LACK OF TRANSPARENCY CAN BE A CHALLENGE FOR U.S.

C O N F I D E N T I A L SECTION 01 OF 03 SINGAPORE 000128

SIPDIS

NEW DELHI FOR EHRENDREICH
STATE PASS TO USTR FOR AUSTR WEISEL AND DAUSTR BELL

E.O. 12958: DECL: 02/11/2019
TAGS: EINV ENRG ECPS ECON SN
SUBJECT: LACK OF TRANSPARENCY CAN BE A CHALLENGE FOR U.S.
FIRMS IN SINGAPORE

REF: A. 08 SINGAPORE 1254

B. 07 SINGAPORE 1134

C. 08 SINGAPORE 1168

D. 07 SINGAPORE 1167

E. 08 SINGAPORE 1037

F. 07 SINGAPORE 1892

Classified By: Charge d'Affaires Daniel L. Shields for reasons 1.4 (b)
and (d)


1. (C) SUMMARY: Some U.S. and other foreign firms have
found the lack of transparency from the Singapore government
and its government-linked corporations (GLCs) a serious
challenge in operating in Singapore. The GOS maintains a
strong grip on the economy, whether through the Economic
Development Board's (EDB) aggressive efforts to entice
foreign investment here, or through sovereign wealth fund
Temasek Holdings and other GLCs, which dominate key parts of
the domestic market and infrastructure. While most foreign
firms find Singapore among the world's easiest places to do
business, for others the business and regulatory environment
can be maddeningly non-transparent. Companies in direct
competition with Temasek or another powerful GLC can face
severe disadvantages.


2. (C) SUMMARY (cont.): This cable relates the experiences
of three companies in different business sectors that have
been negatively affected by insufficient transparency.
First, Marina Bay Sands, which is building an "integrated
resort" (IR) complex (ref A) suffered a serious setback in
construction due to what it characterized as a material
omission in the GOS's request for proposal (RFP) process.
The second case involves the ongoing difficulties of foreign
telecom providers to access local exchanges (ref B and C).
The third involves Island Power's long-fought battle to
access an offshore gas pipeline (ref D, E and F). END
SUMMARY.


3. (C) COMMENT: Taken together, these cases highlight that,
notwithstanding Singapore's generally highly positive foreign
investment climate, some foreign companies face costly
obstacles due to a lack of transparency, particularly when
they are up against Temasek and other GLCs. It appears that
in some situations, well-intentioned GOS agencies are
incapable of enforcing laws and regulations protecting
competition and foreign firms in the face of powerful and
well-connected local interests. In such cases, the GOS
vacillates between trying to placate a foreign investor, so
Singapore maintains its reputation as a safe place to invest,
and appeasing the GLC. This usually results in protracted
and opaque negotiations and delaying tactics with the GOS
saying it will support the foreign company and uphold the
spirit of competition, while issuing directives or parsing
agreements in a way that ultimately favors the GLC. END
COMMENT.

Marina Bay Sands: Material Omission in RFP
--------------


4. (SBU) When the GOS issued its request for proposal (RFP)
in 2006 to solicit bids to build an "integrated resort" (IR)
in Singapore's central business district, it left out
material information pertaining to the soil and build site,
George Tanasijevich, Vice President and General Manager for
Marina Bay Sands Singapore, told Econoffs. When U.S.-based
parent company Las Vegas Sands (LVS) bid on the IR project,
it was one of 12 other firms, including Singapore-based
companies, invited to submit proposals. According to
Tanasijevich, none of the bidders was permitted to conduct
its own soil samples or surveys of the site, which was
located on reclaimed land that was developed by the GOS
several years earlier. Instead, bidders relied on soil
samples provided by the GOS.


5. (SBU) LVS won the bid in 2006 and embarked on one of its
most ambitious and expensive projects to date, anticipating
that the IR would open in 2009. However, as Marina Bay Sands
(MBS) began work on the foundation, the GOS, while doing
construction on a common services tunnel, discovered a "sea
mole," or break wall, buried within the reclaimed land
beneath the building site, making the IR site unstable.
Removing the sea wall cost MBS S$122 million (about US$82
million) and added 100 days to the IR project.


6. (C) The GOS informed MBS of the sea mole immediately
after it was discovered, Tanasijevich stated. He does not

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believe that the Singapore Tourism Board, the main GOS
interlocutor on the IR project, had intentionally misled
bidders. However, he noted that the bore holes for the soil
samples provided during the RFP went around the sea mole and
a Mass Rapid Transit (MRT) tunnel built by the Land Transport
Authority runs near the outside of the sea mole. It is
likely that an office in the GOS knew about the sea mole, but
did not communicate it to the Singapore Tourism Board,
Tanasijevich surmised. MBS is in discussions with the GOS
about how it might compensate the company for costs stemming
from the oversight in the RFP. MBS has handled the issue
quietly in the hope of avoiding a lawsuit, Tanasijevich
added. The company did not publicly discuss the sea mole
issue even when there was substantial public and press
scrutiny regarding delays in the IR project and how they
might negatively affect Singapore and its economy (ref A).

Telecoms: Still No Clarity on Exchanges
--------------


7. (SBU) Temasek-owned telecom provider SingTel announced in
2006 that it planned to close approximately half its local
exchanges, the places where rival providers theoretically can
connect to SingTel's network. However, SingTel has yet to
identify which exchanges it intends to close, preventing
competing telecom providers from building out their networks
to an exchange without risking that it may soon close. Post
and USTR have raised this issue numerous times, both
bilaterally and through the annual review process of the
U.S.-Singapore Free Trade Agreement (FTA). The Infocomm
Development Authority (IDA) responded by requiring SingTel to
provide 18-months notice before closing an exchange (ref B),
but USTR has argued such a time frame is still insufficient
for companies to recover expenses associated with building a
network to a closed exchange. Industry was disappointed that
IDA did not require SingTel to compensate providers for costs
associated with closed exchanges. USTR requested a "safe
harbor" list of exchanges that would remain open (ref C),but
SingTel and IDA have yet to produce such a list.


8. (SBU) SingTel has also refused to clarify procedures for
other providers to interconnect with its network and IDA has
been unable or unwilling to press for more transparency. One
telecom provider told Econoff that during a network expansion
to a local exchange, SingTel continually raised new
requirements and barriers to complete the interconnection,
making the process as difficult and costly as possible. The
company originally planned to build out to seven local
exchanges, but after the first was completed at double the
cost and time, it decided against further expansion. IDA's
own regulations and procedures on network expansion are
antiquated and unsuited to current technology, including
requiring all communication between parties to be done via
fax rather than a more convenient (and modern) internet-based
platform.

Island Power: Unable to Access Offshore Gas Pipeline
-------------- --------------


9. (C) For about six years Singapore Temasek and its
subsidiaries have deliberately and successfully blocked
efforts by Intergen and local subsidiary Island Power to
access an offshore gas pipeline between Indonesia and
Singapore. While the GOS was taking public steps to
encourage competition and liberalize its gas market, Temasek
was working hard to block potential competitors (ref D),
claimed Michael Reading (protect),Managing Director of
Island Power. Reading said that Temasek at various points
threatened personal defamation lawsuits, claimed it
"controlled the government," and pledged to "frustrate"
Island's efforts to operate in Singapore. He said the GOS
and the Energy Market Authority (EMA) seemed unable or
unwilling to enforce its own laws to grant Island access to
the pipeline, prompting Island to ask the GOS early in the
process whether it wanted the foreign firm in Singapore,
Reading stated. Island reportedly offered to walk away from
the project quietly if Island (i.e., foreign competition) was
not welcome. However, EMA assured Island that it wanted its
business in Singapore and that it would work on granting
access to the pipeline, Reading stated. Despite those
assurances from EMA, Island is still fighting for access
years later (ref E).


10. (C) It took a year for EMA to respond to an application
Island filed requesting that EMA step in and finally decide
whether Island could access the pipeline. EMA's response was

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a published directive that stated Island would have to secure
a new gas sales agreement from a supplier in Indonesia and
negotiate an allocation agreement with Gas Supply Pte Ltd, a
subsidiary of Temasek, in order to share the pipeline.
(Note: Island lost the contract with its original Indonesian
gas supplier in 2007 due to its inability to secure access to
the pipeline (ref F). End note.) EMA stated that the
allocation agreement with Gas Supply would be essential to
the final decision-making process to prevent future
contractual disputes that might negatively affect the
downstream supply of gas to Singapore. However, the
allocation agreement would require Island to go back into
negotiations with Temasek, the company that from the
beginning opposed Island's entry into the domestic power
sector. Such negotiations would likely result in years of
litigation, Reading said.


11. (C) Reading thought that EMA, which was established in
2001 as an independent statutory board under the Ministry of
Trade and Industry (MTI),was well intentioned but seemed to
bow to considerable pressure from Temasek. A consultant at
public relations firm Fleishman-Hillard helped arrange
meetings for Island with members of Parliament the consultant
believed might be sympathetic to Island,s plight. The MPs,
who were all members of the ruling People's Action Party
(PAP),indicated that Island could not rely on MTI (and EMA)
to stand up to Temasek because MTI Minister LIM Hng Kiang is
"weak" and not part of the PAP "inner circle," Reading
claimed.


12. (C) Meanwhile, in September 2008, the Economic
Development Board (EDB) began threatening to revoke Island's
permits for the site and gas interconnection because the
company had not developed the site as planned. Reading
predicted that without a permit and hope of accessing the
offshore pipeline, Island would be forced to sell its assets
to Temasek at a substantial loss. Island would essentially
be frustrated into walking away from the investment, Reading
concluded. (Note: Intergen was formerly a U.S. company, but
as of October 2008 it is 100-percent foreign owned, so Post
is no longer engaged in advocacy for the firm. End note.)

Visit Embassy Singapore's Classified website:
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