Skip to main content

Advertisement

Advertisement

Shorter licensing terms could see entry of foreign rail operators, say experts

SINGAPORE — By shouldering the cost of acquiring and maintaining rail assets, the Land Transport Authority (LTA) will be taking on “a difficult burden” that SMRT had struggled with, while exposing itself to more risks should revenues fall, said industry watchers.

SINGAPORE — By shouldering the cost of acquiring and maintaining rail assets, the Land Transport Authority (LTA) will be taking on “a difficult burden” that SMRT had struggled with, while exposing itself to more risks should revenues fall, said industry watchers.

But shorter licensing terms — 15 years, instead of 30 to 40 — means increased contestability, which could even see foreign players entering the market to provide services, they noted.

Under the new rail financing framework, SMRT will turn over its operating assets — such as trains — to the LTA for about S$1 billion.

To operate services and use the assets on the North-South, East-West and Circle lines, as well as the Bukit Panjang LRT, SMRT will pay a licence charge to the LTA. The money will be accumulated in the Railway Sinking Fund, which helps to pay for the maintenance of rail operating assets.

The framework is such that SMRT will be able to achieve an EBIT (earnings before interest and taxes) margin of about 5 per cent.

With rail operating assets taken care of by the LTA, SMRT can “concentrate” on its revenue, said UOB economist Francis Tan.

“(SMRT could) do more interesting things to boost (its) revenue, (such as) non-rail activities like shopping,” he added.

Transport consultant Tham Chen Munn said the new framework will allow SMRT to focus on “commuter satisfaction” such as train reliability and train frequency.

The LTA, on the other hand, will assume the liability of holding the assets, said SIM University senior lecturer Walter Theseira.

“The Government will be responsible for maintenance of the rail assets and future capital expenditures,” Dr Theseira said.

“These liabilities of maintenance and upgrading are arguably why SMRT had so much difficulty in recent years with maintenance.”

He noted: “The Government’s long-term interest also is in maintaining and operating the system at a high standard, whereas as a profit-driven company, SMRT will always be subject to short-term incentives to raise profits at the expense of maintaining the assets.”

National University of Singapore transport researcher Lee Der-Horng pointed out that if there were “drastic” changes such as falling ridership, the Government will have to bear some of the loss.

“They share the revenue, but at the same time, they also bear the risk of the revenue loss,” he said.

But a more “contestable” framework also gives the Government a measure of control.

“If you do not do well, at the end of the 15 years, the Government will call (for a) tender, just like the bus contracting model,” said Prof Lee, adding that this could attract “overseas operators”.

Dr Theseira agreed, noting there will be “business and regulatory models that are possible in the future, that wouldn’t have been before”.

He added: “I think the way to look at it is that there are some things the Government might do better than private industry can, and one area could be control and ownership of an expensive asset with a primarily public purpose, because the cost of capital for the Government is much lower and interests are more aligned.”

Read more of the latest in

Advertisement

Advertisement

Stay in the know. Anytime. Anywhere.

Subscribe to get daily news updates, insights and must reads delivered straight to your inbox.

By clicking subscribe, I agree for my personal data to be used to send me TODAY newsletters, promotional offers and for research and analysis.