Second Reading Speech for Gas (Amendment) Bill
Second Reading Speech by Mr S Iswaran, Minister of state, ministry of Trade and Industry for the Gas (Amendment) Bill.
Mr Speaker, Sir, I beg to move, “That the Bill be now read a second time”.
Objective
Sir, in March 2000, my Ministry announced that the gas industry would be restructured, similar to the electricity industry, by separating the contestable sectors of the gas industry from the ownership of the gas transportation business. To facilitate the liberalisation of the gas industry, my Ministry decided that the gas distribution and transmission network will be owned by a gas grid company which will allow all players open and non-discriminatory access to the entire gas pipeline network.
Subsequently, the Gas Act was passed by this House in March 2001, providing a legal framework for the governance of the gas market in support of a liberalised electricity market. It establishes a competitive architecture for the gas market, and a regulatory regime to ensure the security and reliability of the supply of gas to industry and the public.
Why is it important to have an open access regime in our gas market? Let me elaborate. Natural gas is a key source of fuel for our power generation. About four-fifths of our electricity is fuelled by natural gas. Today, we import piped natural gas from our immediate neighbours. In future, we will also import liquefied natural gas (LNG) from other parts of the world. We must, therefore, ensure fair competition in our gas market, by allowing all players to have open and non-discriminatory access to the entire gas pipeline network and other relevant gas infrastructure in Singapore.
A competitive gas market will further enhance competition in the electricity market. Sir, we have already seen the benefits of competition since we liberalised, in stages, our electricity generation and retail market from 2001. Greater competition in the electricity market has led to downward pressure on price, and has helped to cushion the impact of high oil prices on our electricity tariffs. For example, although fuel oil prices have increased by 71% over the six years from April 2001 to April 2007, our household electricity tariffs have decreased by 5% over the same period. This is despite the fact that fuel accounts for about 70% of the total cost of electricity generation. This is why it is crucial that we put in place an open access regime to support a competitive market for gas which is a key input for our electricity market.
Sir, my Ministry is proposing to amend the Gas Act to improve its effectiveness in relation to the open access policy; to cater to the changes in the structure of the gas market since 2001; and to enhance the safeguards for our critical gas infrastructure and our gas supply.
In reviewing the Gas Act, the Energy Market Authority of Singapore (EMA) has sought feedback from the public and industry players through two rounds of public consultation – first in February 2006, and later from December 2006 to January 2007. Let me now outline the key amendments to the Gas Act.
Ensuring Market Access
The first set of amendments covers issues relating to the policy of open access to gas infrastructure.
Sir, currently, Section 38 of the Gas Act empowers EMA to direct the owner of gas infrastructure, such as a gas pipeline network, to grant access to a new entrant. Clause 16 of the Bill extends Section 38 to Onshore Receiving Facilities (ORFs). To enhance the effectiveness of the existing provisions on open access, Clause 16 of the Bill also enables EMA to direct an owner of gas infrastructure to grant an applicant access to the infrastructure, even if the direction may prejudice the performance of any contractual obligation of the owner.
Under the proposed amendment, it will be an offence if the directed party does not comply with EMA’s direction. It will also be an offence for anyone to do anything (such as threatening to institute, or instituting, legal proceedings) which has or is likely to have the effect of obstructing, hindering or preventing the directed party from complying with EMA’s direction.
These provisions are necessary given the substantial public interest at stake. Nevertheless, I would like to assure the House that EMA will be judicious in the exercise of its authority and will give all affected parties the opportunity to be heard before issuing such directions on open access. More importantly, EMA’s preferred modality is for the relevant parties to arrive at an agreement on their own. If the concerned parties cannot reach an agreement, and access to the gas infrastructure is in fact blocked, then EMA is prepared to intervene to ensure that the larger public interest is served by allowing open access to our gas network. Indeed, EMA would welcome, and facilitate, efforts by the parties concerned to come together and negotiate a deal to enable the gas to flow through the pipes.
Sir, the Act will also be amended to grant immunity to the directed party from legal proceedings in relation to any breach of an existing contract, if the breach is solely attributable to, or caused by, its compliance with EMA’s direction. This is to protect the directed party in the event that EMA’s direction on open access places the directed party in conflict with its existing contractual obligations. However, let me emphasise that the immunity is confined to existing contracts. A directed party will not enjoy any immunity in relation to a contract which is made after Clause 16 comes into force, as the party is expected to enter into contracts that comply with the open access regime. Immunity is also not conferred on any party other than a directed party.
The principle underlying the immunity provision, and indeed other provisions, in the Gas Bill is to ensure that existing commercial considerations amongst the industry players would not have the effect of frustrating the public policy intent of having open access to our gas infrastructure. My Ministry believes that these amendments will send a clear signal to the industry of the Government’s commitment to its policy of promoting competition in our gas and electricity markets.
In an open access regime, multiple parties using a gas pipeline will also require an arrangement for the allocation of gas in that pipeline. Gas allocation in an onshore pipeline will be dealt with under the Gas Network Code. In the case of an offshore pipeline, it is common practice in many countries that such allocation is arranged on a commercial basis between the parties who use the gas infrastructure. Moving forward, as we implement the open access policy, EMA will also encourage the industry players to negotiate and arrive at an allocation agreement on a commercial basis. However, if a commercial agreement cannot be achieved, new users of the pipeline would be denied access to the pipeline.
To prevent such a situation which will hinder competition in our gas market, Clause 17 of the Bill will enable EMA to direct new entrants and existing users of an offshore pipeline to enter into a gas allocation arrangement. Similar to Clause 16, Clause 17 confers immunity from legal proceedings on directed parties in relation to contracts which are made before Clause 17 comes into force. EMA will not invoke this power if the parties can negotiate an allocation arrangement amongst themselves. If the directed parties are able to subsequently arrive at an arrangement amongst themselves, the provision in the Act allows for the new arrangement to supercede EMA’s direction.
For effective open access, we also need rules to ensure that gas shippers have untrammelled access to our onshore gas pipeline network. Consequently, clause 25 of the Bill empowers EMA to issue a Gas Network Code on the use and operation of an onshore gas pipeline network. The Code is adapted from the UK Gas Network Code and EMA has consulted extensively with the industry to ensure its robustness.
Regulating Market Structure
Sir, I will now cover the amendments relating to the regulation of the gas market structure.
To cater to the changes in the structure of the gas industry since the Gas Act was passed by this House in March 2001, Clauses 5 and 6 of the Bill expand the list of licensable activities to include the following:
Firstly, the import of natural gas, whether in gaseous or liquefied form. This will enhance the security of gas supply to Singapore;
Secondly, the management or operation of the LNG terminals and the Onshore Receiving Facilities. This will enable EMA to have adequate regulatory oversight to ensure the safety and reliability of such infrastructure which are critical to our gas supply, and, consequently, our electricity supply; and
Thirdly, the shipping of natural gas. This will give EMA regulatory oversight of gas shippers to ensure that they abide by the gas transportation rules for reliable and secure operation of the gas pipeline network.
Safeguarding Critical Infrastructure
Security safeguards
Sir, let me now cover the amendments which are intended to safeguard our critical gas infrastructure.
Section 33 of the Gas Act currently empowers the Minister to issue a Special Administration Order against a gas transporter in specific situations where the security or reliability of gas supply is at risk. Clause 15 of the Bill extends the ambit of the Special Administration Order to include the LNG terminal operator. A Special Administration Order could be imposed if it is found that the security and reliability of the gas network or LNG terminal is or is likely to be compromised. When a Special Administration Order is in force, the affairs, business and property of the respective operator will be managed directly or indirectly by EMA.
The gas pipeline network is the only means by which gas is transported to key end users like the power generation companies and pharmaceutical companies. Any failure of the gas pipeline network therefore, will have a profound adverse impact on our economy. To safeguard the gas pipeline network, Clause 25 of the Bill introduces a new Part VIIB to the Gas Act under which EMA will be able to monitor and control changes in shareholdings or other such interests in gas licensees and other entities involved in the gas pipeline network business. The provisions also cover passive increases in the shareholdings or other interests. In addition, any business relating to a gas pipeline network cannot be acquired without the approval of EMA. These entities will also be required to obtain EMA’s approval for the appointment of persons to key management positions. These provisions, in their totality, are intended to ensure effective regulatory oversight and control of the gas pipeline network which is a critical part of our national infrastructure.
Prevention of Damages to Gas Pipes
Sir, let me now turn to the provisions on the prevention of damage to our gas pipes and gas plants. Such damage can have catastrophic consequences to human lives, property and our economy. Clause 14 of the Bill strengthens the protection of the gas pipes and gas plants by specifying the precautions to be taken before and during excavation works by persons involved in the works, providing for additional offences when damage is caused and increasing the penalties for existing offences.
Enhanced Penalties
Amendments have also been proposed to strengthen the penalty framework in the Gas Act for effective regulation of the gas industry. Penalties have been introduced for the new provisions in the Bill. Existing penalties in relation to offences such as carrying out licensable activities without a licence, and causing damage to gas pipes, have been increased to reflect the severity of such offences.
Appeal Process
Sir, let me now briefly cover the appeal process. EMA has received industry feedback on the potential impact on businesses if a stay on EMA’s decisions were not provided for. Hence, Clauses 28 and 31 of the Bill provide for the Minister, at his discretion, to stay a decision or direction of EMA when it is the subject of an appeal. In exercising his discretion to do so, the Minister will take into consideration the implications for the open access policy, and the security and reliability of gas supply and gas infrastructure. In addition, there will be an automatic stay against EMA’s decision or direction if the appeal is against the imposition of a financial penalty or its quantum.
There may also be situations where an appeal relates to matters which require certain technical or specialised knowledge. Hence, Clause 31 of the Bill enables the Minister to establish an Appeal Panel to hear such an appeal.
Conclusion
Mr Speaker, Sir, the proposed amendments to the Gas Act are necessary on two counts. Firstly, they enable my Ministry to continue to ensure the security and reliability of our gas infrastructure and gas supply, which are critical to our electricity generation. Secondly, the amendments will enable EMA to implement more effectively the open access policy which is an essential aspect of the liberalisation of our gas market. This in turn will enable all consumers of electricity, households and enterprises alike, to benefit from competitive gas and electricity markets.
Mr Speaker, Sir, I beg to move.
Mr Speaker, Sir, I beg to move, “That the Bill be now read a second time”.
Objective
Sir, in March 2000, my Ministry announced that the gas industry would be restructured, similar to the electricity industry, by separating the contestable sectors of the gas industry from the ownership of the gas transportation business. To facilitate the liberalisation of the gas industry, my Ministry decided that the gas distribution and transmission network will be owned by a gas grid company which will allow all players open and non-discriminatory access to the entire gas pipeline network.
Subsequently, the Gas Act was passed by this House in March 2001, providing a legal framework for the governance of the gas market in support of a liberalised electricity market. It establishes a competitive architecture for the gas market, and a regulatory regime to ensure the security and reliability of the supply of gas to industry and the public.
Why is it important to have an open access regime in our gas market? Let me elaborate. Natural gas is a key source of fuel for our power generation. About four-fifths of our electricity is fuelled by natural gas. Today, we import piped natural gas from our immediate neighbours. In future, we will also import liquefied natural gas (LNG) from other parts of the world. We must, therefore, ensure fair competition in our gas market, by allowing all players to have open and non-discriminatory access to the entire gas pipeline network and other relevant gas infrastructure in Singapore.
A competitive gas market will further enhance competition in the electricity market. Sir, we have already seen the benefits of competition since we liberalised, in stages, our electricity generation and retail market from 2001. Greater competition in the electricity market has led to downward pressure on price, and has helped to cushion the impact of high oil prices on our electricity tariffs. For example, although fuel oil prices have increased by 71% over the six years from April 2001 to April 2007, our household electricity tariffs have decreased by 5% over the same period. This is despite the fact that fuel accounts for about 70% of the total cost of electricity generation. This is why it is crucial that we put in place an open access regime to support a competitive market for gas which is a key input for our electricity market.
Sir, my Ministry is proposing to amend the Gas Act to improve its effectiveness in relation to the open access policy; to cater to the changes in the structure of the gas market since 2001; and to enhance the safeguards for our critical gas infrastructure and our gas supply.
In reviewing the Gas Act, the Energy Market Authority of Singapore (EMA) has sought feedback from the public and industry players through two rounds of public consultation – first in February 2006, and later from December 2006 to January 2007. Let me now outline the key amendments to the Gas Act.
Ensuring Market Access
The first set of amendments covers issues relating to the policy of open access to gas infrastructure.
Sir, currently, Section 38 of the Gas Act empowers EMA to direct the owner of gas infrastructure, such as a gas pipeline network, to grant access to a new entrant. Clause 16 of the Bill extends Section 38 to Onshore Receiving Facilities (ORFs). To enhance the effectiveness of the existing provisions on open access, Clause 16 of the Bill also enables EMA to direct an owner of gas infrastructure to grant an applicant access to the infrastructure, even if the direction may prejudice the performance of any contractual obligation of the owner.
Under the proposed amendment, it will be an offence if the directed party does not comply with EMA’s direction. It will also be an offence for anyone to do anything (such as threatening to institute, or instituting, legal proceedings) which has or is likely to have the effect of obstructing, hindering or preventing the directed party from complying with EMA’s direction.
These provisions are necessary given the substantial public interest at stake. Nevertheless, I would like to assure the House that EMA will be judicious in the exercise of its authority and will give all affected parties the opportunity to be heard before issuing such directions on open access. More importantly, EMA’s preferred modality is for the relevant parties to arrive at an agreement on their own. If the concerned parties cannot reach an agreement, and access to the gas infrastructure is in fact blocked, then EMA is prepared to intervene to ensure that the larger public interest is served by allowing open access to our gas network. Indeed, EMA would welcome, and facilitate, efforts by the parties concerned to come together and negotiate a deal to enable the gas to flow through the pipes.
Sir, the Act will also be amended to grant immunity to the directed party from legal proceedings in relation to any breach of an existing contract, if the breach is solely attributable to, or caused by, its compliance with EMA’s direction. This is to protect the directed party in the event that EMA’s direction on open access places the directed party in conflict with its existing contractual obligations. However, let me emphasise that the immunity is confined to existing contracts. A directed party will not enjoy any immunity in relation to a contract which is made after Clause 16 comes into force, as the party is expected to enter into contracts that comply with the open access regime. Immunity is also not conferred on any party other than a directed party.
The principle underlying the immunity provision, and indeed other provisions, in the Gas Bill is to ensure that existing commercial considerations amongst the industry players would not have the effect of frustrating the public policy intent of having open access to our gas infrastructure. My Ministry believes that these amendments will send a clear signal to the industry of the Government’s commitment to its policy of promoting competition in our gas and electricity markets.
In an open access regime, multiple parties using a gas pipeline will also require an arrangement for the allocation of gas in that pipeline. Gas allocation in an onshore pipeline will be dealt with under the Gas Network Code. In the case of an offshore pipeline, it is common practice in many countries that such allocation is arranged on a commercial basis between the parties who use the gas infrastructure. Moving forward, as we implement the open access policy, EMA will also encourage the industry players to negotiate and arrive at an allocation agreement on a commercial basis. However, if a commercial agreement cannot be achieved, new users of the pipeline would be denied access to the pipeline.
To prevent such a situation which will hinder competition in our gas market, Clause 17 of the Bill will enable EMA to direct new entrants and existing users of an offshore pipeline to enter into a gas allocation arrangement. Similar to Clause 16, Clause 17 confers immunity from legal proceedings on directed parties in relation to contracts which are made before Clause 17 comes into force. EMA will not invoke this power if the parties can negotiate an allocation arrangement amongst themselves. If the directed parties are able to subsequently arrive at an arrangement amongst themselves, the provision in the Act allows for the new arrangement to supercede EMA’s direction.
For effective open access, we also need rules to ensure that gas shippers have untrammelled access to our onshore gas pipeline network. Consequently, clause 25 of the Bill empowers EMA to issue a Gas Network Code on the use and operation of an onshore gas pipeline network. The Code is adapted from the UK Gas Network Code and EMA has consulted extensively with the industry to ensure its robustness.
Regulating Market Structure
Sir, I will now cover the amendments relating to the regulation of the gas market structure.
To cater to the changes in the structure of the gas industry since the Gas Act was passed by this House in March 2001, Clauses 5 and 6 of the Bill expand the list of licensable activities to include the following:
Firstly, the import of natural gas, whether in gaseous or liquefied form. This will enhance the security of gas supply to Singapore;
Secondly, the management or operation of the LNG terminals and the Onshore Receiving Facilities. This will enable EMA to have adequate regulatory oversight to ensure the safety and reliability of such infrastructure which are critical to our gas supply, and, consequently, our electricity supply; and
Thirdly, the shipping of natural gas. This will give EMA regulatory oversight of gas shippers to ensure that they abide by the gas transportation rules for reliable and secure operation of the gas pipeline network.
Safeguarding Critical Infrastructure
Security safeguards
Sir, let me now cover the amendments which are intended to safeguard our critical gas infrastructure.
Section 33 of the Gas Act currently empowers the Minister to issue a Special Administration Order against a gas transporter in specific situations where the security or reliability of gas supply is at risk. Clause 15 of the Bill extends the ambit of the Special Administration Order to include the LNG terminal operator. A Special Administration Order could be imposed if it is found that the security and reliability of the gas network or LNG terminal is or is likely to be compromised. When a Special Administration Order is in force, the affairs, business and property of the respective operator will be managed directly or indirectly by EMA.
The gas pipeline network is the only means by which gas is transported to key end users like the power generation companies and pharmaceutical companies. Any failure of the gas pipeline network therefore, will have a profound adverse impact on our economy. To safeguard the gas pipeline network, Clause 25 of the Bill introduces a new Part VIIB to the Gas Act under which EMA will be able to monitor and control changes in shareholdings or other such interests in gas licensees and other entities involved in the gas pipeline network business. The provisions also cover passive increases in the shareholdings or other interests. In addition, any business relating to a gas pipeline network cannot be acquired without the approval of EMA. These entities will also be required to obtain EMA’s approval for the appointment of persons to key management positions. These provisions, in their totality, are intended to ensure effective regulatory oversight and control of the gas pipeline network which is a critical part of our national infrastructure.
Prevention of Damages to Gas Pipes
Sir, let me now turn to the provisions on the prevention of damage to our gas pipes and gas plants. Such damage can have catastrophic consequences to human lives, property and our economy. Clause 14 of the Bill strengthens the protection of the gas pipes and gas plants by specifying the precautions to be taken before and during excavation works by persons involved in the works, providing for additional offences when damage is caused and increasing the penalties for existing offences.
Enhanced Penalties
Amendments have also been proposed to strengthen the penalty framework in the Gas Act for effective regulation of the gas industry. Penalties have been introduced for the new provisions in the Bill. Existing penalties in relation to offences such as carrying out licensable activities without a licence, and causing damage to gas pipes, have been increased to reflect the severity of such offences.
Appeal Process
Sir, let me now briefly cover the appeal process. EMA has received industry feedback on the potential impact on businesses if a stay on EMA’s decisions were not provided for. Hence, Clauses 28 and 31 of the Bill provide for the Minister, at his discretion, to stay a decision or direction of EMA when it is the subject of an appeal. In exercising his discretion to do so, the Minister will take into consideration the implications for the open access policy, and the security and reliability of gas supply and gas infrastructure. In addition, there will be an automatic stay against EMA’s decision or direction if the appeal is against the imposition of a financial penalty or its quantum.
There may also be situations where an appeal relates to matters which require certain technical or specialised knowledge. Hence, Clause 31 of the Bill enables the Minister to establish an Appeal Panel to hear such an appeal.
Conclusion
Mr Speaker, Sir, the proposed amendments to the Gas Act are necessary on two counts. Firstly, they enable my Ministry to continue to ensure the security and reliability of our gas infrastructure and gas supply, which are critical to our electricity generation. Secondly, the amendments will enable EMA to implement more effectively the open access policy which is an essential aspect of the liberalisation of our gas market. This in turn will enable all consumers of electricity, households and enterprises alike, to benefit from competitive gas and electricity markets.
Mr Speaker, Sir, I beg to move.
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