Raising bus fares leads to greater efficiency?

I found it odd, to say the least, for the Minister to suggest that fare increases will incentivise PTOs to provide better service and be more efficient. There is little incentive for PTOs to be more efficient if they know they can count on receiving more fare revenue whenever their costs go up. Neither is there much incentive to improve service beyond the minimum standard set by the regulator, when the PTOs are primarily accountable to their shareholders, not the public.

I have spoken at length in Parliament about the deep shortcomings of the profit-oriented public transport model that we currently have in Singapore. Here is some excerpts of what I said during the debate on the Land Transport Authority of Singapore (Amendment) Bill on 9 July 2012.

I was asked on Thursday by the Straits Times for my thoughts on Transport Minister Lui Tuck Yew’s Facebook post explaining the impending rise in bus fares. Mr Lui said that “The purpose of fare increases is not to boost the short term profits of PTOs (public transport operators). It is also not just to improve salaries of bus drivers but to improve service to commuters while keeping public transport operations commercially viable.”

I found it odd, to say the least, for the Minister to suggest that fare increases will incentivise PTOs to provide better service and be more efficient. There is little incentive for PTOs to be more efficient if they know they can count on receiving more fare revenue whenever their costs go up. Neither is there much incentive to improve service beyond the minimum standard set by the regulator, when the PTOs are primarily accountable to their shareholders, not the public.

I have spoken at length in Parliament about the deep shortcomings of the profit-oriented public transport model that we currently have in Singapore. Here is some excerpts of what I said during the debate on the Land Transport Authority of Singapore (Amendment) Bill on 9 July 2012:

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During the COS (Committee of Supply) debate earlier this year, the Transport Minister, in arguing his case for having profit-oriented companies run public transport operations, said that “the profit incentive drives the operators towards higher efficiency and productivity, which keeps costs as low as possible”.

This sounds ironic in light of all that has happened under in the past year. Commuters have experienced the most serious and sustained series of MRT breakdowns in its 25-year history. It was not just the December 15 and 17 stoppages, but several other disruptions on the Circle Line, the LRT, the Northeast Line and the East-West Line that took place after that, some of which occurred as the MRT Committee of Inquiry (COI) was underway.

Now despite all the official justifications for the BSEP (Bus Services Enhancement Programme), there is no running away from two facts: One, that bus service standards are not up to the mark and, two, the government is stepping in to the tune of $1.1 billion to subsidise the service recovery.

What higher efficiencies has the profit-oriented model brought us? We have not seen an improvement of service quality, but a deterioration, especially over the past 5 years. We have seen fares increase but yet the government still needs to pour in billion dollar operational subsidies. We have seen trains breakdown due to underinvestment in maintenance, yet these companies are reporting hundreds of millions of dollars in profits each year. Since 2003, SMRT and SBS Transit have paid over $1 billion in dividends to their shareholders.

Public transport is an essential public good just like education, healthcare and public housing. The returns from this public good benefit more than just the commuters themselves. When commuters are able to get to work quickly, conveniently and in comfort, their companies benefit from their more productive work. By allowing them to reach home on time after work and with less frustration, they can build better relationships with their families, and perhaps even help to raise our nation’s total fertility rate. The economy and society benefit when we have good and affordable public transport. These positive externalities do not show up in the balance sheets of the PTOs.

The BSEP seems to recognise that greater government investments are necessary to rectify the market failure in the public transport industry. With this Bill, the LTA will not just be a regulator, but will purchase the buses and fully fund their operations. Effectively the LTA, which is a government agency, is going to be the de facto owner of a fleet of 550 buses plying our roads.

However it is neither here nor there. The BSEP does not introduce any competition to spur efficiency and service improvements, yet we do not have a full public monopoly that reaps be benefits of direct control, with profits being reinvested to improve service quality. It is the worst of both worlds.

The public transport model has a great bearing on the long term outcomes of our public transport system. The focus of our bus and train operators should be on improving service quality to meet or exceed commuters’ expectations, not maximising profits for their shareholders.

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The Minister responded to the points in my speech later that afternoon:

Mr Lui Tuck Yew: Mr Deputy Speaker, Sir, let me try to respond to all the comments, suggestions and views that have been expressed, and it has been a wide range of views. It ranges from “why do”, to “do now”, to “do more”. There have been expressions of clear, unequivocal support. There have been others that have stayed silent on this matter altogether, like Mr Pritam Singh, and there have been others who have taken a more nuanced position, like Mr Png, who welcomes it but did not quite express support for it. I understand their concerns. Indeed, I will try to take this opportunity to explain it as best as I can. But let me also assure you that there is no intention whatsoever on my part to impose the benefits of the BSEP on your residents over your objections and against your principles. So I would be very clear on that score. I would like to categorise the points that have been made, and try and deal with them in a few categories. I think there has been this nationalisation versus privatisation issue that has been raised by both Mrs Chiam as well as Mr Giam. Related to it, why not more competition, why not take the opportunity to look at a third operator? There have been views on the bus financials, how it stands − and I think Mr Png did a great deal of work in researching the financials of the bus industry over the last five or six years − but also questions related to why we should not have the PTOs cross-subsidise between the rail and the bus networks. There have been points that are raised about very frustrated commuters, that bus services are not up to the mark, and these are points that have been raised by Mr Gerald Giam. So I hope to talk a little bit about where exactly we are, lest people run away with the impression that the whole system is so broken and so poor. I want to cite, for example, the UniSIM study that is independently conducted every year, where a direct question is posed to regular commuters of both the bus and the rail networks whether they perceive bus services to have improved compared to the previous year. So I shall use their response to the question to try and give an understanding of where exactly commuters are as a whole on this issue, and also to talk a little bit more about what improvements we can expect. Lastly, I would want to try and talk a little bit about the roles of PTC versus LTA and perhaps to address some of the points that are raised by Mr Pritam Singh, and technical issues that are related to the BSEF itself. And if I do not manage to cover all of your queries or do not cover them adequately, please raise it again and I will try my best to answer them.

So let us start with nationalisation versus privatisation, and the issue of competition. Where do we stand? Our model is one where we allow private entities to operate and provide the services because it is our belief that it is in the long-term public interest for them to be delivered and served this way. There is a profit incentive that drives higher efficiency and productivity. But ultimately it is not for the benefit of the operators themselves. It is for the benefit of commuters because they will benefit through lower fare increases, and I will talk about fare increases versus cost a little bit later when I go into bus financials. But the room for the operators to manoeuvre is not unfettered because there are a number of safeguards that are in place. Firstly, the operators do not set the fares. That is done by the PTC. Secondly, the operators do not establish the standards. Again, that is a function that comes under the PTC. Lastly, the licence is given to them for a limited and defined period. In the case of the buses, the licences will expire in 2016. That is, again, another matter that we may have to come to and talk about under bus financials.

I think it is a truism to say that, perhaps, across all areas, not just in transport, that the solution that is not adopted becomes increasingly more attractive over time and becomes the preferred solution. Indeed, it is a truism that over time the solution that is not adopted becomes increasingly more attractive as the solution. But before we tack and change course because the prevailing wind has changed, it is important to see what other cities and countries are doing. Are they moving towards privatisation? Are they moving towards nationalisation? I think Mrs Chiam and others have actually given some examples and I think it is useful to note that in many cities in the US, Europe, Australia and Asia the move is actually towards privatisation. I give you a few examples.

For example, London. They went into competitive tendering using privatised entities, I think some time in the mid-1980s. And over the course of the next 15 or so years, cost per vehicle kilometre came down by more than 45%, inflation-adjusted. So the lower operating cost per kilometre actually allowed services to be expanded by some 25% or so. Nonetheless, even in London where there is competition and privatised entities are running it, notwithstanding the increased efficiencies and productivity after they moved away from nationalised companies running their bus services, today, Transport for London, or the government, subsidises bus services to the tune of about £500 million annually. And this is for a population of about, I believe, eight million people, running around about 8,000 buses.

In Taipei, another example, they have 14 private operators providing public bus services. Yet, even with all this competition, we understand from them – MOS Josephine Teo visited them recently – that they provide a subsidy of more than S$100 million every year to subsidise bus operations for a population of about 2.6 million people.

I will give you two more examples in addition to what I have just mentioned. This is Sydney as well as the New York, New Jersey area. Here it is quite interesting because they have partially privatised. So some of the services are run by private companies and, at the same time, some of the services are run by companies that are run by the transport authority. In Sydney, we have been told that actually the private companies are able to run it at about 30% less in terms of the cost. In the New York, New Jersey area, the bus routes that have been privatised have operating costs that are about 35% lower compared to the routes that the authorities are running themselves.

So I think there is a clear body of evidence. One, that cities are shifting towards privatisation or have shifted and at the same time that there are a number of these cities where actually, notwithstanding the shift, there is a need to provide a certain amount of subvention and subsidy from the government in order to maintain bus services at a very high level. Therefore, the question we need to ask ourselves is: why are governments subsidising private operators? Why not, as some have suggested, take it back themselves and run it? The answer must be that it will cost them even more to provide these services themselves and that generally, efficiency-minded, cost-conscious governments are looking to have private bus operators involved when conditions allow them to do so. That is what I want to say for nationalisation versus privatisation.

I want to take this opportunity to talk about us. Since the Government is stepping in – 550 buses is a significant increase which is about 14% or so increase over the existing fleet − why not take the opportunity to introduce another operator? I think Mrs Lina Chiam was alluding to that, and it is a fair question to ask. Indeed, we stepped through the thinking whether this is an opportune time to bring about that competition and get a third operator in, and what are the pros and cons of doing so.

Let me just explain that of the 550 buses, we think that about 300 buses will go towards augmenting the existing services. To some, it is because we need the buses to come more regularly; to some, it is that the loading is nearer 95% than 85% and, hence, you need to inject buses in order to bring the loading down, and I will talk maybe a little bit about how it is measured. But you have about 300 buses injected into existing services.

You would appreciate that it is very, very difficult to have two operators providing this same service because your current operator, maybe SBS Transit, will be providing about seven buses, and then a new operator would come in to inject another one, or maybe, two buses. If the service does not deliver the expected standards, who do we hold to account? SBS Transit or the new operator? In practice, it is actually very, very difficult for existing routes to see two operators trying to provide the same service in a co-ordinated manner in order for the commuters to benefit from it.

What about the 250 buses that are going to be used to run the 40 or so new routes? Would that not be possible, because that is going to be delivered by one operator? So, a new route — if it is a feeder route — you may require five or six buses. If it is a short trunk route, maybe somewhere between seven and 10 buses and so on. Why not allow a single operator to do it?

The challenge is that we expect these routes to be geographically dispersed. So, there might be some routes in the North, some in the West, some in the East, some parallel to the MRT routes, some providing connections that do not exist to hubs — financial, commercial, medical centres and so on. The difficulty with this geographical dispersion is: where do you site the depots? Do you have a few depots, three or four depots in different parts of the island, with the attendant increase in overheads because you need people and equipment in order to set up and run a depot properly? Or do you site a depot centrally with lower overhead costs but, unfortunately, with more dead mileage because the buses at the end of their routes, wherever they are, will have to return to this central depot to be maintained, to be cleaned and so on. It is not an easy solution to say, “I want to introduce a new operator using the BSEP.” Nonetheless, I assure you that our intention is to try and make right the bus financials, and thereafter, to make sure that we then put out packages of routes that are carefully put together so that existing as well as potential new operators can tender for them.

Now, I come to bus financials. If your bus financing framework is not right, I think no new operator would want to tender for a bus route package. Let me start by saying that today, the licences for operating the trains and the licences for operating the buses are separate. They may be held by the same two operators but they are separate in that it is not necessary for any operator to hold both train and bus operating licences. It is important to keep them separate because it is going to be very hard for me if I want to introduce a third operator, to be able to package a new rail line together with a bus licence at the same time. And, if we expect cross-subsidies between the rail and the buses, then it is important that I am able to put this composite package together which practically is very difficult to do.

Also, it is not always the case that the rail operations can subsidise the bus operations. And therein is the danger that was raised by Dr Janil, that if you build too far ahead of time, there is a cost associated with it, a cost that eventually is borne by the taxpayers. Members would remember, about 10 years ago, the introduction of the North East Line. The North East Line was planned in tandem with housing and other urban plans for the north-eastern corridor. Back in 1996 and 1997, there were long queues for flats and MND had significant plans to increase sizeably the number of flats that are located in the North-east and so, we went ahead we built the North East Line and the LRTs. Unfortunately, the plans did not quite materialise. And so, in 2003, when we opened the North East Line, the ridership was significantly lower than what we had projected. And, indeed, for a number of years, that line lost money. It was actually the bus operations in SBST that was providing subsidy to the rail portion. And now, of course, as Mr Png has so rightfully pointed out, it is the reverse.

If I come back to bus financials, what is happening is that the profit margins have gone down over the years. And, in fact, last year for the first time, it was negative for both operators. The trend is as important as the absolute numbers. Mr Png talked about the SMRT over the last five years, how much they have lost, SBST only over the last year, but it is important to look at what the trend is.

For them, it is the balance of fares and costs that will ultimately give them some idea of how the bus financials and, indeed, the transport financials are. If you look at fares over the last five or so years, from 2006 to 2011, fares, cumulatively, not a single year but cumulatively, went up by 0.3%. Because of the recession, we brought down the fares. With distance fares, we did away with the transfer penalty and over time, fares came down. And so, from 2006 to 2011, fares cumulatively went up by 0.3%. What about fuel, which is a significant component of their costs? Fuel prices went up by more than 30%, while national wages went up by more than 25%. Hence, you see the dilemma that bus operators are facing, that the fare increases are nowhere near what the cost increases have been in the recent years. Hence, that is an issue that we will need to address if we are to put the bus financials right over time, so that when I put packages of routes out for competitive tendering, there will be companies who are prepared to step in and provide the service.

Let me move on now to talk about improvements. Before I do that, I want to take time to set right this impression – if I may quote Mr Gerald Giam again – “very frustrated commuters, bus services are definitely not up to the mark”. That is the impression that has been given. UniSIM does an independent study every year. This is the public transport customer satisfaction survey – done in October and released in March this year. It is done in October of each year. In 2011, their study was done after the fare increases took place. But obviously, it was done prior to the breakdowns that happened in December. Among the questions that were asked on satisfaction levels of the different parts of the transport network, commuters were asked on their perception on whether bus services have improved compared to one year ago. It is a “yes” or “no” answer. No “in between”. You cannot fudge it. It is a “yes” or it is a “no”. The exercise in 2011 – regular commuters who took part — 70.2% of them said that “yes, bus services have improved compared to the previous year”. Obviously the other 29.8% said “no”. In 2010, compared to 2009, 67.7% said “yes”, ie, bus services in 2010 have improved over 2009.

That is not to say that there are no problems or no issues that we need to address. We know the issues. We know the problems. We know the challenges, which is why the Government is prepared to step in decisively. But I think it is proper to paint the right picture and the right picture is not massive dissatisfaction that – I quote again – “they are all very frustrated commuters”. There are indeed some frustrated commuters. And, indeed, they vent, particularly on the new media but I do not think that those views represent the majority, not least because I use, for example, an independent UniSIM survey that has been conducted over a number of years for which we can see and follow the trends.

What are the improvements that we can expect of the BSEP? Well, firstly, the loading, we expect, will improve. Today, it is a max loading of 95%, and we are going to bring it down to a max loading of 85%, measured during the heaviest one-hour period. It is not as if all buses during that period will not exceed 85%. I do not want to give you that impression. But it is that when you measure it in the same way that we do today, over the heaviest one-hour utilisation period, you will see an improvement across the entire hour. For feeders, in terms of the regularity of arrival, we expect 95% of them to come at not more than 10 minutes for the entire two-hour period instead of the 90% for the best one-hour period today. Today, it is measured over one hour, 90%, less than 10 minutes. Going forward with the BSEP, it is going to be for the entire two-hour period, 95% of them coming at intervals of no more than 10 minutes. There are other improvements which I will not go into because of time constraints.

Let me, maybe, mention a little bit about PTC versus LTA as a regulator. The PTC has quite direct responsibilities. Let me scope it as follows: they regulate bus service levels and transport fares, and they do so with two objectives in mind: One, to keep fares affordable; and two, to ensure the long-term financial viability of the PTOs. Keeping fares affordable, I have shared some of this information in the past. We measure the second quintile, meaning, people from the 20th to the 40th percentile, because we think that that is the appropriate set to measure against. We find that expenditure on transportation versus household income has declined from about 5-plus percent in the mid-2000s to now. It is about 3.6-3.7%. This is the percentage of the household income that is spent on transportation. What we have been able to do is to keep fares reasonably affordable and, indeed, if you compare fares to what you see in Hong Kong, London, New York and other major cities around the world, I dare say that we are actually lower than what their residents have to pay.

Why then is it so important for us to do this BSEP package? Why is it not possible for it to be funded in other ways? One, we do this programme because we want to decisively increase capacity. This is related to what Dr Janil had brought up, which is making sure that there is sufficient capacity because, otherwise, there is a social cost that we have to pay. He is right. When we put in the BSEP programme, it is in recognition that the operators on their own because of the bus financials, would not have been able to do so. If we wanted them to achieve this same set of standards on their own, it would take so long, because they would only introduce new buses in tandem with, if not maybe just slightly ahead of, ridership growth, that I would not be able to answer Member Er Lee Bee Wah’s requests for more bus services in her constituency.

The Government recognises that even with the investment of $60 billion to build new rail lines, buy more trains, implement re-signalling, and so on, we need to decisively ramp up bus capacity so that we have a better last-mile connection because many people would take a feeder bus, rail, and maybe another feeder bus, to reach their final destination; or it is to provide better connectivity to areas that are not as well served; or it is to provide an extra alternative to those who may not wish to take the trains and would rather take a parallel bus service that would run parallel to some of the existing rail lines.

So the PTC has that responsibility to, as I have said before, make sure that fares are affordable but also, at the same time, look to the long-term financial viability of the operators. Because bear this in mind: 2016 is the expiry of the licence for the bus operators. They have been, over the years, providing a cross subsidy within their companies from rail to bus. For SBS, earlier days, it was from bus to rail and, now, vice versa. But legislative requirements today do not require them to do so. We do not require them to do so because these are separate licences and, as I have said earlier, if we want to be able to introduce competition in the longer term, bring in more operators to put additional pressure on the existing two incumbents, then it is necessary for us to make right the bus financials.

Let me briefly address some of the points that Mr Pritam Singh had raised – this thing about what are we investing the BSEF money in, and so on and so forth, if I got him correct. Firstly, the intention of the BSEF is actually to make sure that funds are available to buy new buses, as well as to operate them over a period of 10 years. The primary intention of such a fund is not to put aside $1.1 billion and then to try and invest them and bring returns – that is really not the purpose. But we also know that the funds are not going to be disbursed immediately, it is not going to be disbursed in one lump sum to the operators so that they can take keep money and use it over time. It is to be disbursed to them in order to cover the purchase of new buses as and when it happens and the operating costs of these 550 buses. And so in the meantime, we need to make sure that the fund with LTA is properly invested because otherwise I can imagine that some years later, we may well be asked the same corollary question of why it was not invested in safe instruments in order to bring in some returns. But, as I have said, that is not the primary purpose of the fund. It is that, as good stewards, we ought to, in the meantime, make sure that whatever money that is in the fund is invested in safe instruments and, when the need arises, we disburse the appropriate amounts to the operators to reimburse them.

Why not claw back the $1.1 billion? This was another question that Mr Pritam Singh raised. It is back to the same reasoning over where the bus financials are. When we actually discussed this programme with the operators, contrary to your expectations that they would be really forthcoming in terms of wanting to bring on board the buses and run these services, they were very concerned. They were very concerned because they knew right from the start that there was no upside and they had to make sure that they were properly protected to make sure there was no downside for them. For us, it was the opposite. We wanted to make sure that there was no upside for them and, hence, even till very recently, there is a lot of debate and a lot of dotting the “i’s” and crossing the “t’s” in order to make sure that we have as definitive an agreement as possible. But I give you my assurance that this is not intended to profit the operators. I know their concerns, I know their fears, but the way we want to use this money is to make sure that the commuters benefit from having more reliable, more frequent, less crowded buses. Certainly, the intent is not for this Government to give money to the operators in order to fatten their bottom line. Not at all.

So, as I have said earlier, the new routes, as well as augmentation to the existing routes, will start in September this year. I hear already your request to do more, and to do so now. Again, the constraint is going to be drivers. Dr Janil Puthucheary also mentioned this concern over drivers, whether they are appropriately trained for safety and so on. So, maybe I will take a little bit of time to talk about drivers. The bus operators have been able to recruit somewhat more drivers from both Singapore and especially Malaysia after the increase in the remuneration package. As they are close to or have already hit the quota for drivers from China and the Ministry of Manpower is not relaxing it to support the bus sector, they have confined themselves to recruiting more Singaporeans and more Malaysians. Malaysians, I think, are more forthcoming. Singaporeans are still somewhat less so even though the numbers have increased. But in terms of training, local drivers get nine weeks of training, the foreign drivers get a little bit more. Nine weeks, I think, is a significant time, not only to familiarise themselves with several new routes that they may have to operate but also to understand the local context a little bit better, especially so if they are foreigners – the language and nuances, a little bit of the culture, and so on.

There is always a concern over safety when there is any significant increase in new drivers and I have asked the PTOs to pay special attention to this, to make sure that we operate our bus fleet as safely as possible. Today, the standard that is set for them is no more than 0.75 accidents per 100,000 kilometres. For those of us who are driving cars, you will think that over the course of your 10 years, you may drive about 200,000 kilometres, and so over the course of the 10 years, if you exceed more than one-and-a-half accidents, you would have busted this number. So, I think it is a reasonably stringent standard that we have set for the operators and I know that certainly over the last six months that the PTC audited that they did not exceed this 0.75 accidents per 100,000 kilometres. We give you the assurance that we will continue to pay great attention to safety and to make sure that bus drivers, especially the new drivers that are brought in, know what they are required to do, namely, understand the needs of commuters, particularly of the more elderly residents, and drive with due care the buses that they operate.

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Mr Gerald Giam Yean Song: Mr Deputy Speaker, I thank the Minister for his clarifications. I have three follow-up questions on what he has said.

First, it is regarding the whole model that he was talking about where he said the profit motive drives efficiency. This may hold true in general but not for the public transport industry. This is because of the inherent market failure in the public transport industry. As the BSEP has proven, the fact that we need to inject this whole subsidy in at this time in order to improve services is a recognition that there is a market failure in the public transport industry. The profit motive, yes, it drives efficiency, but only when there is stiff competition, when there is sufficient competition. But given our small market, true competition really is not possible. So the Government has said that we are introducing contestability. But contestability, we have to admit, is a poor substitute for competition. With 10- and 15-year contracts – 15 years in the case of the MRT contracts – there is not really that much incentive for them to perform in order to prevent themselves from being unseated. Who else can realistically run the PTOs? In fact, the Minister alluded in his response just now on how difficult it is to introduce new operators into the system, and I am sure the PTOs know that. So I contend that contestability is not a major motivator of the PTOs to improve. The bottom line is: do we want to have a system where we have two profitable listed companies whose motivation is not necessarily to improve quality of service to commuters but to generate profits and to improve the dividends that they can distribute to their shareholders? They have distributed over $1 billion in dividends since 2003.

My second clarification is regarding the Minister quoting the UniSIM survey. My response to that is: if commuters are so pleased with the service, and the Government assesses that they are sufficiently pleased with the service, why is there a need to increase the QoS now? Is this not an admission that the service is not up to the mark? So the proof is really in the pudding. Let us look at the mode share of public transport over the past few years. The LTA set a target of 70% in 2020, but in 2004 the mode share was 63%, in 2009 it dropped to 59%. I am not sure what the mode share is right now. But obviously, we are talking about a situation where commuters are being deterred from going on public transport, and it is not a stretch to say that it is because of the poor service that they have experienced.

My last point is that I do not think the Minister addressed my question about why the Government has decided only now to decisively increase the QoS standard now. Why did they not roll it in over the past, let us say, five years, and anticipate this population growth? Surely the Government knew that there was going to be population growth. If there is a need for increased housing, there is also a need for increased transport.

Mr Deputy Speaker: Before I call on the Minister for Transport, I would like to remind Members, in your clarifications, keep it short. Do not try to make any short speeches. Minister for Transport, Mr Lui.

Mr Lui Tuck Yew: Thank you, Mr Deputy Speaker. I think to say that it is a market failure in the transport industry and true competition is not possible for a city of this size begs the question why there is this shift towards privatised entities running transportation across a number of cities. And I would like to hear Mr Giam’s explanation of why he thinks that this trend is seen in a number of cities and whether they are all experiencing market failure, and whether operators with a profit motive in those countries are also doing commuters there a disservice, and why governments are all moving in this direction. Again, I say this: we see the best in the solution that is not adopted and it becomes increasingly attractive over time. But I think we do not see the downside. The body of evidence is that, certainly, from across a number of cities, the nationalised entities are less cost-efficient, meaning that they actually require larger subventions. Going in that direction ultimately means either the commuters pay more or the taxpayers pay more or you suffer a decline in standards. I think that is the real truth about it because there is that nexus between standards, costs and the associated issue of where your fares are.

Second point is: if the UniSIM study is so favourable, why do more? Well, I have been asked from “why do more now”, to “why not do even more” to “why only now”, which was actually your next question. I think the point is that this is a Government that really wants to try and improve the quality of life here in Singapore.

Whether it is better housing, better schools, more effective and more affordable healthcare and transportation, we are prepared to do so. We are financially in a position where we can do so without having to borrow and putting the costs on future generations. And, hence, therefore, the question must be that if we can improve the quality of service that a commuter can experience without passing on the cost burden to him or her or the family, why should we not do it? We have a goal to hit 70% mode share in transportation. You are right in that it has declined. I think, in part, because we also made tweaks to the COEs as well as to the ARFs and the road tax. I think you may recall that ARF for cars at one time was as high as 175%, and now it has been brought down to 100%. COEs were growing at 3% and then subsequently, it was brought down to 1.5%. Hence, for a number of years, those who were aspiring to own cars were able to do so and they indeed found cars to be more affordable compared to what we were experiencing in the mid-1990s. For those who remember, in the mid-1990s, COEs cost $100,000, and a Honda Accord was $150,000. That was the situation then. Over the years, it came down. And I dare say that much as some of you are prepared to take public transport and that there is a general degree of satisfaction with the public transport system from the surveys and anecdotal information that has been given to us, that there is also a deep desire for many people to own their own vehicles, whether it is because they have a young family, whether it is because they are dating, and they think it is an important instrument, or whether they have elderly parents that they need to fetch.

Why not do this gradually over the last five years? Well, one of the things that we have done is that over a number of years, the PTC has on an incremental basis improved the standards. But I think we felt that it was necessary to decisively ramp it up. And if we are prepared to put $60 billion investment in rail, it was also appropriate to make sure that we put an appropriate sum of money into the buses in order to bring about an overall improvement in the transport network in Singapore, bearing in mind that there are those who depend solely on buses or those who use buses to complement their travel by rail. And that if we can do this, then it becomes, overall, a more attractive commute to the average commuter and hopefully as we tighten on supply of COEs, we can shift people towards public transport.

Perhaps I take this opportunity to address some of the points that were raised by Mr Janil on taxis and COEs, because talking of COEs, he reminded me that he had brought up some points that I did not manage to address. For taxis, it is at the higher end of the public transport spectrum. It is not mass public transport. It is at the higher end of the public transport spectrum that allows a direct door-to-door commute. So the pricing, the quality of service, is somewhat different. The concern is whether we are utilising the taxi fleet in an optimal manner. We have seven taxi operators today. Six of the operators, the majority of their fleet is run by a single driver. I think you will understand that with a single driver, it is not possible for them to drive 24 hours. They drive for a limited duration in the day and, hence, there are significant periods of time when the taxi fleet, I believe, is under-utilised. And therefore it is important that we work both with the operators as well as with the drivers themselves to see what are the ways in which we can increase the overall availability and utilisation of this fleet. As I have mentioned during the Committee of Supply when we talked about the benefits of the QoS and the fare increases last December, this is one of the things that we are doing together with the operators and we ought to be able to finalise some of these measures soon enough.

*    *    *    *    *

Mr Seah Kian Peng: Mr Gerald Giam. Make it short.

Mr Gerald Giam Yean Song: Mr Deputy Speaker, Minister asked for my response to what he says on the international trend towards privatisation. From the research I have done, most cities are actually not moving towards what some economists call the “passive franchise model” that we have in Singapore. They are actually moving towards more government control and government planning, where the governments control the whole network and they give out contracts to operators. In fact, in many European cities, the government just pays the operators to run the service but they collect all the fares. So the operators do not even have any revenue risk in that. That is the model that a lot of countries are moving towards. In fact, as a country becomes more developed, it moves from the deregulated model to a more regulated model.

Mr Lui Tuck Yew: At the end of the day, are these being run by private operators, too? If you take away the revenue risk from them, is it not more favourable for the operators?

Mr Deputy Speaker: Mr Gerald Giam. Keep it short. This will be the last clarification.

Mr Gerald Giam Yean Song: Thank you, Mr Deputy Speaker. I just want to correct myself about the revenue risk. What I meant was a fare revenue risk in that model which I am not pushing for actually. I am just trying to illustrate that there is that trend towards more regulation. In that model, the operators are just paid a certain amount to service that route.

Regardless of the fares that come in, it goes to the Government. My main point in all these is that the reason why we feel that there is a need to have more regulation and more control by the Government, is that we feel that there is a need to have the profits not going to shareholders but recycled back into the system where it contributes to better maintenance and buying more buses, where the operators or the single operator – the public monopoly – can do that, rather than giving the money to shareholders whenever it makes a profit.

Mr Lui Tuck Yew: Thank you, Mr Deputy Speaker. The Government does do quite a lot of what you are saying, which is central planning, deciding on which route, in fact to the extent of which new route to introduce when, how many buses that will require and then holding the operator to delivering the standards that are expected of them. And as I have said earlier also, we set the standards, we decide on the fares so they do not have carte blanche in order to maximise profits.

The challenge to date – again, as I said earlier — is that the bus financials have actually deteriorated over quite a period of time because the fares have not been keeping with the increases in wages or in fuel. Therefore, if you look at the trend of the profit margins, both operators are now in the negative and we have to try to make sure that we improve on this, otherwise all that we are talking about will not come to pass.

Author: Gerald Giam

Gerald Giam is the Member of Parliament for Aljunied GRC. He is a member of the Workers' Party of Singapore. The opinions expressed on this page are his alone.

3 thoughts on “Raising bus fares leads to greater efficiency?”

  1. “2006 to 2011, fares cumulatively went up by 0.3%. What about fuel, which is a significant component of their costs? Fuel prices went up by more than 30%, while national wages went up by more than 25%.”

    These percentages are very misleading. if you look at absolute numbers for SMRT, from 2006 to 2011, revenue increased by $258mil, fuel cost by $56mil, payroll by $60mil (total: $116mil). in other words, the increase in revenue far makes up for the increase in costs.

    in fact, in 2006, net profit before tax was $124mil out of revenue of $712mil. net prefit margin: 17%. in 2011, net profit before tax was $192mil out of revenue of $970mil. net profit margin: 20%. in other words, contary to what the minister said, SMRT’s performance actually improved as evident by the improvement in net profit margin.

    also i noted that the minister conveniently omitted the part on “we feel that there is a need to have the profits not going to shareholders but recycled back into the system where it contributes to better maintenance and buying more buses”.

    some numbers for comparison:
    in 2006, they bought assets of $90mil and paid dividends of $78mil. in 2011, they bought assets of $101mil and paid dividends of $129mil.

    Also i remember there was some talk a couple years back on return on assets and return on equity as a better measure than profits.

    more numbers for comparison (2011):
    Return on equity: SMRT: 20.5; SIA: 7.9; DBS: 11.0
    Return on assets: SMRT: 10.1; SIA: 4.5; DBS: 0.97

    i think it doesn’t make sense for a provider for an essential social service to be doing better than blue chip companies!

  2. I have some ideas to share,with regards to our current state of public transport, particularly, our fiancial framework.

    I have posted as comments on the Straits Times as DanielTan1956.

    Some articles whereby I have commented includes:
    Will it lead to a moral hazard? (17 Dec 2012)

    No Smooth Ride for Bus Passengers (17 Dec 2012)

    Use COE money to subsidise bus drivers’ pay rise (17 Dec 2012)

    Fare increase not just to raise salaries of bus drivers: Lui Tuck Yew (13 Dec 2012)

    Singapore takes No. 2 spot for best taxi services in travel survey (14 Dec 2012)

    Avoid a bus fare policy of half-measures (07 Dec 2012).

    I wish that the WP can benefit from my comments to these post, and can play an impactful role in improving our public transport system, which needs a serious revamp.

  3. 1) COE should not be free float by demand.
    2) COE should be tagged to official addresses, names and households. That way, families with children, first COE per household and name should have preferential rates while second and third car per houshold will have escalating COEs. Households with 3 cars and above ought to pay a public transport tax which can be used to augment the income for the transportation company specifically to improve service quality.
    3) COE collected should be used to provide transport for the elderly who are going through treatment in hospitals, households with tetraplegics and the like

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