for the public to know when and how they may be affected by this power to be given to the HDB to acquire the flat. While the actual number of flat owners who will be affected is likely to be very small, I believe these issues should be clarified to prevent any misconceptions which may affect the support given by HDB flat owners for upgrading projects in their precinct. For example, as the Minister has clarified just now, whether to proceed with the upgrading works will be left to the residents and they have to obtain more than 75% of the votes of the residents before they can carry out the upgrading programme. But to the aggrieved flat owner whose unit is to be acquired by the HDB, it is no comfort to him to think that the majority of the residents of the estate would of course want the HDB to acquire his flat for some communal facilities which will be of benefit to the majority of the residents. After all, the money for the compensation will be paid by the HDB, and not out of the upgrading project budget, or out of pockets of the majority of the residents.

I am surprised to note that the HDB needs to issue bonds as an alternative source of funding. The traditional way of HDB funds is from the Government. They get a loan from the Government and they pay an interest. This loan is used to build HDB flats and in turn the flats are sold to members of the public. Once the profits are taken in, the Government is repaid their loans. I am just curious why at this stage funds have to be raised from outside Singapore or from other sources other than Government funds. My question is: Have the Government funds in fact been dried up that there are no Government funds now to finance HDB projects? Or is it because of the bad economic times that funds are short because the Government has to help out in many areas? We have noted that even the upgrading programme of the HDB has to be slowed down. So my curiosity is aroused. Why is there a need to raise money other than from the traditional source? The other area that I would like to comment is this new draconian clause 7(b) whereby the HDB is given new powers of acquisition. My fear is that once compulsory acquisition powers are given to the HDB, we are opening the Pandora's box. Now the HDB can tell members of the public that they are acquiring only a flat on the ground floor and making more provisions for the other flat dwellers. But who knows, in time to come, this power can be used very liberally because in new subsections 7 to 14, which give power to the HDB to compulsorily acquire a flat, nowhere does it say that these powers cannot be extended. This is the fear of the public that once these powers are given, we are opening the Pandora's box. In the past, the HDB has renovated and upgraded hundreds of flats. Why was there no need to have this power of acquisition? Why is there a necessity now to compulsorily acquire a flat? Are there that many cases that the Minister has mentioned, ie, these flats that are in the void decks? As far as I know, I have not come across any of such flats. Can the Minister name where these flats are situated in Singapore? What about the occasions when a flat is needed for the construction of a block? Can this flat be also compulsorily acquired if the upgrading cannot be proceeded with unless that flat is acquired? I would imagine that, if that is the case, it would be a more compelling and cogent reason, and not just to acquire a flat for the benefit of the other flat dwellers. This exercise of compulsory acquisition must be rarely used. Can the Minister assure us that all possible remedies or solutions would be sought first before a flat is to be acquired? Also in regard to the procedure of appeal, the appeal is only to a Minister, and one would imagine that a Minister is an interested party, if not in that flat, at least in that block or in that project. Appeal must normally be made to an independent body, rather than to a person who has interest in the project. So I would suggest that the final appeal must be to the High Court, even after having gone through the Minister. I think it is fair because a person's home is being taken away from him. The final appeal must be to a higher authority which has got no interest whatsoever on the matter. As regards the payment of compensation, again the section seems to be rather unsatisfactory. Because it does not spell out how compensation is to be paid, what amount and if the amount is to be given, at what date that amount will be taken. Unlike the Act on compulsory acquisition of land, there is a cut-off date. So the amount is fixed, say, on 1st January 1975, or 1995, or whatever date is given. But in this case, there is no cut-off date. So in times of plenty, the HDB may be very generous but in hard times like these, the flat owner may be given a small amount. And if that happens, he will suffer twice. Firstly, his flat will be acquired and, secondly, he will be paid a derisory amount. I hope the Minister would have a second look at this particular clause.

Mr Speaker, Sir, thank you for giving me this opportunity to speak. Sir, I am in support of the Bill. But there are certain provisions which I have my reservation. I support the move to protect only the citizens. Only citizens should have the benefit of the Bankruptcy Act. I think this piece of amendment should have been introduced long ago. I suppose initially only citizens could buy a property, but subsequently there were some amendments allowing PRs to purchase it. I think there should be a distinction between citizens and non-citizens, and I support the Minister that it is a right move at the right time. Sir, I also support the new section 49A. It would have a standard form of contract. This will allow for certainty. It would also save the purchaser, instead of going to lawyers, and he would know what he is expected to meet. I only hope when this standard form of agreement is drawn up, it will be favourable to both the purchaser and the seller. However, I must raise my objection to new section 65J, and Mr Chiam has mentioned it earlier. I have no objection at all that the Government acquires a property for the common good of the community and the country. I think we have to upgrade and I must compliment the Minister and his Ministry for having done such a good job. Those areas which I have visited and which have been upgraded have really benefited from this upgrading scheme. But clauses 8, 9 and 10 are not very satisfactory. I will go further than what the earlier Members have mentioned. HDB is going to acquire a property and it is going to be judged in its own course. Every law student and lawyer will tell you that you cannot be judged in your own course. Here the Board is going to acquire a property and tell you how much it is going to be, and that is not fair. I think a fairer solution would be to have an independent panel and that panel can decide what is a fair compensation. Because not only you must not be judged in your own course, there is also another principle of law that justice must not only be done but seen to be done. I have no doubt whatsoever that the HDB will act bona fide. But the public, the majority of Singaporeans in HDB flats, must be assured that the compensation they are going to be paid is a fair compensation. And I share the view of my learned friend, Mr Chiam, to have an independent panel. There is already an existing provision for a Land Acquisition Tribunal. Or you may set up another tribunal. So for a member of the public, I think there would be very unhappy circumstances to have a clause where you raise an objection and the Minister considers and gives his decisions, and it is final. The Minister cannot be judged in his own course. And in order to provide for the right of the HDB flat owners, the Minister may want to consider some other solution. Sir, it may be a bit too late at this stage to have the Bill amended but, nevertheless, I would urge the Minister to consider the position of setting up some panels or at least there should be mechanism in the HDB itself where members of the public could sit in this panel and they could see that a fair hearing and a fair consideration are given to the property that is being acquired. With these reservations, Sir, I support the Bill.

Sir, I share the concern of the speakers before me as regards the powers of acquisition. Clearly, there are provisions under the existing laws for either general acquisition of land or the Selective En-bloc Redevelopment Scheme. I am not sure that we need to add another specific power to the various powers that already exist. I am particularly concerned, Sir, that the criteria for the exercise of powers are not made clear in the statute. In the Minister's statement, the reasons he gave us were perfectly reasonable but not being in the statute, we cannot be sure that this will always be so. I would suggest, therefore, that subsidiary legislation or regulations should be promulgated to set out the criteria. These criteria would serve not just to reassure people but would also therefore serve as relevant criteria to take the objections, from the owners, that is, if they should object. Additionally, Sir, I would suggest that another mechanism that may be of use to the Minister in exercise of these powers is to provide by policy that before any acquisition is made pursuant to this power, a public social impact statement should be made: that is to say, in any particular case, the situation, the upgrading plan should be studied thoroughly and a public document issued stating how many blocks are affected, for what purpose, and this would give a much better ground for people to make the decision that would vote yes or no for the upgrading. Sir, the Minister offers us a 75% voting ratio for upgrading as a safeguard. This is usually sufficient. But in the event that those affected would be less than 25%, the 75% could be easily obtained by those who benefit even if all those who were affected would say no. In this regard, I think the best safeguard would be to require a double majority; that is, the existing 75% of all occupants to agree to upgrading and a certain percentage of those affected. Some might say those affected will, of course, not agree, but as the Minister says, if the compensation is fair and attractive, then perhaps a certain percentage would. This percentage could be lower than 75% of course. The compensation quantum needs also to be thought through more carefully. I think that, given the context of upgrading, the first question must be whether this compensation would be on pre-upgrading criteria or post-upgrading criteria. After all, the purpose of the upgrading is to increase the value of the assets. Those stripped of an asset before upgrading will then be double losers - they lose the asset as it is and they lose the chance to upgrade the asset. And surely, Sir, that cannot be a point of upgrading. Sir, a few months ago, we looked at a very similar law as regards the Land Titles (Strata) (Amendment) Bill. Very briefly, one of the key differences between that provision and this is of a reference to a third party for mediation or otherwise to try to settle the matter. I would encourage the Ministry to think of including such third-party measures, if not as law, then, again, as a matter of policy.

First of all, let me thank Members for raising the various points. Let me just address the point on issuing of bonds. Let me assure Members that this idea of issuing bonds is not because Government funds have dried up. We wanted to raise bonds because it makes for a better and more efficient way of raising capital. Today, all housing development bonds are raised from the Government as well as from the banks, including POSB. This is not the most efficient way because HDB's development projects are long term in nature and a better matching of our requirements versus our source of funds can be achieved by having a mixture of bonds and loans. Of course, we will try to raise the bonds at a period where the cost of funds will be most advantageous to us. This will depend on the rating of HDB by external agencies and also on the market conditions at the time that we raised bonds. So, we will try to do so at a time most advantageous to us. Part of the purpose of raising the bonds is to provide the capital market in Singapore with breadth and depth. As you know, we are trying to develop Singapore as a debt centre and we are trying to provide more sources for both institutional and retail investors, a range of bond issues with different tenures and different risk ratings. To develop this market, we recognise that we should provide liquidity and ensure that the secondary market is liquid. And I am sure MAS will take up with CPF the issue of allowing CPF funds for investing in such bonds, including the HDB bonds. Second, let me turn to the issue of acquisition. Perhaps I used too much shorthand in explaining how we are going to go through it. Let me explain in greater detail. When I use shorthand like SERS and all that, I thought it would be easy for most people to follow. Let me explain the problem and how we are tackling it. As you know, in many of our old estates, we have flats on the void deck, on the ground floor. So when we do the upgrading, we are obligated to also upgrade the units on the ground floor. In some of these estates, the open space is very limited. So we find we cannot provide communal space for the units. In areas where we can provide communal space, there is no intention to acquire the ground floor flats in order to create the communal facilities. A good example will be Kim Keat - the first pilot project. There was plenty of space, so you can provide communal space in open space without having to disrupt the ground floor units. In the case of Mountbatten in Old Airport Road, we found the space to be very tight. There was not enough space for us to provide communal facilities. And the way we went about it was to persuade the ground floor units to give up the flats individually, everyone of them. Fortunately, we were able to persuade them and they all gave up their units and as a result, we were able to come out with a very good upgrading package which benefited everybody - the majority as well as the owners on the ground floor units. So we are introducing this amendment to address such situations where the ground floor units are occupied, where the space is very tight and we have no choice but to acquire the units in order to provide communal space. Let me assure Members that there are enough checks and balances. The Minister is not an interested party in this exercise. In fact, the whole exercise is under the charge of the advisor who is the Chairman of the Working Committee which has to work out the upgrading package. The advisor has to sell to his residents, including the residents on the ground floor, that there is not enough space and therefore acquisition of the ground floor units is part of the package. The compensation goes to HDB budget for that precinct. So, there are checks and balances. The advisor cannot go round acquiring all the units he wants because he is going to bust his upgrading project. So, the Minister is not an interested party. After the advisor has managed to sell his upgrading package to his residents, and they have taken a vote (75% say yes), they will send the plan to the Ministry and if we think that it is a sensible plan, the Minister would sanction the acquisition. And for the flats to be acquired, we are providing them the same SERS package. When I say SERS package, it means, firstly, the compensation is under the Land Acquisition Act with all its channels for appeal. It is done by an independent valuer on the date of 1st January 1995. We pay them an ex-gratia market supplement to bring the compensation value of 1st January 1995 to the present value, as at the date of the announcement. We offer the lessee whose flat is acquired a new flat in the vicinity with 20% discount in the new flat. If he cannot afford a new flat, we offer him a three-room buy-back flat. If he cannot afford a three-room buy-back flat, we offer him a rental flat. Under the SERS package, the compensation is extremely fair and we do not anticipate many problems from the people whose flats are acquired. Let me summarise: (1) this will be done extremely selectively; (2) the compensation package is undertaken through the SERS model which is fairly well tried out and with enough avenues of appeal; and (3) the advisor has to initiate and sanction the upgrading and make sure that this is for the benefit of the majority in his precinct. I can assure Members that there are enough safeguards and this will not be done except very, very selectively. This whole issue about the criteria for exercising power or the social impact are all covered by the advisor in his Working Committee. He has to deal with the Residents Committee members and residents. In the Main Upgrading Programme, the process takes several iterations. It goes back and forth to the residents several times before they actually take a vote on the package. Let me assure Members that these powers will be used judiciously. Just to add to the comments about the Bankruptcy Act. It is true that was covered when HDB flats were all bought by Singapore citizens. When we liberalised and allowed PRs to buy in 1989, we could have removed that protection then, rather than now. The standard sales and purchase agreement will be fair to both buyer and purchaser. It is the sales and purchase agreement that we are using today in all resale purchases. It is working well. We just want to provide the legislative basis to make sure that everybody uses the same document. We have had estate agents who provide supplements to the standard sales and purchase agreement and try to bypass the provisions. So, this is to prevent such abuses.

Other than Mountbatten, what other estates have flats on the ground floor?

When you walk around Redhill, Queensway and Queenstown, many of the flats were built before HDB undertook to build the satellite towns in a very comprehensive way. We provided flats on the ground floor. Maybe he should walk around, besides Potong Pasir, or his party should do so.

But these were all built in as part of the building. They were not in the original plan as void decks. Am I correct? They are already part of the structure of the building. You want to remove them to make into void decks. That is another matter altogether.

That is the whole point. When we built these old buildings, we maximised the space and we built flats even on the ground floor. Later on, as we went into Toa Payoh, we tried out this concept of void decks. After 30 years of experience, void decks do provide an added advantage to Singaporeans, not just in making the estate look more spacious, it provides space for communal facilities, etc. That is why void decks have become a standard feature in HDB flats. When we upgrade the old estates, we could just upgrade all the units as they stand, without improving the estate's ambience by creating a new void deck. In some of these old estates, if there is space elsewhere to provide communal facilities, we can do so without disturbing the units on the ground floor, as we have done in Kim Keat and other areas. In some of these housing estates, it is very tight and if you want to provide communal facilities to your senior citizens or kindergartens, there is no space. One option is to remove the units on the ground floor and therefore create a void deck so that you get more spaciousness in your estate. This means you will have to compensate the people who are presently living on the ground floor. That is the whole purpose of the provision.

The HDB says it is to give better ambience to the residents there. But do the residents themselves demand for it? Are there complaints that there are no void deck in their block?

As I explained, that is entirely up to the advisor and his Working Committee. In the precinct, if the residents are happy and do not want to create new communal facilities, the Minister is the last person who will want to go and disturb them. It is entirely up to the advisor and his Working Committee. We are the last person to want to acquire the flats but if the majority of the residents feel that they want to upgrade and provide more communal facilities and, in so doing, they need to remove the units on the ground floor, we are prepared to offer them SERS compensation, which is very attractive. And I can assure you that the reason why we are able to persuade everyone of those in Mountbatten to give up their flats voluntarily is because the compensation is very attractive.

Question put, and agreed to. Bill accordingly read a Second time and committed to a Committee of the whole House. The House immediately resolved itself into a Committee on the Bill. - [Mr Lim Hng Kiang]. Bill considered in Committee, reported without amendment, read a Third time and passed.

Order for Second Reading read.

Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time." Overview The Bill before the House principally focuses on the liberalisation of the law to allow companies to conduct share buy-backs. Apart from this major amendment, opportunity is also taken to incorporate seven other amendments. These amendments seek to: a) update the concept of "deemed interest" under section 7(4); b) extend the lifespan of employee stock options under section 77 from the current 5 years to 10 years; c) exclude trade franchises from the ambit of the Companies Act; d) empower the Minister to make regulations to regulate the administration of unit trusts by managers and trustees, and to extend the life of unit trust prospectuses; e) remove all restrictions relating to substantial property transactions under sections 160A to 160D; f) allow a company to purchase insurance for any officer of the company against liability on negligence or breach of duty to the company not occasioned by any wilful act or default on his part; and g) exempt foreign companies from being required to be registered in Singapore in certain instances. Share buy-backs I will first deal with the amendment relating to share buy-backs. The Bill proposes to allow for the purchase or acquisition by a company of its own shares out of distributable profits, after obtaining the necessary mandates from shareholders. It presents a direct and more efficient means of returning cash to shareholders, than the capital reduction procedure that is currently provided under the Companies Act. For example, a capital reduction exercise may take at least three months to complete and also requires confirmation by the High Court. In contrast, a share buy-back affords a company greater flexibility in the timing, procedure and amount of capital to be returned to shareholders. It thus increases the company's ability to adjust its capital base and debt-equity ratio and can improve a company's return on capital, to the benefit of shareholders.

4.42 pm Because of these advantages, the Government earlier made an announcement, in response to the recommendation by the Finance and Banking Subcommittee, that companies will be allowed to repurchase their shares, subject to safeguards. Various forms of share buy-back schemes are already allowed in the United States, the United Kingdom, Hong Kong, Australia and New Zealand. Government agencies have studied these alternative models and have worked closely with the Corporate Finance Committee, the Stock Exchange of Singapore, the Association of Banks in Singapore, the Law Society and other interested parties to develop the proposal in the Bill before you. In this proposal, both listed and unlisted companies, public and private, can conduct share buy-backs. Now I will briefly walk the House through the provisions. Clauses 3 and 4 of the Bill seek to amend sections 73 and 76 to allow for the purchase or acquisition by a company of its own shares, without having to make an application to the High Court for approval. Clause 5 of the Bill introduces new sections 76B to 76G. These sections set out the appropriate safeguards and disclosure requirements that have been formulated to ensure that companies will not abuse the scheme of share buy-backs to the detriment of their creditors. These safeguards are as follows: (a) Companies will only be able to buy back their ordinary shares if their Articles of Association allow for it; (b) All companies must obtain their shareholders' approval by ordinary resolution to buy back their own shares via an off-market acquisition on an "equal access" scheme. This essentially means a pro-rata buy back offer. Listed companies must also obtain a similar approval in order to carry out on-market share buy backs; (c) Listed companies will not be allowed to conduct selective off-market purchases. Unlisted companies may, however, obtain their shareholders' approval by special resolution to conduct selective off-market buy backs, but interested parties will not be able to vote in favour of such a resolution; (d) Companies must buy back their shares out of distributable profits only; (e) Companies will be permitted to buy back shares up to a maximum of 10% of their issued ordinary share capital during each relevant period. The capital base to which the 10% is pegged is to be ascertained at the date of the last annual general meeting or at the date of the resolution, whichever is higher, unless the Court through an order had confirmed the reduction of share capital. In the latter case, the issued ordinary share capital of the company would be the amount as altered by the Court order during the relevant period; (f) There is also the introduction of an insolvency test. The company's directors may be personally liable as it is an offence for a director to approve a share buy back when he is aware that the company is insolvent or will become insolvent as a result of the buy back; (g) All repurchased shares must be cancelled; and (h) Companies must set up a capital redemption reserve account. The amount by which a company's issued share capital is diminished by share buy backs must be transferred to its capital redemption reserve. Additional safeguards for public listed companies will be formulated by the Stock Exchange of Singapore as part of its listing rules, and will be announced shortly. Other amendments I shall now go through the other amendments in the Bill. These amendments are designed to improve market efficiency and liberalise regulations to afford companies more flexibility. They also seek to rationalise the provisions in the Companies Act with existing practice. Concept of "deemed interest" Clause 2 of the Bill seeks to amend the definition of "deemed interest" in the shares of a company in section 7(4) of the Act, to increase the threshold interest from 15% to 20%. This will bring the concept of "deemed interest" in the Companies Act in line with the threshold of significant influence in an associated company under the accounting convention and the Singapore Code on Take-Overs and Mergers. The current concept of "deemed interest" under section 7(4) is also capable of successive applications ad infinitum along a chain of companies. This has given rise to considerable confusion and practical difficulty. Clause 2 therefore amends the Act to restrict section 7(4) from applying to successive levels. The application of the "deemed interest" concept is restricted to one level. Lifespan of Employee Stock Options Currently, the law restricts all stock options, including those given to employees to take up unissued shares in a company, to a lifespan of 5 years. Employee stock options are a powerful tool to reward employees, and the lifespan should be extended to help retain and motivate employees. Clause 6 amends the Act to provide that the maximum lifespan of employee stock options be extended from 5 years to 10 years. The lifespan of other forms of options remains at 5 years. Trade Franchises The next amendment under clause 7 seeks to amend the definition of "interest" in section 107 of the Act to exclude trade franchises. This will clarify that franchises offered to the public are not subject to the onerous trust arrangements, and trust deed and prospectus requirements of the Act. These provisions will enable the promotion of franchises on a larger scale, as a strategy for small retailers to upgrade and modernise their business. Only franchises as defined will be excluded from the definition. Unit trust and other collective investment schemes will continue to be regulated under the Companies Act. Unit Trust Legislation Unit trusts are currently regulated under the Companies Act as they are a form of "interest" as defined under section 107. The provisions in section 111 and regulation 9 of the Companies Regulations apply across the board to all forms of interest. In order to effectively regulate the different forms of interest under section 107, in particular unit trusts, the Minister for Finance needs to be empowered to be able to make specific regulations concerning each class of interest, as and when the need arises. Clauses 8 to10 of the Bill enable the Minister for Finance to do so. In addition, clauses 10 and 14 of the Bill also seek to extend the life of unit trust prospectuses from the current duration of 6 months to 12 months. There is no increased risk of inaccurate prospectuses being in circulation, following the extension to 12 months, as the managers and trustees are under legal obligation to re-lodge their prospectuses whenever material changes take place and are made. Substantial Property Transactions Clause 11 of the Bill seeks to repeal sections 160A and 160D of the Act, thus removing the restrictions relating to substantial property transactions. The provisions have created practical difficulties and are somewhat redundant, as all related-party transactions of listed companies are already subject to disclosure or shareholders' approval (depending on the amount) under the Stock Exchange of Singapore rules. Provisions indemnifying Directors or Officers of a Company Currently, it has not been clear from a reading of section 172 whether a company can pay the premiums for a director's indemnity policy. However, it is now standard practice in many jurisdictions for companies to take up insurance for their directors and pay the premium. The amendment makes it clear that a company may purchase insurance for any officer of the company against liability for negligence or breach of duty to the company, which are not occasioned by any wilful act or default on his part. The United Kingdom and Australia have provisions that have equivalent effect. Registration of Foreign Companies Clause 13 amends section 366 by seeking to exempt foreign companies from being registered in Singapore in two specific instances. Nowadays, global financial institutions transact in certain financial instruments booked into a single office of that financial institution. This "global book" will then be "passed" from one financial centre to another and traded by that financial institution's employees throughout the world. Under the current legal position, where trading takes place through the Singapore office, this foreign institution can be considered as "carrying on business" in Singapore and hence should be registered as well. Such a requirement is unduly onerous, if the foreign parent already has a registered presence in Singapore. As increasingly more financial institutions adopt this practice, the gap between the law and commercial practice needs to be closed to keep pace with other jurisdictions like Hong Kong, where there is no such registration requirement. With the amendment, foreign companies need not register if they effect any transaction through its related corporation licensed or approved under any written law by the Monetary Authority of Singapore or under an arrangement approved by the MAS. In the second instance, clause 13 seeks to free foreign financial institutions from having to register if they establish a share transfer or share registration office in Singapore, in order to become a listed corporation. Conclusion These amendments to the Companies Act form the first group of amendments proposed, as part of a wider exercise to update and modernise company legislation in the coming months. Most of the proposed amendments are still being reviewed and will only be introduced next year. The review is part of an ongoing effort by the Government to improve the business environment and put in place a more flexible legislative framework that can respond quickly to opportunities when the economy picks up again. I believe that the amendments I have proposed take a step in this direction, and set the stage for a more vibrant economic and financial climate in Singapore. Sir, I beg to move. Question proposed.

Mr Deputy Speaker, Sir, I support the introduction of this Bill. I shall focus my comments on the main feature of the Bill which is to allow the buy back of shares by Singapore companies. This buy back arrangement is currently prohibited by the provisions of the Companies Act. At present, companies can use their financial resources to invest in or buy shares of other companies. Such investment decisions are usually made based on limited information of the target investments of companies. In some cases, the companies themselves may be good investments and the companies know themselves best. Hence, it may be worthwhile for companies to buy back their own shares rather than buy shares of other companies. This provision of allowing companies to buy back their own shares is an enlightened approach. It is permitted in many countries nowadays. If companies can buy other companies' shares, why not allow them to buy back their own shares which are or can be better investments? The share buy back scheme will also be in the interest of the shareholders. Sir, I note the present Bill has a few restrictions on share buy back. First, share buy back is only permitted for ordinary shares and not allowed for preference shares or other classes of shares. Second, a company is required to seek shareholders' approval where the following information has to be disclosed: (a) the total number of shares which may be acquired is limited to 10%; (b) the maximum price to be paid for the shares; and (c) the date by which the authority to purchase will expire. I would like to ask the Minister for some clarifications. First, why restrict the buy back of shares only to ordinary shares but not allow other classes of shares such as preference shares, convertible shares or even warrants? Would this not give the companies more flexibility and choices? I would also like to ask the Minister on the disclosure of certain information such as the limit of 10% of total shareholding, the maximum price and the limitation of the date to buy the shares. First, on the limitation of 10% total shareholding. Companies may want to buy more shares when they want to go out and buy their own shares. So, would it not be beneficial for companies to be able to buy more than 10%? There may be sellers who want to sell more than 10% each time? So why not have a higher limit? Perhaps 15%, 25% or even 50% of their own shares to buy back. Secondly, the disclosure of maximum price can also create difficulty and curtail the flexibility of actions by the company. The buying and selling process is a very dynamic one. The parameters and market forces change very fast. Hence, I would like to ask the Minister: would it not create a better chance for them to buy back their shares if certain information is not disclosed to the public, such as the limitation on the date as well as the maximum price they want to pay? Moreover, the fact that the company has to seek shareholders' approval prior to taking action is in itself a deterrent to the companies concerned. There is also the risk that the public announcement of the company's intention to buy back their shares may cause the potential sellers to ask for higher prices. In the end, the company actually is at a disadvantage when they buy back their shares at a higher price than it originally intended. The end result is that companies may actually choose to rather buy other companies' shares, which is subject to less restrictions, than to actually go through a more tedious process of buying back their own shares, no matter how attractive their own shares may be. Sir, the Minister may wish to clarify these issues.

Mr Deputy Speaker, Sir, I would like to begin by declaring my interest as a director of a securities company. I shall, however, be making my comments from the perspective of the retail investor and minority shareholders. The proposed amendments to legislation, to allow for the purchase or acquisition of their own shares by companies, will pave the way for companies, particularly the listed ones, to better manage the return on equity, or, in today's jargon, to "create more value". It will constitute another milestone in the development of the Singapore stock market. Before I raise two sets of issues regarding the buy-back scheme, namely of safeguards and tax implications, I would like to make some general comments. Firstly, companies embarking on such a scheme may send mixed signals about business direction and growth potential. Except for the inaugural exercise with the passage of this Bill, we would implicitly be expecting the investor at large to be able to understand why a company is using its surplus funds to buy back its own shares instead of deploying these funds to further business expansion. It is entirely possible for a company to use surplus funds to buy back shares, only to go back to shareholders later on for new capital for expansion. This has been the experience of companies in the other markets. How will the Singaporean-based investor interpret such actions which, when taken together, may appear somewhat ironical? Unlike reported earnings and the requisite announcements for major corporate developments, share buy-backs can provide a very strong signal to "outside" investors of what management thinks of the prevailing share values. Given the significance of this interpretation, several questions arise as to the provision of sufficient safeguards for minority shareholders against any abuse or manipulation by management and/or majority shareholders. Need to provide enough safeguards I would like to urge the Minister to ensure that enough safeguards are provided against the following possibilities: Firstly, manipulation by company insiders to manage reported earnings-related benchmarks, such as earnings per share, so as to detract from or mask unsatisfactory business performance. Secondly, possibility of management spending too much time and attention on managing share prices rather than the actual business itself, particularly in times of prolonged market volatility and depressed share prices such as now. The temptation to buy back "undervalued" shares would be too great to resist. Thirdly, the possibility of collusion between major shareholders and company at the expense of minority shareholders. Although there is a provision to specify a maximum price, should there be a cap on the premium on the price to be paid for shares to be bought back? For example, the 5% limit in the UK? Or do we want to employ a one-broker rule, similar to that in force in the US? Fourthly, any timing differences which will disadvantage minority shareholders - the obligation to cancel shares bought back is helpful but is there still room for possible manipulation? Ultimately, the key is efficiency in the dissemination of information and transparency. Fifthly, utilisation of distributable profits earned in earlier years. Should there be a time bar or will the 10% limit to shares to be purchased be sufficient? Tax implications Sir, currently, a retail investor who sells his shares on the market for a profit does not pay any capital gains tax. Will this remain the same when he sells his shares as part of a buy-back scheme? Recently, a listed company, Singapore Press Holdings, embarked on a capital reduction exercise, which sought to return $1.22 per share held. It then transpired that out of the $1.22 capital returned, 52 cents were deemed as capital, and hence tax free, while the remaining 70 cents were treated as a distribution of dividend, and hence taxable. Although this exercise is different from a buy-back scheme, it is nonetheless instructive for us to study the tax angles. If part or all of the share buy-back proceeds are deemed taxable, how will the retail investor know the difference? Even if it were so, would this unwittingly lead to a two-tier market? Or will companies have to bear the tax burden, which implicitly raises their purchase costs? It would appear that the simpler and more tax-consistent it is for the retail investor, the more successful and well-accepted the scheme will be. Sir, the issues raised above are more details to be ironed out than grounds against the scheme. Apart from putting in the necessary safeguards, investor education will be equally important. In fact, I believe that once minority shareholders understand the rationale behind the scheme and are assured that there are enough safeguards, they would embrace the buy-back scheme readily, as it would add another exciting dimension to their investments. On that note, Sir, I wish to support the Bill.

Mr Deputy Speaker, Sir, I wish to express my support for this Bill. Legislation permitting companies to buy back or redeem their shares from shareholders has been enacted in various jurisdictions. In principle, it is desirable for companies to have the flexibility and power to do so, provided that shareholders and creditors are adequately protected. Indeed, as the experience of other jurisdictions indicates, this power to buy back shares has proved very useful to companies and has generally given rise to few problems. I expect the amendments will be warmly welcomed by the business and investment communities here in Singapore. For many companies, the proposed amendments contained in this Bill will provide the option of a more flexible capital structure on which real economic and financial advantages could be obtained if the power to repurchase shares is exercised judiciously. However, I have the following five points to raise with regard to whether the proposed amendments will allow Singapore companies to achieve the maximum benefits that could be derived from having share buy-back legislation of this nature, as well as whether the regulatory framework provided by the proposed legislation will be able to protect creditors and shareholders of the company adequately. The first issue I would like to raise relates to market purchases by public listed companies. Under the proposed section 76E, market purchases are permitted on the Stock Exchange if the listed company has been authorised in advance by its shareholders. To obtain the authorisation, the company, in its notice of general meeting, has to specify among other things the maximum price which may be paid for the shares. The objective of this requirement seems to be protection of shareholders' interest by placing a cap on the maximum amount of funds which may be used for the purchases. However, this is open to abuse and manipulation. To add to the concerns of my colleague, Mr Leong Horn Kee, the proposed maximum price, being price sensitive information, will have an impact on the movement of the share price because it reflects management's view of the performance and prospects of the company. The prices of securities are largely influenced by investor confidence which can be boosted or shaken by management's action or announcement. Management must therefore exercise great care in arriving at a proposed maximum price before disseminating to the shareholders by way of the notice of resolution. Once the notice is released and publicised, investors will scrutinise the proposal and come to their own judgment about the company's performance and prospects even before the holding of the shareholders' meeting where the directors have the opportunity to explain their views on the proposal. Could the Minister, therefore, reconsider the merits of requiring such a specific information as the maximum share price to be made known and weigh them against its potential for abuse and manipulation? If the maximum share price has to be specified, I believe there should be rules or guidelines on the steps and precautions to be taken in determining this maximum price so that companies would not arbitrarily set a price which is without basis and proper justification. As this issue relates to listed companies, perhaps the Stock Exchange of Singapore could incorporate the appropriate safeguards in its regulations on market purchases by companies listed on the SES. While on this issue of market purchases by listed companies, I would like to propose that there should also be some safeguards in relation to the execution of the buy-back trades. Will the Minister consider imposing restrictions, for example, that a company cannot purchase its own shares at a price higher than 5% above the average of the last share price recorded on the last five days on which the shares were traded on the Stock Exchange? This will prevent the company from chasing the share price up and paying unnecessarily high prices in a volatile market. My second point relates to the necessity of restricting permitted purchases to ordinary shares in the company. This point has also been raised by my colleague, Mr Leong Horn Kee. The term "ordinary shares" has not been defined in the amendments nor in the principal Act, but would presumably refer to voting shares or equity shares as compared to preference shares which carry special rights with respect to, for example, repayment of capital, dividends and voting. There does not seem to be a clear reason why other shares, perhaps other than redeemable preference shares, could not be repurchased by the company. However, while I believe that it may not be necessary to restrict share buy-backs to ordinary shares, I do think that it is necessary to provide that only fully paid up shares may be repurchased, which has not been expressly provided in the amendments. Otherwise, creditors may lose a valuable asset on liquidation of the company, ie, of uncalled capital if the shares which have been repurchased and cancelled were only partially paid up. Thirdly, again I share Mr Leong's concern, under the proposed amendments, a company can only purchase up to 10% of the issued share capital during the relevant period. It seems that a cap of 10% is an arbitrary limit. Given that one of the reasons for a company to want to repurchase the shares is to make efficient use of the surplus funds, and circumstances differ from one company to the next, the application of such a fixed cap uniformly on all companies may be too inflexible. Although having a limit may be prudent for a start, this issue should be reviewed from time to time to allow for a gradual liberalisation of the rules over time. This limit should be raised or lifted when companies become more familiar with the buy-back procedure and when shareholders become better able to evaluate how proposed buy-back schemes affect their interest. My fourth point is in regard to the adequacy of the proposed provisions in safeguarding the interest of creditors. I observe that the main protection afforded to creditors is found in new section 76F(3) where every director or manager of a company who approves or authorises the purchase or acquisition of the company's own shares knowing that the company is insolvent or will become insolvent as a result of the purchase is made personally and criminally liable. However, the purchase is not void nor voidable, and creditors will have to sue the directors and managers in their personal capacity to recover the shortfall. This may be cold comfort to the creditors if the directors and managers are of shallow means. Finally, Sir, as mentioned by my colleague, Mrs Lim Hwee Hua, I hope the Minister will clarify a number of related issues on the taxation implications. On the part of the company, as the consideration will be paid out of distributable profits, does the company have to deduct tax at source as in the case for dividend payment, or are there any situations where the purchase of shares could be regarded as something akin to a distribution made as a result of reduction of the company's share capital and hence not accessible to tax? Lastly, if tax is to be deducted at source, could the individual shareholder obtain a tax credit in respect of the amount deducted? Sir, I hope the Minister will enlighten us on these issues.

Sir, I am in support of the Bill. I shall confine myself to the buy-back scheme. As Members have mentioned earlier, other jurisdictions such as the United States, Australia and New Zealand, have similar provisions. This is to be welcomed as Singapore is behind time. However, there are certain concerns which I would like the Minister to address. Both Mr Leong Horn Kee and Mr Ong Kian Min have mentioned about the 10% limitation. I am aware that the Minister may, by Gazette notification, increase this limitation, but I wonder why the 10% was picked up. Sir, the other issue that has to be resolved - I think Mrs Lim Hwee Hua has also raised this point - is this question of taxation, which is very important. Whether there is going to be tax liability, I think both the public and the companies at large must know beforehand what is the Minister's stand on taxation. Sir, as the price of shares is sensitive information, the regulation must be drafted in such a way that members of the public are protected, especially now that there is a depressed market in Singapore, any buy-back scheme must ensure that the minority interests are protected. Sir, there is another issue which I would like to raise. Although at a company's general meeting, notices are to be given, it would be prudent to have a proper advertisement in the newspapers to announce any scheme of this nature, so that the public as well as the members of the company will be in a position to respond to this. In this case, I refer to new section 76C. Sir, the other issue which I would like to find out from the Minister is this. The role which the Stock Exchange would be playing is very important. So far, I think it is to the credit of our Stock Exchange scheme that we have a fairly open and transparent market. It is very important for the Stock Exchange of Singapore to see that this provision is regulated in such a way that there is no abuse. With that, Sir, I support the Bill.

Mr Deputy Speaker, Sir, thank you for allowing me to join in the debate on the Companies (Amendment) Bill. Before I proceed, I would like to declare my interest on the subject matter. I am a practising solicitor and would have in the course of my work to advise clients on the Companies Act, including the amendments. The Bill, apart from taking the opportunity to clarify certain provisions of the Act, is radical in nature as it seeks to introduce share buy-back schemes into our company legislation. Up until now, a general rule in the company law is that a company may not return any assets to its members while it is a going concern, except in the form of dividends paid generally out of profits. As it is commonly understood, when a company is liquidated, the shareholders are the last to get their money back. The creditors will get their payments first before the shareholders get anything. Accordingly, if the shareholders are allowed to get their monies back first, it would reverse the order of payment as it is understood for a company in liquidation, and this would not be fair to the creditors. When a creditor does business with the company, he does so on the faith that the capital shall be applied only for the purpose of business and he has therefore the right to say to the company that the company must keep the capital and not return it to the shareholders. Otherwise, the creditor will not have faith nor confidence to do business with the company and commerce, as we know it, may not have taken off to the extent that we see it today. It is for this reason that the Companies Act has a rather strict regimen to ensure the maintenance of capital in a company. This is seen, for instance, in general prohibitions against providing financial assistance in the purchase or acquisition of a company's shares without strictly observing the proper procedures and reduction of capital without getting the court's sanction. These restrictions are generally meant to provide safeguard for the creditors of a company. Sir, does the introduction of share buy-back schemes fly in the face of all that the company laws seek to do, that is, to protect the interest of creditors through the doctrine of maintenance of capital? Sir, I think not. Looking at the overall scheme of the proposed share buy-back provisions under the Bill, one gets the impression that the objective of the Bill is not to return capital at the expense of creditors but to ensure the proper management of a company's capital. At the moment, a company may pay off any paid-up capital by returning that which is in excess of the needs of the company or the company may reduce the paid-up value of the shares in the company and reflect what is left of the capital after it has been reduced by trading losses. To achieve this end, the company would have to go through the relative inconvenience of having to petition to the court to get its approval and the process is subject to the right of the creditors to object to the reduction of capital. Besides reduction of capital does not necessarily reduce the total number of members of the company. What the reduction does is that it uses paid-up capital across the board. In other words, reduction of capital does not necessarily achieve the objective of reducing the absolute number of shareholders in a company. Sir, as proposed, the share buy-back scheme allows a company to manage its capital more effectively. A company may want to buy back its own shares for many reasons. This would include, for instance, a desire to return surplus cash to shareholders so that the capital may be put to better use elsewhere or to increase earnings per share or net assets per share, or to increase the marketability of the company's shares, or perhaps defend the company against possible takeovers. Where the company intends to reduce the capital of the company or the shareholder base of the company, the share buy-back scheme allows the management the additional option to achieve the objective without the necessary inconvenience of the existing arrangements. Sir, share buy-back schemes were introduced much earlier in a number of countries. These countries include, for instance, the United States, United Kingdom, Australia and Hong Kong. The application of share buy-back scheme in these jurisdictions is becoming increasingly widespread these days. In some jurisdictions such as the United States, the shares subject to re-purchase are taken out of circulation but remain in issue. In others, shares which have been re-purchased are cancelled. Whatever the approach, the economic outcome is similar. A reduction in the number of shares in circulation is likely to increase in the value of the remaining shares arising from the interplay of supply and demand factors. Additionally, if the earning potential remains relatively undiminished, the earnings per share will increase and, in theory, that should increase the share price. As far as existing creditors go, the Bill seeks to protect their interest in a number of ways. First, no more than 10% of the shares may be purchased by the company or such other percentages as are allowed by the Minister. Its limitation to 10% of share capital serves to ensure limited reduction each time. Secondly, there is a requirement that shares can only be bought out of the profits of the company. Thirdly, the directors and officers must be satisfied that the company is not insolvent at the time of the purchase of the shares. The Bill says a company is insolvent if (i) it cannot pay its debt as it falls due or (ii) the value of the company's assets is less than the value of its liabilities, including contingent liabilities. If the company fails either of the two tests, it is regarded as insolvent and cannot do a share buy-back scheme. By insisting that the purchase price may only be paid out of the profits of the company, the creditors at least can have the assurance that shareholders cannot simply declare a return of capital to their detriment. Through this, the share buy-back scheme is able to achieve flexibility of capital management with minimal risk of compromising any party's interest. Sir, while I note that the Government has taken measures to ensure that the shareholders and the creditors are protected under the Bill, I do have a number of concerns which I would like to point out. Firstly, by allowing the share buy-back, companies may be encouraged to return surplus capital instead of using the money for high-yielding investment opportunities. The return of surplus capital may be an indication of weakness in the corporation's strategic plan and the return of capital may just serve to exacerbate that weakness. Secondly, by reducing its working capital through the share buy-back programme, the proportion of debt would invariably increase in the company's capital structure. This would increase the company's financial risk. We should also note that the share buy-back results in an indirect transfer of bondholders' wealth to the shareholders. This is applicable especially to companies that use long-term debt as a form of financing. By buying back shares, the company is, in fact, increasing its gearing ratio while reducing the proportion of its financing through equity. Because of the increase in a company's financial risk, the bonds are now riskier. But bondholders are not compensated for the higher risk with higher coupon interest. This would invariably make bond issuing in such an environment less attractive and in the long term, it may impact on our Government's effort to develop the bond market in Singapore. Thirdly, share buy-back schemes increase the risk of triggering the provisions of Rule 33 of the Takeover Code which compels the making of a takeover bid if the party concerned is left with holding 25% or more of the shares and unwittingly acquires shares which are in excess of the relevant threshold. In such an event, the shareholders may not be prepared to mount a takeover bid. To avoid such a possibility, it may be necessary to ask for waiver in advance from the Securities Industry Council or the Minister. Additionally, in the case of listed companies, a shareholder may not by choice become a substantial shareholder in a company but become one as a result of the share buy-back scheme. The consequence of being a substantial shareholder is that his identity would have to be disclosed to the public. Now, Sir, not everyone would like to have their identity disclosed as substantial shareholders in a listed company. Fourthly, in most other jurisdictions, share buy-backs are generally regarded as positive information. As a result, the share price would tend to rise upon a share buy-back announcement. Because of this, I am concerned, as was expressed by several of my colleagues earlier, that the potential for insider dealing may arise. Quite obviously, those with inside information may be tempted to trade on the shares before the buy-back scheme is announced. A curious situation may also arise where the company engaging in share buy-back may be privy to price-sensitive information. For instance, what if the company was working on a major invention which it knows would affect the share value and which it intends to announce after the completion of the share buy-back scheme? Would the Minister say that the company is engaging in insider dealing? Additionally, there is always the possibility of manipulation by unscrupulous managers trying to prop up their share prices due to a market downturn or poor intrinsic value. Alternatively, managers and directors with share option schemes may prop up the value of their options by initiating price buy-back schemes not for the benefit of the company but for their own benefit. The consequent rise in value of the shares will substantially profit these managers. I would like to ask of the Minister whether he would consider managers initiating share buy-back for the purpose of enhancing the value of their stock options as being engaging in acts of market manipulation. Sir, while I have expressed some reservations, it is not to be taken to mean that I do not support the Bill. On balance, I think the benefits of the share buy-back outweigh the risks. At the moment, there are adequate safeguards to deal with this concern. So long as the Government continues to promote transparency within the legal framework of our companies, both in the business dealings and the shareholders' structure, the integrity of our company legislation should not be compromised as a result of the introduction of a share buy-back provision. I would, therefore, support the Companies (Amendment) Bill as a matter of policy. Sir, having stated my general support for the Bill, there are, however, a few minor drafting details that I would like to touch on. Firstly, clause 2 of the Bill seeks to amend the definition of "interest in the shares of a company" in section 7(4) to increase the threshold upon which a person is deemed to have an interest in a body corporate from 15% to 20% of the voting power. In the present form, section 7(4) has often caused much confusion. The often asked question is whether in a circular fashion, the section applies to shareholders of a company who is deemed to have an interest in the shares by virtue of a potentially unlimited change of 15% interest. In a way, clause 2 of the Bill seeks to overcome that by making it clear in the notes that the purpose was "to restrict its application to not more than one level". Sir, while I am happy to learn that the Ministry has recognised the need to clarify the application of the present section 7(4), I submit that the draftsman has not gone far enough. In fact, I would say that the proposed provision is still unclear. Rather than restricting the application to just one tier, when read literally, there is a possibility that the clause may apply to more than one tier. The clause provides that the person shall have an interest in the share in which a body has an interest in if, inter alia, the body corporate is accustomed, whether formally or informally, to acting in accordance with the directions of the person concerned. In using the word "informal", one would have much difficulty in applying the provision with precision. In its ordinary meaning, it is conceivable that the management consultant to a company, which habitually acts in accordance with the management consultant's direction, may also have an interest in the shares of the company that the company is deemed to have an interest in. Will the Minister explain if this is the intention of the Government? Additionally, the words "controlling interest" are used to determine if the person has an interest in the body corporate. There is, however, no definition of what the words "controlling interest" mean. Would the Minister clarify what the words "controlling interest" mean, having regard to the use of the proportion of shares as being more than 20% in the proposed section 4A? Does "controlling interest" therefore mean something more than the percentage of voting rights attached to the shares? If it does, will the Minister please explain to this House what these interests are? Clause 5 sets out the new sections 76B to 76G of the Act which relate to the share buy-back scheme. In the new sections, the words "ordinary shares" are used. Ordinary shares in the Act are rather not defined words. Presumably, ordinary shares are used to exclude redeemable preference shares or any preference shares for that matter. Does it therefore mean that, apart from preference shares, the provision of the new section 76B will be applicable to all classes of ordinary shares, irrespective of whether or not there are further differentiation within those classes of ordinary shares? How would the definition of equal access scheme apply in cases where different classes of ordinary shares have been created? The new section 76C (2) provides, inter alia, that the notice specifying the intention to propose the resolution to authorise an off-market purchase referred to in the earlier subsection must, among other things, determine the maximum price which may be paid for the shares. On a plain reading of the Bill, one wonders how a notice can determine the price of shares. Does it mean that the notice must state how the maximum price of the shares is to be determined? In its present form, the expression does seem a little odd. Sir, I think it would be more accurate to describe the notice as specifying the maximum price of shares rather than determining the maximum price of shares, as is presently stated in the Bill. The same comments apply to new section 76E (2) (b) as well. New section 76C (4) also provides that the authority for an off-market purchase referred to in the section may, from time to time, be varied or revoked by the company in a general meeting. Having provided for such powers, the new provision is, however, unclear as to what happens after those powers have been exercised by the company. Does it mean that everything which has already been done prior to the revocation or variation of the powers is no longer valid to the extent of the variation or revocation? The same comments apply to section 76E (5) as well. Finally, new section 76C (6) defines an "equal access scheme" as one which, inter alia, satisfies the requirements of all persons having a reasonable opportunity to accept offers made to them. The use of the term "reasonable opportunity" may introduce uncertainty into the legislation. It may be better to introduce a fixed minimum period during which the offer is open. If left as it is, it may be open to each individual shareholder to argue that, given its present circumstance, he was not given reasonable opportunity to accept the offer. Additionally, with respect to new section 76C(6)(c), it may be neater if the words "that there shall be disregarded" be deleted and substitute therefor with the word "for". This would make the drafting simpler and neater. Sir, I have chosen to confine my comments principally to the share buy back scheme and I would like the Minister to respond to these comments. But for the comments, I support the Bill.

Mr Speaker, Sir, I think we are in search of lighter regulation to provide more freedom for businesses and companies in Singapore to liberalise without creating an unfair market or a market which people can take advantage of, to do unfair things. In moving this amendment, we realise that we are letting go of some of the institutions of old. We are letting go of Government's close supervision, to some degree, and are deciding to rely on some other institutions more. We are also letting go, among the choice of institutions, of the Court's since the share buy back scheme will reduce the role of restructuring under the Court's supervision. The institutions we then turn to will increasingly be the SES and, more than that, the investing public, and we have an increasing number of citizens who are using their private funds, their CPF funds, for this purpose to create a citizenry who are also shareholders in our companies. Let me, with this background, turn to my concerns regarding disclosure and transparency as regards the share buy back scheme and the deeming provision. Let me try to avoid repeating many of the points my colleagues before me have made. My first concern with the share buy back scheme is that it is possible that it may be open to price manipulation. This is primarily because the investing public often does not know what is happening when a buy back starts to happen. The provisions in the Act provide that notice be given to the Registry of Companies (ROC). However, I think that in the climate of the small investors in Singapore, this may be insufficient. The SES undoubtedly will also make the buy back decisions known to the mass net. But again, this might not be enough since the mass net goes to mainly people with seats in the Stock Exchange. It might not reach the smaller investor. The smaller investor then will see the price go up or down and the volumes go up and down and there might be some sort of psychological effect on them which they may not understand. They might therefore follow blindly. Secondly, as regards the share buy back scheme, clearly the Bill is on good ground in providing that for listed companies, this must be bought from the open market. However, Sir, there are two dangers. The first is of a bail out. Even though you buy in an open market, it depends on who has made, what shares are available. There may therefore be a danger of collusions whereby major shareholders in need of funding make their shares available at exactly the right time. The Minister might respond that these possible collusions would be tackled under the general insider trading rules. However, it seems to me that these rules may not be themselves sufficient since the information of when a company buy back will happen may not in a sense be price sensitive since the price is pretty much fixed. It is more a question of when the shares are available rather than what price. The third point I want to make about the share buy back is the opposite effect. Rather than having a bail-out of major shareholders, there is in fact the effect of consolidating and increasing the effective holdings of the bigger shareholders. And here I share the concern of Mr Sin Boon Ann that this will effectively increase the percentage held by certain shareholders. And the question is whether the Takeover Code would be triggered. This is not clear, since section 213(3) of the Companies Act provides that the effect must be of acquiring effective control, that is, acquiring shares. In the event of a share buy back, the shareholder does not acquire any shares but, nevertheless, may find himself put above the statutory limit. The final point relates to the deeming provision. As Mr Sin has said, it is good for clarity in this issue that for too long, we have been concerned that deeming provision upon deeming provision will lead to endless tiers of deemed interests. However, there is some concern that we may be moving in the opposite direction of greater transparency. This is because we will be using one tier only. It will be more possible to have shell companies. With these comments, I leave it to the Minister.

Mr Deputy Speaker, Sir, all speakers have expressed some similar concerns about the provisions of the Bill. I will deal with each speaker separately. Mr Leong Horn Kee has asked whether we should not allow the buy back scheme to be extended to all shares rather than just ordinary shares. The reason why ordinary shares were stipulated is because they form the bulk of the shares issued. Although the number of preference shares is not insignificant, what we are really talking about are the non-redeemable preference shares where such a provision of buy back might be extended to. For the time being, the proposal is to confine it to ordinary shares until we gain more experience in this particular process. Generally, I would say that the provisions are on the prudent side because of our lack of experience in administrating such changes. We have perhaps over provided for the protection of the small shareholders at the expense of flexibility. Hence, the limitation of the share buy back to 10% for each instance and the cap on the price movement of 5% of the average of five preceding days' share prices. Also, there is the need for shareholders' approval on the maximum share prices allowable. All this may sound restrictive, but they are designed to protect smaller investors who may not be familiar with the procedures and, therefore, may not comprehend the implications if more flexibility is introduced into the scheme. I come next to Mrs Lim Hwee Hua. She is concerned that the buy back scheme itself may trigger a signal to outsiders that there is something basically wrong with the company for it to want to buy back its own shares. Is that the concern?

No. It is more a signal of how management itself feels about the value of the prevailing share prices. They may think it is undervalued.

One of the main reasons for companies deciding to buy back its shares is that it has accumulated substantial excess capital which it finds difficult to place into attractive investments. I do not believe - unless you are suggesting collusion - that an average company would rush around to buy back its shares without good reasons. It could be either because it has got more money than it knows what to do with, and therefore it is better to return part of these to shareholders who may then wish to re-invest in other things. The Member is also concerned as to whether there are adequate safeguards to ensure that the company insiders do not manipulate for personal advantage. Unlike some countries which do not impose limits on the number of shares which can be repurchased each time, we have imposed a rule that such purchases should be limited to 10% of share capital. The 10% limit for share repurchase will minimise the potential and scope for management to manipulate benchmarks such as earnings per share and the price earnings ratio. If a company is in fact making losses, repurchasing the shares will not improve its earnings related benchmarks. And if a company is making only modest profits, a 10% share repurchase will not inflate its earnings related benchmarks noticeably. The other safeguard which we have introduced is to allow buy backs only to be made out of distributable profits accumulated over time. It also requires prior shareholders' approval, and there is an insolvency test. I believe that under the present rules, there are sufficient safeguards to prevent abuse. Of course, in administering this particular amendment over time and as we acquire more experience, there may be a case for reviewing some of these rules. The Member is also concerned that management may be spending more time in managing share prices than in managing the business itself. I can only comment that you cannot stop this. Whether you have a share buy back purchase scheme or not, if management is inclined to do this, they will do it anyway. The Member has also asked whether there should be a cap. We have in fact imposed a cap of 5% as in the UK, rather than follow the one-broker rule which is prevalent in the United States. This was decided on after consultations with the Stock Exchange of Singapore, the Association of Banks and the Law Society. The Member is also concerned whether timing differences will disadvantage minority shareholders. One way to avoid this is to require that repurchased shares be cancelled immediately on purchase. In addition, listed companies will be required by the SES listings rules, which are yet to be implemented, to disclose all details of these repurchases, including the number of shares bought and the prices paid before the start of trading on the following business day. Also, section 103 of the Securities Industry Act prohibits the company's directors and other insiders from dealing in the company's shares when they are in possession of price sensitive information. This will help ensure that insiders do not deal in the company's shares when they have privileged information such as the time and number of shares to be purchased on any particular day. The Member has also asked whether there should not be a time bar on the distributable profits. I think there is no reason to impose a time bar. All the distributable profits are in fact profits which the company could have declared as dividends. So, to put a time bar on it does not seem reasonable. She also asked whether there are tax implications. The rule is that companies will be allowed to buy back shares only out of distributable profits. Therefore, consistent with the current practice of companies on the payment of dividends out of distributable profits, shares brought back out of distributable profits will also require franking under section 44 of the Income Tax Act. There is also concern about the tax treatment of shares sold on the open market when the seller of such shares may not know the tax implications. The tax rules here are quite complicated. But the basic principle is that if a share purchase is done in the open market, then the seller of the shares would have been deemed to have sold the shares and it is a capital gain. Whereas if the shares are bought under a special arrangement on an equal pro rata basis, it is deemed as equivalent to the distribution of dividends and is therefore subject to tax. IRAS will be issuing tax rules on this shortly. Mr Ong Kian Min wanted to know why preference shares are not included in the share buy back scheme. I have already explained this. He also wants to know whether the limit of 10% on each share buy back proposal can be reviewed from time to time. I can assure the House that this will be done. What we need is some working experience before we decide to make changes. Under our proposed rules, companies must notify shareholders of the authority given to the directors of the company for a share buy back exercise in which the maximum price to be paid will have to be specified, including the maximum number of shares which can be acquired. The reason for imposing such a condition is a safeguard to ensure that minority shareholders' interests are protected. It is not possible for Government itself to determine what the rules for determining the maximum price should be, and this must be left to the shareholders. As regards risk of manipulation by directors in a situation where the company runs the risk of becoming insolvent, I think the penalties imposed on such activity are sufficiently penal for directors not to want to engage in such practices. A director or manager who approves a buy back scheme knowing that the company will become insolvent as a result of the buy back will be guilty of a criminal offence liable on conviction to imprisonment not exceeding 12 months or a maximum fine of $5,000. In addition, they will be personally liable to the creditors of the company to the extent by which the purchase consideration exceeded the distributable profits. I think these are sufficient deterrents to discourage such activity. Mr Sin Boon Ann has asked an extensive number of questions on matters of detail. I will try to answer as many of them as possible. But before doing so, I would like to point out that these amendments to the Companies Act are not comprehensive. We are engaged in a massive exercise in which the Companies Act will be amended over a series of occasions. And what is left undone on this occasion, we will have opportunity to review them in the future. The Member has suggested in a general way that the return of surplus capital to the shareholders may indicate a weakness on the part of management. While this is, of course, a possibility, I think the general experience has been that companies would only buy back shares if they have substantial amounts of surplus capital which they are unable to deploy effectively. And shareholders and purchasers of shares can quickly see through the intent of management if it is otherwise. The Member is also concerned that the share buy back scheme will increase the debt equity ratio of a company. While this is a possibility, we have introduced a safeguard to allow only 10% to be purchased on each occasion. For the time being, I think this is an adequate safeguard. The Member is also concerned that the share buy back may create problems, triggering off takeover provisions when the 25% limit is inadvertently hit due to the share buy back process. I would like to inform the Member that the Securities Industry Council (SIC) is now crafting some rules to address this particular problem. Insider trading is also a question which has been raised. The prevention of insider trading, we believe, is adequately covered under section 103 of the Securities Industry Act (SIA). The provision prevents a company from trading in shares when their directors and officers are in possession of price sensitive information not yet disclosed to the public. By buying back its shares prior to public disclosure of such information, the company will obviously be in breach of the SIA prevention of insider trading provisions. The Member is also concerned over the possibility of directors and managers buying back shares for their own purposes and therefore engaging in market manipulation. I should like to point out that unscrupulous management could manipulate shares in other ways without the buy back scheme. However, the 10% rule which we have imposed will minimise the potential for manipulation because a 10% share repurchase will not significantly affect the share value of the company. Also, there is a limit on the amount of shares which it can buy because it is limited to the distributable profits of the company. Turning now to other provisions of the Act, the Member is also concerned that the provision of "deemed interest" can go beyond one tier, in the case of a person having an interest in a share in which a body corporate has an interest in if the body corporate person is accustomed formally or informally to act in accordance with the direction of the person concerned. He also wants to know whether the term "controlling interest" will spell definitional problems. I would say that the hon. Member is right. It is precisely the intention of the provision to catch such situations. In the case described by the Member, the application of deemed interest can go beyond one tier. As for controlling interest, the term has long standing use in the Companies Act. To my knowledge, it has not encountered such problems in practice. There are other matters of detail which the hon. Member has raised. I will not answer them in detail but, generally, I would say that any items he has raised which are of significance will be taken care of in future amendments to the Act. Again, I would reiterate that the proposed amendments to the Act have been consulted extensively with the Corporate Finance Committee, the Association of Banks of Singapore, the Singapore Stock Exchange, the Law Society and other interested parties. So it covers most areas of interest. However, there are bound to be gaps in detail which we will take care of next time when we amend the Act again.

Question put, and agreed to. Bill accordingly read a Second time and committed to a Committee of the whole House. The House immediately resolved itself into a Committee on the Bill. - [Dr Richard Hu Tsu Tau]. Bill considered in Committee.

Clauses 1 to 4 inclusive ordered to stand part of the Bill. Clause 5 -

Clause 5. Dr Hu, you may take all the three amendments together.

Sir, I beg to move, (1) In page 6, line 35, to leave out "in favour of the resolution". (2) In page 7, line 18, to leave out "in favour of the resolution". (3) In page 8, line 15, and in lines 33 and 34, to leave out "in favour of the resolution". The reason is to clarify that interested parties cannot exercise their voting rights in any way on special resolutions to vary the earlier authority to conduct a share buy back. Amendments agreed to. Clause 5, as amended, ordered to stand part of the Bill. Clauses 6 to 14 inclusive ordered to stand part of the Bill. Bill reported with amendments; read a Third time and passed.

Order for Second Reading read. 6.00 pm

Mr Deputy Speaker, Sir, I beg to move, "That the Bill be now read a Second time." Sir, this is a straightforward Bill. It makes two amendments to the Parliament (Privileges, Immunities and Powers) Act (Cap 217). Their objectives are to simplify procedures under the Act and avoid duplication of effort and risk of conflicts between Parliament and the Courts. The first amendment facilitates the recovery of fines imposed by Parliament in exercise of its penal jurisdiction. The second amendment improves procedures to allow Parliament to deal more expeditiously with contempt if one of its committees has already investigated into the matter. Recovery of fines Let me deal with the first amendment on recovery of fines. Currently, section 23(2) of the Act provides that fines imposed by Parliament have to be sued for in a civil Court first before they could be recovered from the errant party. This procedure is not satisfactory as it wastes the Court's time and incurs unnecessary cost for the State. Section 23 of the Act does not define the role which the Court should play in presiding over a suit to recover the fines as a civil debt. If the Court's role is merely to formalise the fine imposed by Parliament into a judgement, it is an unnecessary duplication of work. If it enables the person fined to contest the legality of the fine, it would amount to allowing the Court to overrule the decision of Parliament. The law should avoid any possible conflict between Parliament and the Courts. For this reason, our Courts have held that Parliament has the right to control its own proceedings and regulate its own internal affairs without interference from the Courts. Clause 3 of the Bill amends section 23 of the Act to make any fine imposed by Parliament recoverable as though it is a judgement debt due to the Government, that is to say, a sum of money ordered by a Court as payable. With the amendment, it would no longer be necessary to first sue for the fine before recovering it. Writs of execution as well as bankruptcy proceedings may immediately be instituted if the offender fails to pay up the fine imposed by Parliament by the due date. The amendment would facilitate the recovery of fines by the Attorney-General on behalf of the State. Contempt I now come to the second amendment on contempt. Currently, under section 21(1) and (2) of the Parliament (Privileges, Immunities and Powers) Act, Parliament can deal with incidents of contempt in the following ways: (a) deal summarily with the offender; (b) refer the matter to a Select Committee for investigation and report; or (c) refer the matter to the Attorney-General with a view to instituting criminal proceedings against the person. Where the matter is referred to a Select Committee, Parliament on receiving the Select Committee's report, has the further option of either dealing with the offender itself or referring the matter to the Attorney-General with a view to prosecution. The option to refer the matter to the Attorney-General with a view to prosecution in Court after a Select Committee has dealt with it is unnecessary. It has no discernible benefit and only lengthens the process. Parliament already has the power to punish for contempt. This is a proper exercise of parliamentary authority. The punishments are set out in the Act. This option is also circuitous as Parliament could have in the first place referred the matter to the Attorney-General instead of to a Select Committee. It is better for Parliament to deal expeditiously with the matter after the Select Committee produces its Report. The option could also result in uneasy relations between Parliament and the Judiciary. This arises when the matter is referred to the Attorney-General with a view to prosecution after a Select Committee has already investigated into the matter. Police investigations would have to be carried out afresh. There could be the possibility that, at the end of the day, the Courts may rule that no offence of contempt has been committed despite Parliament's decision to send the matter to the Attorney-General with a view to prosecution. The principle that any possible conflict between the Courts and Parliament should be avoided is applicable here. As I have said earlier, our Courts have held that Parliament has the right to control its own proceedings and regulate its internal affairs without interference from the Courts. In addition, the rationale for referring cases to the Attorney-General with a view to prosecution is no longer relevant. This bifurcated procedure was introduced in 1962 when Parliament was then expressly prohibited by the Act from exercising powers of committal, ie, imprisonment. Also, the penalties that the Courts could mete out for offences under the Act were then much higher. It was therefore necessary then to retain an avenue to the Courts so that the higher penalties could be handed down by the Courts in appropriately bad cases involving contempt based on the Select Committee's Report. In 1986, the Act was amended to confer on Parliament the power to commit persons for contempt and to fine them up to $50,000. With these enhanced powers to deal with contempt, Parliament would no longer need to refer such cases for prosecution. Clause 2 of the Bill amends section 21 of the Act to remove the option of referring a complaint of contempt to the Attorney-General for prosecution if that complaint has already been the subject of investigation by a Select Committee. The amendments would, however, not remove from Parliament the power to refer a matter directly to the Attorney-General with a view to prosecution where it is considered more appropriate for the offender to be dealt with by the Courts. Sir, I beg to move. Question proposed.

Sir, the privileges of debate in this House against defamation and other proceedings in court are well known and enjoyed by Members here. This is very important because this Chamber should be open to all ideas, free of the chilling effect of possible legal suit. Less well-known, Sir, is the fact that these privileges are extended in a qualified manner to members of the public, ordinary citizens, who choose to speak before our Select Committees. This is confirmed by the case of Sivadas. The present amendments now try to reconcile, as the Minister has said, a possible clash between the courts, on the one hand, and this House, on the other. I think that, in principle, this is correct. As far as Members of Parliament go, I have no objections. We, as Members of Parliament, whether elected, nominated, NCMPs, should know the rules. My concern relates more to non-MPs, non-Members of the House, who choose to come before the House to provide their opinion in Select Committee affairs. In such cases, if the House should choose to decide to cite such persons for contempt, Parliament would be in effect a judge in its own cause. The hearings would not necessarily be public and this House, if I may say, is clearly numerically dominated by one party. For such people, members of the public, I think we have to ask ourselves whether they know the kind of possibilities that face them when they come before a Select Committee. I do not, of course, mean that they should shy away from doing their citizens' duties. But I would encourage the Minister, in moving this amendment, to follow this up with the assistance of the Speaker in providing more information to those who come before Select Committees. Secondly, the question then comes off: would these members of the public be better off being judged by the courts? I think that is not necessarily the case because the court itself, as the Minister has said, has decided that this House should be the judge of its own proceedings, its own internal affairs. But I would caution the House in reaching this conclusion, the decision of the court related to a Member of Parliament, and not a member of the public. As regards members of the public who come before this House and might commit contempt and might therefore be subject to proceedings by this House, I would encourage this House to be, first, judicious and sparing in the use of its powers when we close off the possible avenue of using the courts and, second, liberal in recognising the right of ordinary citizens to speak and give their opinions before this House in its Select Committee meetings, even if it disagrees with the sentiments, provided of course that such sentiments do not amount to gross contempt. With that, Sir, I support the Bill.

Mr Deputy Speaker, Sir, I think Mr Tay is concerned about strangers coming before a Select Committee and not knowing the rules on how to conduct themselves and whether the freedom to speak before a Committee is being conscribed, just because they do not know the rules. Let me assure him that he need not have such worry. At the beginning, when the Clerk of Parliament advertises in the press asking for submissions, he has already warned would-be representors that they should not publish any evidence or documents they have given to the Select Committee before the Select Committee finalises its report. That is in one of the paragraphs in the advertisement. When a person comes before a Select Committee, we treat him very gently, kindly and considerately. We do not brow beat or shout at him. We treat him like any member of the public who wants to give his views to us and we welcome his views. It is only when he has started to wander around and not follow the rules that the Speaker would definitely try to put the person back and say, "Look, that is not the way to do things. Please let me give you some advice. Do not stray beyond the point. Tell us the truth and be honest about it." If Members remember the case of Dr Chee Soon Juan, in one of our Select Committee hearings, he talked about health care costs and presented papers and data. Eventually, that matter led to a complaint to the Committee of Priviledges. Even at that Committee of Privileges, he was given a lot of leeway by the Chairman of the Committee. But in the end, he decided to carry on with his way and resulted in him and his other colleagues being fined by Parliament for committing perjury and fabrication of data, etc. So anyone who comes before a Select Committee, we will be very kind to him. We will guide him and the Chairman would give him a lot of leeway before he makes further mistakes. So we need not worry about strangers not being able to speak freely before a Select Committee. As Members know, whatever evidence they give to a Select Committee is also protected by the privileges of the Act, and in the case of Sivadas, as Mr Tay mentioned, he wrote a submission to the Select Committee on the Companies (Amendment) Bill and he made many comments. As a result, some people took him to court. He finally petitioned to the Petitions Committee which decided to leave it to the Court. The Court decided that his submission is protected under the privileges of the Act and therefore the plaintiff lost the case. So the public can be rest assured that if they speak up, they should not fear that their views will be conscribed.

Question put, and agreed to. Bill accordingly read a Second time and committed to a Committee of the whole House. The House immediately resolved itself into a Committee on the Bill. - [Mr Wong Kan Seng]. Bill considered in Committee; reported without amendment, read a Third time and passed.

Order for Second Reading read.

Mr Deputy Speaker, Sir, I beg to move, "That the Bill be now read a Second time." The Employment of Foreign Workers (Amendment) Bill before the House today seeks to amend the Employment of Foreign Workers Act to provide for the taking and recording of finger impressions of foreign workers working in Singapore. Since the onset of the current economic downturn, there has been increasing incidence of illegal employment. For the first eight months of this year, more than 2,000 foreigners were caught working illegally without valid work permits. This is more than twice the number of such cases for the corresponding period last year. Furthermore, an increasing number of illegal workers were found to be immigration offenders. In fact, for the first eight months of this year, 50% of illegal workers were also immigration offenders compared to only 16% for the corresponding period last year. The Work Permit Department has also detected an increasing number of cases of forgeries of the work permit card itself. Since April 1998, the number of forged work permit cards detected by the Department has averaged about 40 to 50 a month. This is significantly higher than in the past when very few cases of forged work permit cards were detected. Most of the forged work permit cards came from the construction sector. They were work permit cards for foreign construction workers. The situation is not helped by the fact that many foreign workers do not carry their original work permit cards with them. Instead, they carry with them photocopies of the card as the originals are very often kept by their employers. These photocopies of the work permit cards are very often of poor quality and can also easily be forged. The increasing number of illegal workers and rising incidences of forged work permit cards has made it more difficult for enforcement officers to identify the foreign workers. The current system for identifying foreign workers has two shortcomings. Firstly, existing security features on the work permit cards themselves are outdated and make the cards easier to forge. Secondly, the finger impressions or fingerprints of the work permit holders are not captured on the card, making it difficult for enforcement officers to conclusively identify the person holding the card. Clearly, we need to make the present identification system more effective. Sir, to deal with this problem, the Minister for Home Affairs had already amended the Immigration Act on 4th September this year to provide for the taking of fingerprints or finger impressions from foreign workers in Singapore. The amendment before the House today is to enable my Ministry, the Ministry of Manpower, to work together with the Ministry of Home Affairs to jointly implement a new and more secure identification card for foreign workers. This card will combine the current work permit card, the Immigration Disembarkation and Embarkation card together with the Visit pass into one single card which will also carry the fingerprint record of the foreign worker. The new card will incorporate more security features to reduce the likelihood of forgeries. These security features will also be more up-to-date and more effective. The inclusion of fingerprint records will allow our enforcement agencies to conclusively identify the holder of the work permit as being the person who is authorised to enter Singapore to work. It is also our intention to make it mandatory for all foreign workers to carry the new identification card with them at all times, so that if they are stopped for checking at the worksite, they would be able to produce the original work permit card rather than a photocopy of the work permit card. The new identification card will be introduced from early next year, 1999. A phased approach will be adopted to capture the fingerprints or finger impressions of all foreign workers. For a start, all new foreign workers will be required to provide their finger impressions before they are issued with work permits to work in Singapore. Existing foreign workers who are already here, who are holding the old work permit cards, will be asked to provide their finger impressions when they come up for renewal. However, we will pay particular attention to the recording of the finger impressions of foreign construction workers. This is because cases of illegal employment and work permit forgeries are most rampant in the construction sector. The construction sector is also the largest employer of foreign workers, particularly those from the non-traditional sources. Existing foreign construction workers will be notified to have their finger impressions taken within one year of implementation of the new identification system, and it will take us about two years to complete the exercise. But we will focus on the foreign construction workers first, so that we get them all fingerprinted within the first year. The new identification card for foreign workers will be issued free-of-charge to the workers, in the first instance. Employers will be advised on the procedures to obtain these new cards in due course. However, if the foreign worker should lose the work permit card or damage it or deface it in some way and need a replacement card, a replacement fee of $20 will be charged. Foreign workers are currently given up to 14 days to report the loss of a work permit card to the Controller of Work Permits. With the introduction of the new identification card for foreign workers, we intend to shorten this reporting period from 14 days to 7 days. This will narrow the window period during which a foreign worker cannot be conclusively identified because he has not got the card and there is difficulty identifying him. Sir, I will now go through the key clauses of this Bill. Clause 2 of the Bill amends section 3 of the Employment of Foreign Workers Act to allow the Minister to appoint Deputy Controllers of Work Permits and Assistant Controllers of Work Permits to assist the Controller to carry out the functions of the Controller under the Act. This is necessary to expedite the management of a very large number of foreign workers present in Singapore at any one time. Today, we have more than 450,000 foreign workers in Singapore. So we need to have more officers who are empowered to deal with all the management matters concerning foreign workers in Singapore. Clause 3 amends section 14 to reduce the time within which a foreign worker must report the loss, destruction or defacement of a work permit from 14 days to 7 days. Finally, Sir, clause 4 of the Bill amends section 29 of the Act to extend the powers of the Minister to make Regulations to provide for the taking and recording of finger impressions of persons who have applied for or who have been issued with a work permit and for the dissemination of such records to the Police and other law enforcement agencies. These regulations will also empower law enforcement agencies to demand finger impressions from persons holding the work permit cards for purpose of verification. Sir, I beg to move. Question proposed.

Mr Deputy Speaker, Sir, I rise in support of the proposed amendment in the Employment of Foreign Workers (Amendment) Bill aimed at improving the administration of the Act. Sir, beyond what the Minister for Manpower has just described, the primary purpose of the amendment Bill is to give the power to effectively address the issue of fraud and forgeries of work permit cards. The proposed amendment to section 3 to also allow the Minister for Manpower to appoint additional manpower resources to assist the Controller is timely to ensure, among others, that we screen, filter and subsequently admit foreign workers with the necessary skills and calibre so as to contribute to the enhancement of Singapore's competitiveness. Sir, in the light of the current financial crisis, much concern has been raised about the extent of jobs being assumed by foreign workers. With rising unemployment, this cry will inevitably get louder. The fact is, with the limited pool of trained workers, Singapore will still have to depend on foreign workers to meet the needs of increasingly more sophisticated industries. It is therefore imperative for the Ministry of Manpower to ensure not only for labour demand to be closely matched just in numbers, but, more importantly, to make available trained manpower with the requisite knowledge and skills demanded by today's industries. The Minister for Manpower has recently announced in Parliament that the National Plan for Manpower is being drawn up by a Manpower 21 Committee comprising captains of industry, the Government and the trade unions. This multi-agency and tripartite approach to manpower planning and development is laudable to ensure that the needs of different industries are appropriately met. In situations where foreign workers are needed to fill the gap, it is imperative to make sure that only foreigners with the requisite skills and talents are brought in to fill appropriate job vacancies. This should be done only after exhaustively checking and ensuring that no suitable unemployed Singaporeans could take on the jobs. Such an approach will lend credibility and comfort to existing and new companies for they are assured of being able to continue to recruit workers with the appropriate skills and abilities to enable them to operate efficiently and increase their competitiveness. Singaporean workers will also look up to their foreign counterparts to learn new skills from them rather than shunning them. In the current tough economic environment, new foreign workers admitted must be seen to add value to the companies recruiting them and ultimately contribute to Singapore's economic competitiveness. During these difficult times, it can be expected that Singaporean workers will be more vigilant than ever of the quality of foreign workers brought in by companies. They must be able to demonstrate their special abilities in order to earn the respect of their Singaporean counterparts and preferably should be in a position to impart their knowledge and skills to our workers. In regard to the amendment of sections 14 and 29, I think these amendments are essential to highlight to foreign workers that the work permit issued to them is an important document which must be properly protected and also to deter them from toying with the idea of making a quick buck from selling their work permit card which undoubtedly is in demand by potential imposters in the light of the current economic crisis. Sir, I support the Bill.

Mr Deputy Speaker, Sir, generally I support the Bill as it aims to provide for better administration of the Act. However, I have some reservations regarding the amendment to provide for the taking and recording of fingerprints of persons issued with work permit and for the records to be given to the Police. I must say that the Minister has been persuasive and convincing of the need and necessity for fingerprinting of work permit holders and that it is not made simply on the connotation or prejudice that work permit holders are more predisposed to crime and that they are harder to track down because of their sheer numbers. However, I would like to bring up a point that there appears to be unequal treatment of employment pass holders and work permit holders. Yet one can argue that while we have not seen crimes committed by those with employment pass, some that we have seen have caused serious financial consequences. Arguably, we can also say they are more mobile and more difficult to track. While it is understandable that based on the explanation given by the Minister that the employment pass holders have not caused the kind of problems that we are faced with, with regard to work permit holders, it is necessary that we demonstrate equality of treatment in the sense that I would think it is necessary at this point perhaps to even consider fingerprinting all employees who want to work in Singapore. After all, Singaporeans are also fingerprinted as far as their identity cards are concerned. I am simply raising this point because we must be careful of the problematic perception that they may cause and generate, that while the effect of such a regulation may be unequal for good reasons, the objective is certainly not discriminatory.

Mr Deputy Speaker, Sir, I first want to thank both Members for speaking in support of the amendment Bill although they have some reservations. First, let me take the point raised by Mr Ahmad Magad. His main point is that foreign workers who are allowed into Singapore should be the ones who can do the job that is expected of them so that they can make a contribution to the company and the economy. Let me assure Mr Magad that this is the case and that foreign workers come to Singapore, either the skilled foreign workers who hold employment pass, or the semi-skilled workers who hold work permits, or even the unskilled foreign workers who hold a two-year work permit, because the employers require their services and they can help the company to enhance their competitive edge. It must be so because employers will not bring in these foreign workers just to stack up the manpower or the headcount in the company. They need these foreign workers because, in many instances, Singaporeans are not prepared to do some of the jobs which are available. As a result, the employers have no option but to turn to foreign workers. Let me give Members the example in the construction sector. Today, we have a large number of foreign construction workers because many Singaporeans are not prepared to work in the construction sector, although there are many jobs going begging within the construction sector. Employers or contractors recruit many foreign workers. In the construction sector, my Ministry is introducing new regulations to ensure that the foreign workers who come in have some basic construction skills. We have started in August this year to require all recruitments of non-traditional source construction workers to have at least 20% of them tested in basic skills in their home country before we grant approval in Singapore. In other words, if you want to bring in 100 foreign workers from Bangladesh, for instance, at least 20 of them must have been skill tested in Bangladesh itself first and they have been found to have a certain level of basic construction skill before we grant approval in principle for you to bring in 100 of these workers. This 20% figure will gradually be adjusted upwards to 100%. Our initial target was to do this over a period of three years, but we are looking at whether we can shorten this period and to speed up the process to force the contractors to recruit more skilled workers. There is likelihood that we can shorten the timeframe. The same can be said for many other sectors where, under the present circumstances, employers in fact have an opportunity to recruit more skilled workers because in the regional countries affected by the Asian crisis, there is massive unemployment. There is opportunity for them now to go out to look for the more skilled workers to come in to supplement the Singapore workforce in areas where we are lacking. We will continue to refine and improve our foreign worker policy to ensure that employers who bring in foreign workers will need them and they have suitable skills qualification. This will take some time because we have a large pool of quite lowly skilled foreign workers. This has got to be turned over gradually and, in due course, we can replace them with more skilled foreign workers. Sir, may I now turn to Mr Zulkifli who also supported the idea in the Bill to fingerprint the foreign workers. But he asked why is there this unequal treatment between employment pass holders and work permit holders. The reason, as the Member has mentioned, is that today the problems of abuses such as forgery of work permit card or work passes or working illegally exist mainly in the unskilled and semi-skilled level, in other words, work permit holder level. There are very few employment pass holders, who are in the professional, management and executive level, who end up in this kind of situation. Forgeries or infringements of the employment pass regulation in the employment pass sector are very few, because these are the better qualified and higher skilled people. We do not have so many cases of abuses or illegal workers or professionals coming into Singapore to work illegally. The main problem is with the two-year work permit holders who are mostly unskilled workers, and the bulk of the problem is actually in the construction sector. We have lots of foreign workers in the marine, manufacturing and service sectors. We have very few problems with these people. Most of the problems that we are encountering such as illegal workers, wrongful deployment and abandoning workers on the street, all come from the construction sector. Following this amendment, we will concentrate all our resources to ensure that fingerprinting of the construction workers takes priority. We will try to do it within one year because we must tackle this most serious problem first. If, at some point in the future, we find out that employment pass holders are up to no good and are also committing all kinds of breaches of the employment pass regulations, we can also bring them in. We only do things like fingerprinting if it is necessary. If there is no need to do it, why do we want to go through the trouble? Let me assure him that this is not a case of discrimination. This is a case of doing what is necessary. There is no need for us to overdo it.

Question put, and agreed to. Bill accordingly read a Second time and committed to a Committee of the whole House. The House immediately resolved itself into a Committee on the Bill. - [Dr Lee Boon Yang]. Bill considered in Committee; reported without amendment, read a Third time and passed.

Resolved, "That Parliament do now adjourn to a date to be fixed." - [Mr Wong Kan Seng]. Adjourned accordingly at Twenty Minutes to Seven o'clock pm to a date to be fixed.

asked the Deputy Prime Minister and Minister for Defence how the Malaysian Government's decision to terminate various arrangements governing the use of Malaysian airspace by the Republic of Singapore Air Force (RSAF) will affect RSAF training and operations and Search and Rescue, and what measures were taken up by the RSAF to deal with this development.

asked the Deputy Prime Minister and Minister for Defence, with the restrictions imposed on the usage of Malaysian airspace, what measures are being considered by the SAF to (i) work around the restrictions; and (ii) improve on their search-and-rescue operations.

On 17th September, Malaysia informed the Ministry of Defence that it was terminating various agreements and arrangements governing the RSAF's use of Malaysian airspace. Their decision came into effect on 18th September, effectively giving us less than 24 hours' notice. This was a unilateral decision by Malaysia. We were not given prior notification nor consulted. Malaysia's decision affected the agreements and arrangements covering RSAF flights through South Johor to the South China Sea Training Area; RSAF training within Malaysia's Low Flying Area; RSAF navigational training flights in Peninsular and East Malaysia; RSAF aircraft taking off from Tengah Air Base using South Johor airspace; and combined Search and Rescue operations and exercises. MINDEF and the SAF plan for all contingencies, and Malaysia's decision has not curtailed the RSAF's training and operations. When the decision was conveyed, the RSAF immediately implemented alternative arrangements. Today the RSAF conducts its training and operational flights with the same frequency and tempo as before. RSAF aircraft proceeding to their training areas no longer transit through Malaysian airspace but take alternative routes. In doing so, we have not compromised on safety. The RSAF has been working closely with CAAS to ensure the proper sequencing of RSAF flights and civil air traffic so that air safety is not compromised. We have also minimised the number of RSAF flights over built-up areas. However, the adjustments in flight paths could mean some inconvenience to those living on both sides of the Johor Straits as more aircraft now have to fly over Singapore's territorial waters in the Straits. In fact, several of the arrangements which Malaysia terminated had been designed to reduce the aircraft noise level. The RSAF does not depend on any one country for its training needs. The RSAF has established extensive overseas training arrangements. These have provided valuable training areas and also the opportunity to train and exercise with other highly professional air forces. We will continue to look for new training areas in other parts of the world. In addition, we have invested heavily in advanced training simulators. We will continue to conduct more sophisticated training and exercises and make more extensive use of simulators, to ensure that the RSAF's operational and training effectiveness continues to be of the highest standards. MINDEF would like to clarify some of the misconceptions about the agreements and arrangements covered by Malaysia's action. Firstly, the arrangements did not allow RSAF aircraft a free run of Malaysian airspace. For safety and other reasons, the arrangements set out minimum heights and demarcated areas, which were strictly adhered to by the RSAF. The RSAF also ensured that its aircraft did not fly at certain times because we were sensitive to noise concerns. Secondly, many of these arrangements were established many years ago, with some dating back to the 1960s. As these are long-established bilateral arrangements, mutually agreed upon, we had expected some consultation or discussion before any action was taken. Especially as over the years the Ministries of Defence and air forces of the two countries have had regular consultations, conducted professionally and for mutual benefit, to make adjustments to the arrangements when necessary so as to take into account such things as aircraft noise and congestion. Instead the decision was conveyed with less than 24 hours' notice. This is despite the fact that the terms of one of the agreements clearly provide for six months' notification for termination. Thirdly, these agreements and arrangements were established in good faith and for mutual benefit. They were drawn up within a spirit of cooperation and Malaysia also derived some benefits in exchange for the RSAF's use of their airspace. For example, the RMAF was given access to RSAF Operational Flight Trainers and Air Combat Simulator. The RMAF was also allowed to station its personnel at the RSAF's Joint Air Traffic Control Centre to help coordination between the two air traffic control centres. While Malaysia's action has not affected the RSAF's training and operations, there will be an adverse effect on Search and Rescue (SAR) operations, as we were unfortunately reminded of only a week after Malaysia cancelled the SAR Agreement. This agreement, which is a common one between countries, was based on humanitarian considerations to facilitate SAR operations. In such operations, time is of the essence. How quickly distressed personnel can be located and rescued can mean the difference between life and death. Usually, SAR aircraft will take the shortest, most direct route to the search area. Under the agreement, the RSAF had in the past rescued both its own pilots as well as Malaysian pilots. For instance, in 1988, the RSAF rendered assistance to the RMAF twice for Search and Rescue and Search and Locate efforts. In the first case, we located the downed pilot at sea, picked him up and sent him to an RMAF airfield. In the second, we located the survivor and directed Malaysian search aircraft to his location. We worked hand-in-hand with the Malaysian authorities on both occasions. After the British helicopter mishap, the Malaysian Defence Minister asked Singapore to notify Malaysia of planned exercises and to apply for airspace clearance well beforehand for SAR operations during these exercises. SAR operations are by their very nature meant to handle emergencies which by definition cannot be anticipated. And emergencies can happen during training and even routine flights. Furthermore our Air Force, like the Malaysian Air Force and other air forces, carry out flying training and exercises almost daily. That is why countries have standing SAR arrangements, such as the one which the RSAF and RMAF had until 31/2 weeks ago. This is the most practical arrangement, meant to expedite and smoothen the operations and procedures between both sides for humanitarian reasons in order to save lives in an emergency when SAR is required. Some of the most basic principles of Search and Rescue, which are internationally accepted, are that there should be no delay in search and rescue efforts; that states should extend any possible assistance to search and rescue efforts; and, that states should coordinate their search and rescue efforts. Singapore's approach to SAR has always been based on internationally-accepted practices and universal humanitarian principles. As a responsible member of the international community, we will continue to uphold these principles and practices. This means that we have and will meet the obligation to provide SAR to those in distress in the quickest time possible. It also means that we must continue to maintain the highest readiness for our SAR operations. This is something which we cannot and will not compromise, for lives - whether Singaporean or other nationalities - are at stake. And this is why the RSAF's SAR assets will continue to be ready for deployment at a moment's notice. However, while our SAR assets may be highly trained and prepared for all contingencies, we must recognise that international cooperation is often necessary in SAR operations. We will continue to coordinate our SAR efforts with neighbouring states where necessary. We will also continue to render our utmost assistance to the SAR efforts of neighbouring states, and we hope to get similar cooperation from them when we have to conduct such humanitarian operations. In the context of the latest developments on the airspace issue, there have also been various allegations of intrusions by Singapore aircraft into Malaysian territory. Such allegations are not new. Only two weeks before the latest allegation on 1st October by Malaysia's Minister of Defence, there had been reports in the Malaysian press quoting allegations by Johor residents of RSAF intrusions. Datuk Syed Hamid himself had come out to say that there was no intrusion. He also pointed out that such news reports were provocative. We noted and we welcome Datuk Syed Hamid's statement that Malaysia and its Ministry of Defence would not react on hearsay and allegations but would investigate the complaints. Our response to all allegations of intrusions by our aircraft and vessels has always been a simple one. Inform us through official channels and give us the details so that we can conduct a thorough investigation. If we find that our personnel did intrude, we will punish them for we regard this as a very serious matter. But if all we get is an outcry in the media with no evidence provided, then we cannot be expected to pursue the matter further. Our records show that over the past five years there have been two instances (both in 1996) when the Malaysian Government officially complained about RSAF intrusions. On the first case of an alleged RSAF intrusion, MINDEF conducted thorough investigations and found no evidence to support the claim of an intrusion. We sought more information from Malaysia to help us with our investigations, and we even offered an exchange of information but Malaysia did not respond. In the second case, Malaysia sent a TPN which set out seven alleged instances of intrusions. Our investigations showed that the claim was without basis. In two of the instances the aircraft concerned were not even RSAF aircraft. There was another instance, early this year, when the Malaysian Ministry of Defence made an informal request to MINDEF to check whether some RSAF F-5s had strayed from their flight path in the Low Flying Area. They provided us the necessary details. We conducted a thorough investigation and found that the F-5s had unintentionally deviated from their planned route due to weather and temporal disorientation of the lead pilot. MINDEF conveyed this and our apologies to the Malaysian Ministry of Defence. There is no reason whatsoever for the RSAF to intrude into Malaysian airspace. In fact, the RSAF had every reason to adhere strictly to the terms and conditions of the various agreements we had with Malaysia for the use of Malaysian airspace, for to do otherwise would have brought an immediate response from the Malaysian Government. The Malaysian authorities would have been carefully scrutinising RSAF flights in Malaysian airspace and would not have hesitated to produce evidence to prove any deviation from the agreements had any such deviation occurred. The fact, that in spite of all the allegations and close scrutiny the detailed information which Singapore requested to carry out investigations was not forthcoming, speaks for itself.

asked the Minister for Foreign Affairs what is the status of negotiations to resolve the Customs, Immigration and Quarantine (CIQ) issue with the Malaysian Government.

Members will recall that when I addressed the House on the CIQ issue on 31st July 1998, I stated that Malaysia claimed a legal right for its Customs to remain at Tanjong Pagar. They also argued that despite the absence of any specific legislation, Malaysian Immigration also had a legal basis to operate at Tanjong Pagar railway station. Singapore disagreed but requested Malaysia to forward detailed legal arguments in writing for further study by Singapore's Attorney-General. The Malaysian Government agreed to present to Singapore within three months its legal arguments to support its legal claim. We have recently reminded the Malaysian Government of its agreement to present its written legal arguments. The position therefore is that we are currently awaiting receipt of their legal arguments. After our Attorney-General has studied Malaysia's legal arguments, officials from the two Attorney-General's Chambers would then meet to clarify the legal position and the basis of Malaysia's claims.

asked the Minister for Foreign Affairs (a) whether recent misunderstandings and tension in the relations of Singapore, Malaysia and Indonesia call into question the fundamental objectives of ASEAN solidarity and economic cooperation; and (b) whether the Asian economic crisis will impede the smooth implementation of the ASEAN Free Trade Area by 2003.

It is true that there are bilateral differences among some ASEAN member countries. However, this is not unusual as ASEAN countries have had bilateral problems in the past. Fortunately, ASEAN members have not allowed their bilateral disputes to impede their ongoing cooperation or to undermine ASEAN unity. For example, notwithstanding the current problems besetting the region and certain bilateral issues, ASEAN Foreign Ministers held a successful annual Ministerial Meeting in Manila in July. Recently, on 23rd September, I chaired an ASEAN Foreign Ministers' Meeting held in New York on the fringes of the UN General Assembly, during which the Foreign Ministers reached consensus on a number of issues, including on Cambodia. The ASEAN Finance Ministers met on 4th October 1998 in Washington DC, where they agreed to endorse the terms of understanding for an ASEAN Surveillance Process. A few days ago, the ASEAN Economic Ministers also met in Manila to discuss cooperation in economic matters. These ASEAN Ministerial meetings demonstrate that notwithstanding ongoing bilateral differences and other difficulties, ASEAN member countries continue to cooperate on a range of important issues. There is no doubt that the regional financial and economic crisis poses one of the biggest challenges for ASEAN. All the ASEAN countries have been affected, to varying degrees. The challenge now is for ASEAN, during this period of difficulty, to continue such cooperation at all levels to tackle the problems facing the region. (b) On the second part of the Member's question, I wish to inform him that despite the financial and economic crisis, ASEAN countries have been moving ahead on the ASEAN Free Trade Area, or AFTA, initiative. At the recently-concluded AFTA Council Meeting held in Manila on 6th October 1998, ASEAN countries reiterated their commitment to implement AFTA and further agreed to expand the number of tariff lines that can be accelerated ahead of schedule. Indeed the AFTA Council recognised that further acceleration of AFTA was particularly important in light of the current financial and economic crisis. ASEAN's commitment to economic cooperation is further demonstrated by the endorsement of the ASEAN Economic Ministers, at their meeting in Manila from 7th-8th October 1998, of the Framework Agreement on the ASEAN Investment Area to enhance the investment climate in ASEAN.

asked the Minister for Finance if he will indicate the present status of our foreign reserves and a summary of the resultant effect on them arising from the economic turmoil and currency crisis.

Nothwithstanding the Asian economic crisis, and the turmoil in world financial markets, our reserves are earning satisfactory returns. This is because our foreign reserves are well diversified in terms of currency distribution, and asset classes such as bonds, equities and cash. Moreover, the bulk of our reserves are invested in the G-7 countries.

asked the Minister for Finance what is the status of the several billions of ringgit that Singapore was holding prior to the currency control imposed by the Malaysian Government.

Singapore's official ringgit holdings consisted mainly of offshore ringgit deposits which GIC placed with banks based in Singapore, and on-shore ringgit deposits with Malaysian banks in Malaysia. Regarding the offshore ringgit deposits, the unexpected imposition of currency controls caused the banks to prepay GIC's ringgit deposits in US dollars at 4 ringgits to the US dollar. GIC has thus received full payment in US dollars for the offshore deposits. As for the on-shore deposits, GIC is discussing the status with Bank Negara Malaysia.

asked the Prime Minister, with the deepening economic crisis causing workers to face problems such as shorter workweek, no overtime work and lay-offs and having significant impact on their coping with the cost of living, whether the Government will introduce further measures to help the affected workers.

The labour market has indeed slackened as a result of the slowing economic momentum. However, for a large number of those retrenched, many have still been able to secure re-employment. According to MOM, a healthy 63% of those retrenched in 1st Quarter 1998 managed to find a new job by the 2nd Quarter 1998. The average time to secure the new job was 1.4 months. The most effective assistance Government can extend to Singaporeans during this difficult period is to help ensure that workers stay employed. To help workers stay employed during this economic downturn, Government has adopted a 3-pronged approach. First, we will help to keep businesses viable so as to minimise retrenchments. In order to do this, we need to keep our costs competitive so that our companies can compete for the reduced business demand during this period. We will do this by reducing our business costs. The $2 billion Off-Budget package announced in June 1998 was part of this cost-cutting exercise to preserve jobs. Towards the end of this year, the Committee on Singapore's Competitiveness will recommend to Government further measures to reduce business costs. Concurrently, the economic promotion agencies are stepping up their investment promotion efforts. This will help create new jobs to replace those lost. EDB has recently announced that 15,000 new jobs in electronic components, petrochemicals and aerospace and 5,000 more in communications, logistics and headquarter operations would need to be filled this year. There is therefore no shortage of jobs available if our workers possess the necessary skills. Second, we will help to train our Singaporean workers to acquire the necessary skills to match the needs of companies. The Skills Redevelopment Programme (SRP), which was launched earlier this year to complement the existing Skills Development Fund, is aimed precisely at this. The SRP provides training that not only leads to certifiable skills which employers recognise, but it also provides trained workers a job, either with their existing employer or new employer. As of September, about 2,200 workers have completed training and another 2,400 are undergoing training. Third, we will help retrenched workers secure alternative employment through active job-matching. The Ministry of Manpower (MOM) has implemented the Employment Assistance Programme and also set up a new Employment Facilitation Team to source and pool job vacancies from companies so that retrenched workers can secure employment expeditiously. These efforts have resulted in more job opportunities being identified for the retrenched workers. To date, MOM has been able to provide job referrals to some 80% of all job seekers every month. The Government recognises that despite these measures, there will still be some affected workers who will be unable to cope with the economic downturn. For breadwinners who are retrenched and have no other resources to fall back on, they can turn to a variety of community assistance programmes available through the Ministry of Community Development (MCD). For example, the Interim Financial Scheme, administered by MCD and the Community Development Councils (CDC), provides short-term financial assistance to help individuals and families facing financial hardship. For those who are in need of longer-term assistance, several other specialised assistance schemes are available through MCD, CDCs, the National Council of Social Services, and the various voluntary welfare organisations. These include the Public Assistance Scheme, Rent and Utilities Assistance Scheme, and the Centre-Based Financial Assistance for Childcare Scheme.

asked the Minister for Finance if his Ministry will assess the impact and effectiveness of the goods and services tax in terms of achieving its original objectives and consider a downward revision in the tax by two percentage points to stimulate demand and reduce business costs in the light of the changing circumstances.

GST was introduced in 1994 to achieve a better balance between direct and indirect taxes. With its introduction, both corporate and personal income taxes were cut substantially. The implementation of the 3% GST was intended to be revenue neutral. Last year, GST collection totalled $1,927 million. Whereas revenue forgone from the cut in income taxes and other offsets was $2,273 million, so that the original objective was achieved. The present economic downturn is due primarily to a fall in external demand. As domestic demand accounts for less than 30% of total demand, and the GST tax is only 3%, reducing or even suspending GST altogether will not raise total demand significantly. A 2% reduction in GST will mean a major loss to the Government of an important source of revenue. The Government has been lowering taxes and charges wherever possible to reduce business costs, and will continue to do so. However, the Government will adjust other taxes rather than the GST, for two reasons. Firstly, the incidence of the GST is widely and evenly distributed across all types of economic activity. So for the same amount of revenue collected, the burden of the GST is felt less heavily than taxes which levy a higher tax rate on a narrower range of activities, such as property tax. Secondly, any short term adjustments in taxes should be broadly consistent with our long term taxation policies. The Government had stated when the GST was introduced that the GST rate would remain unchanged for at least 5 years. Reducing the GST rate from 3% to 1% may mislead the public as to the Government's long term plans, and cause unnecessary anxiety and misunderstanding later when the GST rate has to be restored.

asked the Minister for Finance whether, in line with its objective of reducing the cost of doing business in Singapore, the Government will consider reducing taxes on petrol and diesel and/or taking other measures to reduce pump prices of petrol and diesel.

The Government is closely monitoring business costs. In June this year, a package of Off-Budget Measures aimed at reducing business costs was announced. Further cost-cutting measures, including all forms of Government taxes and levies, are being reviewed. In the case of taxes on petroleum products, I should point out that the levying of excise duties is one of the measures used to curb excessive vehicle usage and minimise congestion on the roads. Any proposal to reduce duty on petrol would therefore have to take into account its impact on road usage. Electronic Road Pricing (ERP) has just been introduced and Government will need some time to monitor the new road usage and traffic patterns.

asked the Minister for Finance what is the outstanding number of cases where corporations and individuals apply for tax refund; and whether his Ministry will expedite the processing of the refund so as to ease the cash flow of those who applied.

As at the end of September 1998, the number of tax refunds to be processed by IRAS was about 14,500. 5,700 of these refunds are claimed by registered GST traders for input tax paid on their business purchases. GST traders filed their claims monthly, quarterly or yearly based on the filing frequency they have chosen. More than 90% of the traders get their GST refunds within 2 to 3 weeks of their claim. The refund for the other taxes, namely, income and property taxes are also expeditiously dealt with. 85% of income tax refunds are made within 2 weeks after the claims are processed. The more complicated cases may take 4 to 6 weeks. Refunds for property tax usually take about 1 month from the date the claims are processed.

asked the Minister for National Development (a) whether lessees, whose flats are to be upgraded under the Housing and Development Board's upgrading programme, should contribute less towards the cost of upgrading their flats in view of the drop in property prices and building costs and (b) whether there would be a slow down in the upgrading of HDB flats this year.

Under the Main Upgrading Programme (MUP), the amount lessees have to contribute depends on the cost of the upgrading works and not on property prices. The lessees co-pay a percentage of the actual construction cost for the upgrading works carried out in their precinct. The actual construction cost depends on the scope and extent of the improvement works. As construction cost has come down for precincts that were tendered recently, the lessees for these precincts would be expected to pay less for the same package of improvements. Lessees are not required to contribute to the Interim Upgrading Programme (IUP). I informed the House early this year that for 1998, the MUP has been scaled down from 15 precincts to 10 precincts and the IUP from 24 precincts to between 16 and 20 precincts in view of the economic conditions. HDB already announced 5 MUP precincts in April 1998. It will announce another 5 precincts before the end of the year. HDB also announced 18 IUP precincts in April 1998. As for the upgrading programme in 1999, I informed the House in the previous sitting that MND was preparing its FY99 budget plan for submission to the Ministry of Finance. Given the budgetary constraints that we will be facing, we have to manage our limited financial resources carefully according to the country's priorities. These priorities will take into account, amongst other things, what are the most effective measures to stimulate the economy, and will be co-ordinated across the various ministries in a concerted effort to achieve maximum impact. Whether there would be a slow down in the upgrading of HDB flats next year depends ultimately on the budget allocated to MND.

asked the Minister for National Development (a) how many Housing and Development Board (HDB) shop tenants terminated their leases in 1996, 1997 and 1998; and (b) whether the HDB will consider further reducing the rental of HDB shops so as to enable shop tenants to lower the prices of their goods and services, thus benefiting consumers.

A total of 146,217 and 158 shop tenants terminated their tenancies in 1996, 1997 and 1998 (up to August 1998) respectively. These figures do not include those affected by redevelopment/clearance programmes. With about two-thirds of the shops eligible for sale already sold, the market rentals for HDB shops are largely determined by the shop owners and their tenants. HDB is no longer the main deciding factor for shop rentals. In reviewing market evidence of the going rent, HDB follows the market trend and does not lead it. To help shopkeepers during this period of economic slowdown, HDB has introduced a package of rent concessions in November 1996 and December 1997, eg, moderating rental adjustments at 3rd renewal, granting up to 10% rental concession for those paying above market rent and staggering increases in rent for subletting and assignment cases. In July 1998, additional concessions in the form of 10% rental rebates and passing on of the full savings of 55% property tax rebates, were introduced for a period of one year, from 1st July 1998 to 30th June 1999. Thus, various measures have already been implemented to help shop tenants reduce business costs. Nevertheless, HDB will monitor the market rent closely and make adjustments as and when necessary.

asked the Minister for National Development if he will review and deregulate the curbs on the private residential property market in view of the changing situation.

In view of the current economic downturn and the weak property market, the Government has implemented various measures to avoid exacerbating the oversupply situation and to stabilise the property market. It has stopped land sales for 1998 and 1999, suspended the premium for the extension of the project completion period, and allowed re-assignment of land sale sites. Without compromising financial prudence, the Government has also relaxed or suspended some of the curbs on the property market implemented in May 1996. These include suspending the sellers' stamp duty for sale of housing units within 3 years of sale, and deferring the stamp duty payment for purchasers of uncompleted properties until Temporary Occupation Permit stage. The other measures have been retained for financial prudence and to prevent speculation. The Government will continue to monitor the property market closely and make adjustments to property market policies when necessary.

asked the Minister for Communications, in view of the increasing incidents of piracy in the neighbouring seas, whether Singapore can play a more meaningful role in international efforts to control piracy in the region.

There is no evidence of an increase in the number of incidents on piracy and armed robberies against ships in the waters near Singapore. Singapore and Indonesia have since 1992 established an arrangement to conduct coordinated patrols to curb the menace. The joint effort has proven to be effective. According to the July 1998 report of the International Maritime Bureau on Piracy and Armed Robbery Against Ships, the number of incidents in the Singapore Strait has been one per year from 1994-1996, with no reported incidents from 1997 to mid-1998. At the international level, the International Maritime Organisation (IMO) is also concerned with piracy incidents as they affect safety of navigation of ships. The IMO has recently decided to organise a series of regional seminars to address the issue. The seminars aim to explain IMO guidelines for the combat of piracy and armed robbery and to encourage participating countries to develop cooperative measures among themselves to address the problem. At the request of the IMO, we have agreed to help organise the seminar for the Asian region in Singapore in February 1999. We will continue to promote and support regional and international efforts to address the issue.

asked the Minister for Community Development, with the worsening economic situation, more students currently attending classes in private tuition centres will be looking for cheaper alternatives to help them in their education, whether there are plans among self-help groups such as SINDA, CDAC and MENDAKI to absorb these students.

I share Mrs Yu-Foo's concern that students affected by the economic situation should have the necessary help if they need tuition. The Ministry has checked with each self-help group. The self-help groups have assured the Ministry that they will have places for students who qualify for and require subsidised tuition. They are prepared to open up more classes and to waive fees for deserving cases if necessary. We must continue to have a strong support system to ensure that our children's education is not affected by Singapore's economic situation. MCD and the self-help groups will ensure that subsidised tuition is available to those who need it.

asked the Minister for Education (a) what facilities are provided in schools (primary, secondary and junior colleges) for handicapped students; (b) how many schools are equipped with such facilities; and (c) whether all new schools are equipped to cater for such students.

The basic disabled-friendly facilities provided in schools are: a car parking lot for the disabled, a ramp at the main entrance, ramps to all facilities located on the ground floor of every block, a toilet for the wheel-chair bound on the ground floor and at least one ambulant disabled toilet cubicle at each of the upper levels. MOE's plan is to provide all existing and new schools with such basic facilities by the year 2003. In addition, 10% of the schools will have additional facilities such as ramps or lifts to all levels and ramps for corridors to each room at every level. These schools with additional facilities are to be spread out over the island to facilitate easy access for the disabled who live in different parts of Singapore. Currently, 33 primary schools and 51 secondary schools have the basic facilities, while 8 primary schools, 6 secondary schools and 1 JC have both the basic and the additional facilities. My Ministry is undertaking a review of the current norms for the provision of disabled-friendly facilities in schools, with a view to ensuring adequate provision and greater accessibility of such facilities for the disabled students.

asked the Minister for Community Development and Minister-in-charge of Muslim Affairs whether there are any formal and open procedures adopted by the Majlis Ugama Islam Singapura on the appointment of religious leaders and administrators in mosques.

MUIS has formal and open procedures to appoint religious leaders and administrators in mosques. (i) Mosque Imam (Prayer Leader)

Mosques may only appoint Imams approved by MUIS. Candidates for the Imams are interviewed by the Fatwa Committee. If they are found to be suitable, the mosques will be allowed to employ them. Both local and foreign Imams are required to go through this process. (ii) Mosque Management Board (MMB)

MUIS appoints the members to the Mosque Management Boards (MMB). The tenure of appointment is for 2 years.

MUIS will invite applications from the public. There are 3 sources of nominations: from mosques, direct applications to MUIS, and talent searching by MUIS. In considering the nominations for members of the Board, MUIS will assess each candidate based on feedback and consultation with the key office bearers such as the Chairman and Secretary of the existing Board. MUIS also considers other factors such as attendance in meetings, positive contributions, leadership quality, character reference, MUIS' audit observation, the need to regenerate leadership and balance between different groups such as asatizahs/professionals, old/young. (iii) Mosque Administrators

MUIS has introduced an Executive Officer (Administration) Scheme for selected mosques. MUIS advertises for candidates. Those shortlisted are selected by an interview panel chaired by a MUIS senior official. Successful candidates are appointed under the MUIS Scheme of Service and assigned to the mosques as full-time administrators. MUIS so far has appointed 4 EOs under this scheme. MUIS will continue to refine and improve its selection process in order to recruit the best talents for mosque management.

asked the Minister for National Development (a) how many construction workers (both local and foreign) were trained, tested and certified as skilled workers by the Construction Industry Training Institute in 1996, 1997 and 1998; (b) whether there are any incentives or schemes provided by his Ministry to attract Singaporeans to join the construction workforce; and (c) whether his Ministry will consider providing both monetary and non-monetary incentives for local construction firms to employ skilled Singaporean construction workers.

Number of construction workers (both local and foreign) trained, tested and certified as skilled by CITI The number of construction workers (both local and foreign) trained has gone up from about 4,300 in FY96 to about 8,900 in FY97. The figure for the first quarter of this FY is 3,330. Similarly, the number of workers tested and workers certified has also gone up significantly. In FY96, about 22,000 workers were tested and out of which, about 11,000 were certified as skilled workers. In FY97, the number of workers tested and workers certified are about 28,000 and 17,000 respectively. The figures for the first quarter of this FY are 18,385 for workers tested and 10,385 for workers certified. (ii) Incentives/schemes to attract Singaporeans to join the construction workforce The foreign worker levy makes the employment of Singaporeans more competitive while the dependency ceiling requires employers to engage Singaporeans before they can employ foreigners. There are currently also incentives for Singaporeans to receive training in construction trades. Singaporeans pay lower test fees at CITI for most of the main trades. They also enjoy further SDF subsidies of between 50% and 80% on the fees of some courses. Some of the courses offered by CITI are also recognised under the Skills Redevelopment Programme set up by the NTUC and MOM to aid the training of local workers. The Construction Brigade Scheme was also put in place to help to build up a pool of local construction workers. (iii) Monetary and non-monetary incentives for local construction firms to employ skilled Singaporean construction workers This is being considered and will be looked into by the MOM-MND Construction 21 Committee formed to review the construction industry. Any ideas or suggestions from Dr Teo will be welcomed and looked into by the Committee.

asked the Minister for the Environment (a) what is the rationale for implementing the measure to replace electrical generators at construction sites with Public Utilities Board's electrical supply; (b) why it was implemented without notice given to the construction industry; and (c) whether he will consider postponing the implementation of the said measure for the industry to adjust without having to bear extraordinary costs.

My Ministry has received numerous complaints from residents living close to construction and renovation sites on the use of generator sets at these sites. Generator sets cause noise pollution and those operated by diesel can also cause air pollution. My Ministry, therefore, decided that generators should not be used at locations where power supply can be obtained directly from the grid if they cause noise and air pollution to neighbouring residents. The use of generator sets in construction sites was first discussed with the Singapore Contractors Association (SCAL) in July 1998. In another dialogue session with SCAL in September this year, SCAL was generally supportive of the policy and pointed out that connection to the grid would in fact be more economic and reliable. My Ministry had agreed to organise a meeting with Power Supply together with SCAL and REDAS to see how early connections can be made possible.

asked the Minister for Trade and Industry whether his Ministry has recently investigated the existence of an oil cartel which fixes the price of consumer oil prices, in particular, vehicle petrol/diesel prices; and if not, whether his Ministry will investigate the existence of such a cartel.

The recent allegations of price fixing by oil companies pointed to the uniformity of petrol and diesel prices as evidence of collusion. There were also complaints that the recent two-cent cut in petrol pump prices is not commensurate with the larger drop in fuel costs. Between January 1998 and August 1998, the posted price1 of RON 98 unleaded petrol of the major oil companies in Singapore dropped by between five and six cents per litre. During the same period, pump prices came down by four cents per litre. 1 Which can be loosely defined as the ex-refinery wholesale price of a petrol product. My Ministry met the oil companies last week to seek their explanation on the allegations of price fixing, and on the observation that pump prices have generally been unresponsive to drops in fuel cost. The oil companies gave my Ministry their assurance that there is no collusion to fix prices. They explained that in Singapore, where the market is small and with motorists within easy reach of several competing petrol stations, a price variation is unsustainable. Any reduction in prices would be quickly matched by competitors. The oil companies pointed to the large number of petrol products available2, and their focus on product marketing, service levels, free gifts and development of convenience facilities at petrol stations, as evidence of competition within the industry. 2 Seven grades of petrol. On the issue of sticky pump prices, the oil companies explained that fuel cost is not the only determinant of pump prices. They depend also on the land lease, capital depreciation, operating costs, wages and others. Hence, it does not necessarily follow that a drop in fuel cost would translate into a reduction in pump prices. My Ministry has urged the oil companies to quickly pass on cost savings to motorists. We will continue to monitor the situation and will not hesitate to take action if we find any evidence of collusion to fix prices.

asked the Minister for Trade and Industry if he will brief the House on the progress in deregulating the electricity market, and whether, in the interim, tariffs for non-peak periods will be reduced, thereby allowing manufacturers and large industry users to alter their consumption pattern to take advantage of non-peak excess generation capacity to reduce their electricity bills.

The electricity and gas departments of PUB were corporatised on 1st October 1995. A Pooling and Settlement System, which facilitates competition in the generation and supply sectors, has commenced operation on 1st April 1998. Power Senoko Ltd, Power Seraya Ltd, the Ministry of the Environment (ENV), which generates electricity at its refuse incineration plants, and Power Supply Ltd have begun trading electricity at the Pool. Tuas Power Ltd will also begin trading in the Singapore Electricity Pool when its first power plant commences operation sometime in 1999. Another company, SEMPEC Utilities and Terminal (SUT) Cogen Pte Ltd has been given in-principle approval to construct a power plant on Pulau Sakra. To encourage private sector participation in the electricity industry, the Government has initiated the divestment of Tuas Power Ltd. The tender for prequalification of interested parties was called on 23rd September 1998. Further competition in the generation sector will come from additional generation capacity from independent power producers (IPPs) and co-generators in future. Currently, large consumers whose maximum demand exceeds 5MW may negotiate and enter into special supply arrangements with Power Supply Ltd on a commercial basis. Such consumers may also choose their electricity suppliers when new electricity suppliers are licensed. The supply sector will be further liberalised at a later stage to allow private electricity suppliers to sell electricity to consumers whose demand is less than 5MW. The peak and off-peak tariffs for High Tension consumers were introduced on 1st August 1986 to encourage large industry users to shift their demand to the off-peak period (11 pm to 7 am). Large industry users can adjust their consumption pattern to take advantage of the off-peak rate which is 12% lower than the peak rate. In particular, consumers who operate three shifts have benefited from the lower off-peak rate. With the operation of the Pooling and Settlement System, the setting of electricity tariffs will take into account the cost of generation at different times of the day as indicated by pool prices. The use-of-system charge, which is currently a flat rate, will also be unbundled on 1st January 1999 into Low Tension, High Tension and Extra High Tension categories to reflect the cost of transmitting and distributing electricity at different voltages. The use-of-system charges for High Tension and Extra High Tension categories will be further unbundled into peak and off-peak categories. As such, electricity tariffs, including peak and off-peak tariffs, can be expected to be more cost-reflective.

asked the Minister for Law whether he will consider allowing incorporation of the legal profession in Singapore.

In January this year, the Law Reform Committee of the Singapore Academy of Law submitted to the Attorney-General a report recommending that law firms be allowed to corporatise on a voluntary basis. Amongst the reasons stated by the Committee were that, with corporatisation, law firms can be reorganised into larger corporate units to share resources and take advantage of economies of scale. This will enhance their ability to cope with the faster pace, heavier workload and greater range of work. With growth, there would be scope for concomitant specialisation. The corporate structure will also promote globalisation of Singapore law firms. After discussing with the Attorney-General the advantages and disadvantages of the proposal, I gave my in-principle approval to the Law Reform Committee to work out the details. I emphasised the importance of ensuring that there are adequate safeguards to protect the interests of clients against the negligence and incompetence of law corporations. The Law Reform Committee and Law Society are currently working together to consider the details of the proposal. When they submit their detailed proposal, my Ministry will study it with the Attorney-General's Chambers bearing in mind public and national interests. The corporatisation of law firms will help Singapore law firms to be more competitive. Hong Kong has already amended its legislation to allow corporatisation of law firms. Allowing professionals such as lawyers to corporatise is not something new in Singapore. Architects, engineers and land surveyors were allowed to do so in 1991.

asked the Minister for Health, during these difficult times, if he will (i) review and readjust the staff structure of doctors in public hospitals in order to solve the shortage problem and reduce the excessive workload of junior doctors; and (ii) step up the recruitment effort and increase the number of training posts for nurses.

Readjusting the staff structure of doctors My Ministry has taken a two-pronged approach in increasing the supply of junior doctors. We have increased the university medical school intake to 200 per year. As this is a long-term solution, we have in the short term made efforts to recruit overseas-trained Medical Officers. We have appointed 59 foreign trained medical officers since January this year, in addition to the 81 that were appointed last year. Previously, we had only been able to bring in about 50-odd officers per year, including both House Officers and Medical Officers. This has greatly reduced the shortfall of junior doctors. My Ministry has also moderated the number of night calls to six per month. Night calls are an unavoidable facet of institutional practice. My Ministry has also instructed our hospitals, where necessary, to pool its medical staff of related disciplines for night duty rostering. In addition, departments have also sought to alleviate the workload of junior doctors by practising "step-down" calls where more senior doctors (such as Registrars and Consultants) assist their junior colleagues by taking on some of their calls and workload. As a longer term measure, the MOH Nursing Task Force set up in November last year has recommended that nurses should take on higher level clinical duties (eg intravenous injections, hypocounts and venepunctures). Whilst the main intent of this recommendation was to enhance the jobs of nurses and enable them to maximise their skills and abilities, this would also have the secondary effect of easing the workload of junior doctors, especially house officers. Nurses - recruitment efforts and increasing training posts I turn now to the issue of stepping up efforts to recruit nurses. The Ministry of Health, Health Corporation of Singapore and the Restructured Hospitals have been conducting a sustained campaign for many years to attract young people into the nursing profession. This campaign has included career exhibitions and career talks at schools, participation in careers fairs, giving out of nursing bursaries and scholarships, newspaper features and television commercials. Whilst these efforts did produce results, it was only this year that we have seen bumper crops beyond our targets and expectations. The NYP Nursing Diploma programme's intake was 640, above their targetted intake of 600. Likewise, the School of Nursing's intake for the Pupil Assistant Nurse programme has more than doubled over last year's intake, from about 70 to 160. While this is partly related to the current economic situation, I believe this can also be attributed to the increasing awareness of the nursing profession through the higher profile publicity campaign. We will continue with our on-going programmes to promote nursing as a career.

asked the Minister for Health if there are plans in place to use the opportunities, which this economic downturn may offer, to make Singapore into a `medical hub' for the region in the near future.

At present, Singapore is already widely acknowledged as a regional medical hub. Many patients from the region seek medical treatment in Singapore, especially for more complicated medical conditions. Many international and regional conferences are also held in Singapore, attracting doctors and other participants from the region. With the current economic downturn, the number of regional patients coming here for treatment has declined. However, MOH will continue to facilitate the efforts of various associations to attract medical conferences and exhibitions to Singapore. At the same time, the current economic situation does present us with some opportunities to strengthen our position as the regional medical hub. The downturn has resulted in fewer public sector doctors leaving to join the private sector. More senior specialists from the private sector have also indicated their interest in joining the Visiting Consultant Scheme in public hospitals. Such developments will enable the public sector hospitals to build up their manpower resources, and further enhance their expertise, capabilities and patient services. The Ministry's plans for the setting up of the National Centres for Heart, Cancer and Neuroscience are proceeding as planned. These Centres will provide complex tertiary clinical services for the nation, and will also be focal points for medical research and teaching in their respective specialties. I would like to assure the Member for Kreta Ayer-Tanglin GRC that the Ministry of Health will continue with efforts to make our healthcare system relevant and better. This will ensure that Singaporeans can continue to enjoy a high standard of medical care, and we are able to maintain our reputation as a regional centre of medical excellence.

asked the Minister for National Development whether Government-linked companies have to comply with the rules and regulations set out by various agencies such as the Building Control Division, Urban Redevelopment Authority, Building Structural Branch and others, in the same way as any other private company will have to.

Like any other private company, all Government-linked companies are required to comply with the provisions and requirements of the Planning Act, the Building Control Act, and the rules and regulations made under these Acts.

asked the Minister for Trade and Industry what steps his Ministry has taken to prevent the Jurong Town Corporation flats located along Yuan Ching Road from being illegally sublet as workers' dormitories.

The Lakeside Apartments along Yuan Ching Road are private apartments built by JTC in the 1970s. The apartments were sold to private owners with 99-year leases registered under the Land Titles Act. As the restriction period on subletting is over, the lessees are free to sublet their premises without having to seek JTC's approval. JTC has referred cases of unauthorised use of the apartments as workers' quarters to the URA. The URA has inspected the premises and found that four apartments were being used as workers' quarters. Warning letters have been served to the owners to cease the illegal use within 1 month. Further enforcement action will be taken by the URA, if the illegal use is not ceased by then.

asked the Minister for Communications whether his Ministry will consider constructing rain shelters for motorcyclists along expressways.

LTA has, wherever space permits, provided bays under the flyovers along the expressways, for motorcyclists to shelter from the rain without being endangered by traffic. So far, 35 of such bays have been constructed under the flyovers with another 4 in the pipeline. All new flyovers will incorporate these bays wherever space permits.

asked the Minister for Law, from January to September 1998, how many companies were voluntarily wound up and how many persons were made bankrupt as compared to 1997.

Based on returns received by the Official Receiver from liquidators of companies in voluntary liquidation, 886 companies were voluntarily wound up from January to September this year, compared to 685 for the same period last year. 1,794 persons were made bankrupt from January to September this year, compared to 1,218 for the same period last year.

asked the Minister for Finance whether he will allow land lease payments to be made tax deductible in the same manner as for rentals, as such payments represent a substantial business cost and are in substance similar to rental payments.

Under our existing tax laws, whether a payment is tax deductible will depend on whether it is a revenue or capital expenditure in nature. If it is the latter, it would not be allowed a deduction as conversely, we do not tax capital gains. Lease payments, if made for the purpose of acquiring an asset of enduring benefit, would be a capital expenditure and thus not allowed a tax deduction. Mr Ee may be aware that to assist companies to weather the tough economic conditions, JTC has introduced a number of changes with regard to its land lease policy. One of the measures is to offer industrial land tenants the option to pay their land rents for a period of up to 30 years in an upfront lump-sum payment, with effect from 1st January 1998. This option will help to reduce the cost of land for industrial users. To complement this measure, I have also decided to allow tax deduction for amortisation of such upfront payments made by JTC and HDB lessees for industrial land leases with a duration of less than 30 years. This is despite the fact that under our normal tax laws, such payments are generally capital expenditure and not allowed a tax deduction. The deduction is applicable to all qualifying new leases entered into on or after 1st January 98.

asked the Minister for Finance if he will provide more information about the rise in private residential mortgage loan defaults from April to September 1998 and whether this will become a worrying trend; and how the Government will tackle this problem, particularly in view of the fact that any cut in Central Provident Fund contributions may exacerbate the problem.

There has been an increase in non-performing housing loans over the year, ie, loans on which borrowers have not been servicing their instalments for 3 months or more. Such loans amounted to 1.7% of the banks' total number of housing loans as at end-August 1998 compared with 1.0% as at end December-19971. The default rate is not as yet worrying, but the MAS is monitoring closely the trend. 1 These estimates are based on data from 10 leading commercial banks, accounting for 90% of all housing loans extended by commercial banks. The proposed cut in CPF contribution rate would have some impact on mortgage loan repayments. However, the impact will be mitigated by both the banks and the Government. Just like the HDB will reschedule the loans for those purchasing HDB flats and shops, banks can be expected to reschedule the private property loans as far as possible and recall the loans only as a measure of last resort. As announced by the Prime Minister in his recent National Day Rally Speech, in the event the Government decides to cut CPF contribution rates, the Government will be prepared to help property owners in their monthly housing loan repayments through a bridging loan scheme. The scheme would offer loans to make up for shortfalls in housing loan repayments arising directly from the CPF cut. The Government is currently studying the terms and conditions and the implementation details of such a scheme, and will announce it at an appropriate time.

asked the Minister for Home Affairs how many people were granted permanent resident and citizenship status from 1991 - 1995.

112,732 and 44,730 people were granted permanent residence and citizenship status from 1991-95 respectively.

asked the Minister for Health, concerning healthcare for the elderly, (a) what kind of medical subsidy is given to the aged sick who have no Central Provident Fund savings or medical security funds; (b) what schemes his Ministry can offer to lighten the burden of the "sandwiched generation" of young working adults who are stressed by having to use their own Medisave to pay for the increasing medical expenses of their aged parents; and (c) if his Ministry will consider offering more substantial medical subsidies for the aged as a recognition of their contribution to nation building.

The elderly receive heavily subsidised primary health care at Government polyclinics, at 75% of the treatment cost. For hospital care, all patients have a choice of wards. For Class C beds, patients pay only 20% of the cost; the Government pays the remaining 80%. For Class B2 beds, the patients pay 35% of cost, Class B1 80%. There is no subsidy for Class A wards. Financial counselling is provided at the point of admission to enable patients to choose their ward class according to their financial means. To ensure that everyone has equal access to the heavily subsidised wards, Class B2 and C beds are kept at about 70% of the number of public acute hospital beds. We would like to assure the member that the public sector hospitals will not turn away patients who are unable to pay. The necessary treatment is always given first. In instances of financial hardship, Medifund acts as a safety net to ensure that no Singaporeans will be denied essential medical care just because of the inability to pay. Therefore, the existing systems are able to help the aged sick with no CPF savings or other sources of medical funds. As explained earlier, we would encourage Singaporeans to choose a class of ward which they can afford. If despite Government subsidies, Medisave and MediShield, they are still unable to pay for the essential medical care, they may approach the medical social worker of the hospital or their Community Development Council for Medifund assistance. As the aged can opt for treatment at Government polyclinics and acute hospitals which are already heavily subsidised, my Ministry does not consider it necessary to revise the subsidy level to them further. However, the Member would be aware of the pre-Medisave top-up scheme introduced in 1996 in recognition of the valuable contributions and services rendered by the older citizens to Singapore. It is aimed at helping them build up their Medisave accounts since they would have accumulated little or no Medisave savings, having retired before or shortly after the Medisave scheme was introduced in 1984. Therefore, those who are 64 and above on 1st April 1998 will receive between $100 and $350 (depending on age) so long as they make a small co-payment. The co-payment reinforces the partnership between the Government and the people in looking after the people's healthcare needs. To date, 3 top-ups, costing the Government $159 million, have been given. The elderly will receive the fourth and final instalment of the Pre-Medisave top-up in January 1999 if they contribute another co-payment of $20 into their Medisave account during the period 1st July 1998 to 31st December 1998.

asked the Minister for Manpower how his Ministry intends to measure the effectiveness of the various programmes set up by the National Trades Union Congress and other bodies to retrain workers, in terms of the impact of the programmes on workers' earnings, job placements and career mobility.

Government support for worker retraining is primarily through a $50 million grant to the National Trades Union Congress (NTUC) for the Skills Redevelopment Programme (SRP). This grant is matched by another $50 million from the Skills Development Fund. Another $20 million was set aside by the Government as an off-budget measure in July this year to expand training facilities and other infrastructure in support of the SRP. The SRP was initiated to address the issue of long-term employability of lower-skilled workers, especially the older ones. For this reason, it is a requirement of training under the SRP that it should lead to skill certification. At present, this means certification conferred by the Institute of Technical Education and the Polytechnics. Courses leading to skill certification by these institutions have been formulated with the inputs from industry. Workers who are skills certified as a result of training under the SRP are in better position to benefit from the recognition in the market for such skills. For example, the gross median monthly salary for an NTC-2 graduate is $1,250, while for an ITC graduate it is $1,500. As 70% of SRP trainees have an educational level below `N' levels, the ability to obtain such skill certification is in itself an achievement. In the present difficult economic climate, when workers face retrenchment, the Ministry is more concerned with job preservation as an indicator of effectiveness. In this respect, the SRP has so far given encouraging results. As at end-September, over 2,800 workers have been sent by their companies for training under the SRP. Another 1,300 have been sent for training by companies, which had adopted a shorter workweek; in other words, they were sent for training as an alternative to being retrenched. To date, none of these 4,100 workers have been retrenched. They are either still undergoing their training or have completed training and continue to be gainfully employed by their current employers. A further 400 workers were sent for training by companies prior to being retrenched. These were mainly companies that were winding down operations and had no choice but to let their staff go. They agreed to send these workers for training under the SRP in order to enhance their chances of getting another job. All the workers have since been successfully placed with new employers. The NTUC and the Singapore Hotel Association have just launched the sector-driven SRP for the hotel industry. To date, 55 hotels have signed up to retrain a total of 2,000 workers. Because of the economic downturn, these workers would have been vulnerable to retrenchment. Instead, the SRP has provided an opportunity for the hotel industry to upgrade its manpower at affordable cost during a lull period. The Ministry will continue to monitor the success of SRP training in enabling workers to retain their jobs. As the SRP is employer-based, the focus has been on persuading companies to send their existing workers for training. However, as the numbers of unemployed have risen, we have also embarked on an initiative to match unemployed workers with employers who are willing to take them on and support their training under the SRP. The Ministry will monitor the number of such unemployed workers who are successfully placed as a result of this initiative. In the longer term, the Ministry intends to study the overall effectiveness of the SRP in terms of the employability and increase in the earnings capacity of trainees. However, we should be mindful that such analyses would be more meaningful when the economic situation has stabilised.

asked the Minister for Manpower, in view of the growing demand for social services during the economic downturn, whether the funds set aside for the retraining and upgrading of workers will be used (i) for individuals who are training for jobs in the social services; and (ii) for those who are now working in or retrenched from the manufacturing sector and who wish to switch to the social services sector.

Despite the economic downturn, social services remain one of few sectors still in need of workers. Health and social work, community, social and personal services contribute to around 7% of total employment. In the second quarter, this group saw an increase of 800 workers against an overall reduction of 5,800 jobs economy wide. So far, through the Skills Redevelopment Programme, funding for training has been provided mainly in the manufacturing sector. The Ministry is also working closely with NTUC, SNEF and other agencies to identify training opportunities in other services sectors such as hotels and restaurants and IT. Similarly, funding would be extended to the social services sector where there is demand for workers with higher skills. To date, we have, however, not seen a significant trend of retrenched workers opting to go into social services. There remain vacancies in manufacturing sector and other services sectors such as transport and communications, education and IT. The priority would be to train workers to fill these vacancies. Furthermore, social work has not been popular with our workers due to the generally lower pay and uncertain career prospects. However, if the downturn worsens, social services would provide a good avenue to absorb surplus workers. More unemployed Singaporeans who lack skills for other jobs may have to consider social services jobs. The Ministry will evaluate the possibility of encouraging workers to take up jobs in social services. We have started a process of identifying training providers in such areas, for example, in professional cleaning services. Courses in counselling services, community development and awareness, etc, are other possibilities. Proper training would help to enhance the image and professionalism of social workers, and give a boost to our people to take such jobs. Similar to manufacturing and services sectors, government funding could be provided for the drawing up of curriculum and certification programmes, as well as training under such courses.

asked the Minister for Manpower, as of June 1998 (a) what is the number of Central Provident Fund (CPF) members who use 90% or more of their contribution to the Ordinary Account to service their housing loans and what is the income and age profile of these members; (b) how many members have $10,000 or more savings in the CPF Ordinary Account and what is the income and age profile of these members; and (c) what is the amount of savings in these members' Medisave and Special Accounts.

As at end August 1998, 182,726 active CPF members have used 90% or more of their monthly CPF contribution to the Ordinary Account to service their housing loans. Of these 182,726 members: (i) About 31% are below age 35; 44% are between age 35 and 45; 20% are between age 45 and 55; and 5% are aged 55 and above. (ii) About 15% are earning less than $1,000 a month; 35% earn between $1,000 and $2,000; 19% earn between $2,000 and $3,000; 9% earn between $3,000 and $4,000; 6% earn between $4,000 and $5,000; 4% earn between $5,000 and $6,000; and 12% earn $6,000 or more. (iii) 89,301 (or 49%) members have $10,000 or more net balances in their Ordinary Account. (iv) The average Special Account balance per member is about $11,000 and the average Medisave balance is about $13,600.

asked the Minister for Communications if the Government will request the Indian Government to allow Singapore Airlines or SilkAir to fly to new destinations in India, such as Bhuwaneshwar in Orrissa and Varanasi in Uttar Pradesh as both cities are well known tourist destinations.

Currently, Singapore Airlines flies to 4 international airports in India, viz. Bombay, Calcutta, New Delhi and Madras. The airports in Bhuwaneshwar and Varanasi, however, are not designated as international gateways by the Indian Government. Foreign airlines like Singapore Airlines or SilkAir would not be allowed to fly to Indian airports which are not designated as international airports. Of course, should these airports become international and our airlines are keen to fly there because there is traffic demand, we will request for the required traffic rights from the Indian Government. Similarly, should airlines from India want to fly direct between these points and Singapore, we will be happy to discuss with the Indian Government.

asked the Minister for National Development how many people were in arrears of rent or mortgage instalment payments for at least three months as of September 1998, as compared to the same periods in 1997 and 1996, by types of flats.

The statistics for September 1998 are not available yet. Based on August 1998 figures, 10,837 mortgagors (2.4% of total mortgagors) were in arrears of three months or more as compared to 6,740 mortgagors (1.6%) in August 1997 and 5,904 mortgagors (1.5%) in August 1996. For rental flats, 2,224 tenants (4.1% of total tenants) were in arrears of three months or more for the month of August 1998 as compared to 2,113 tenants (3.6%) in August 1997 and 1,568 tenants (2.6%) in August 1996. The details by flat types are appended below :-

Sold flats instalment arrears > = 3 months Flat Type As at Aug 96 As at Aug 97 As at Aug 98 1 Room 13 10 16 2 Room 75 79 128 3 Room 2,206 2,271 3,600 4 Room 2,295 2,754 4,491 5 Room 894 1,152 1,838 Executive 421 474 764 Total 5,904 6,740 10,837 % in Arrears >= 1.5 1.6 2.4 3 months Units with 398,377 419,861 450,676 outstanding loan Rental flats instalment arrears > = 3 months Flat Type As at Aug 96 As at Aug 97 As at Aug 98 1 Room 524 671 662 2 Room 774 1,185 1,293 3 Room 250 244 263 4 Room 20 13 6 5 Room 0 0 0 Total 1,568 2,113 2,224 % in Arrears> = 2.6 3.6 4.1 3 months Units managed 59,687 58,127 53,741

asked the Minister for Community Development whether his Ministry will set up a Special Fund to provide financial assistance to families who have fallen on bad times, and whether such a Fund will be administered by CDCs.

There is already a wide range of schemes and services administered by Ministries, the CDCs, voluntary welfare organisations and self-help groups to help disadvantaged families or individuals in times of distress. A list of these organisations and groups is available in MCD. Families or individuals who face financial hardship because of the current economic downturn can approach MCD or the various organisations administering these schemes for assistance. MCD will ensure that there are sufficient funds for the various schemes and that genuine cases will receive financial assistance to help them to tide over this difficult period. New funding schemes could be set up should there be a need.

asked the Minister for Education (a) how many foreign students are currently in our schools; (b) how many such students were registered this year for 1999; and (c) for the Primary 1 registration, whether foreign students get to choose the schools they want and therefore compete with Singaporeans for places in the popular schools, or whether they are posted to schools by his Ministry after Singaporeans have completed the Phase 2C registration.

The total number of foreign students in our schools is 19,025 of which 9,381 are in primary schools, 8,508 in secondary schools and 1,136 in junior colleges and centralised institutes. The number of students who have applied to MOE for admission to schools in 1999 is 2,533. For the Primary 1 registration, foreign students are registered for schools after children who are Singapore Citizens and Singapore Permanent Residents have been registered. Foreign students can only be registered in schools which still have Primary 1 vacancies and therefore will not compete with Singaporeans for places in the popular schools during the registration exercise.

asked the Minister for Education (a) how many students dropped out of the education chain in the years 1995 to 1997; (b) whether there has been any study to determine the causes; and (c) what measures have been taken to reduce such incidences.

From 1995 to 1997, about 1,880 students dropped out of the education system yearly. This represents about 0.4% of the enrolment each year. This figure does not include those who left for overseas studies. A study to determine the causes for pupils dropping out of the education system was completed in 1995 by NIE with the involvement of MOE officers. The study revealed that pupils' negative attitude towards school and problems at home were the main factors that caused them to drop out of the school system. In addition, feedback from schools has enabled MOE to build a profile of the premature school leaver. This has also enabled schools to identify potential premature school leavers for preventive action. Schools actively identify and counsel potential dropouts. They work closely with parents of pupils concerned to keep them in schools. Where necessary, cases are also referred to the various Self-Help Groups for assistance. Measures to reduce dropout rate have shown some success. Compared to 1990, the number of pupils who left school prematurely in 1997 has decreased by 521, representing a drop from 0.6% in 1990 to the current 0.4%. In the event that these premature school leavers wish to return to school, schools are generally ready to re-admit them, provided they are not over aged.