A Trojan Horse for Fare Rise?

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By Eric Tan

mrt station

The Fare Review Committee has completed its findings and the most tangible take-away is that there is going to be single journey fare increases for buses and trains.

There were good recommendations, such as the introduction of monthly concessions for frequent travellers and low-income travellers. However, the committee did not recommend the amount of discount from the current single fare structure for the price of the monthly concessions. The committee also did not define the meaning of frequent travellers. Those who take at least two trips a day should be defined as frequent travellers. If this is done, we can judge the tangible economic benefits of the recommendations.

Singaporeans do not want a fare rise because the public transport service standards have dropped and cost of living in Singapore has gone up far too much. There is no need for the government to add fire to the cauldron.
Furthermore, when I examined the fare adjustment formula of the past few years, I noticed that it only took into account the operators’ cost increases but not revenue increases resulting from increased passenger traffic. Yes, there is a productivity extraction factor but it is not directly related to increased passenger traffic.

In the past eight years, Singapore had experienced an increase in population of over one and half million people and increased tourist traffic, resulting in overcrowded trains and buses. That’s bad news for commuters but good news for operators as their revenues and yields per trip go up. During this period, revenues went up with the increased ridership but these benefits were not passed down to the commuters in the form of fare reductions. This increase in revenues was not factored in the formula, which is used to review fare increases. They only looked at increases in wages and fuel costs of the operators. In other words, one can argue that if the revenue increased more than the increase in costs then we should not have had any fare increases in the past.

MORAL DILEMMA

This brings us back to the root cause of the current tension between the commuters and the government. The current system poses a moral dilemma and conflict for the management of the operators as they, being leaders of government-owned companies, have to be sensitive to the public distaste for fare increases but their managerial objective is to maximise shareholder’s value. However, the government has always argued that the privatisation of the transport operators is still the better model, as experienced in other countries.

I believe that the privatisation would have worked well if the operators are not government-linked companies. Then the regulators can come down hard on the operators to ensure that their profits are minimised. In our case, the operators and regulators all report to the same ultimate authority, the government. Therein lies the conflict for the regulators as if the government culture is to maximise the profits of their listed companies then the regulators would be inclined to be less stringent on the operators.

Perhaps, the rise in the breakdown of train services in recent years is a reflection of the weakness of the current system. If the operators are purely private owned companies then perhaps the current system may work better as the regulators can come down hard on them.

NATIONALISATION

I propose that we should nationalise public transportation; anyway we are already headed there with government indirectly subsidising the operators through the grants given to them for buying buses. This will allow the government and management of the MRT to focus on clearing away all the maintenance problems and upgrading the systems with the clear objective of establishing our MRT once again as the best in Asia, better than the Hong Kong MTR.

After this, we can consider different privatisation models. I like the idea of dividing up the lines to allow private operators to bid on the lowest cost basis to run the lines. The revenues from fares go to the government which would de couple the conflict which exists in the current system .The government would award the tender to the most competitive bid and pay the operators for running it. The profit margin for the operators is embedded in their tender to operate the lines on a most competitive cost basis. By slicing up the lines, it will allow SMEs to participate in the tender as the size of the operators need not be large.

Singapore’s public transport system faces serious problems and need serious solutions. The committee did not present serious solutions but then that may not have been their terms of reference.

Eric Tan was the treasurer of the Workers’ Party.

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