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Fare hikes needed to keep bus contracting model sustainable: Lui

SINGAPORE — Regular fare increases will be needed and new routes could be cancelled if there are insufficient passengers after some months, in order to make sure that the new bus contracting model is sustainable.

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SINGAPORE — Regular fare increases will be needed and new routes could be cancelled if there are insufficient passengers after some months, in order to make sure that the new bus contracting model is sustainable.

Transport Minister Lui Tuck Yew made these points yesterday in Parliament, in response to concerns raised by several Members of Parliament (MPs) on the financial sustainability of the system — which will be implemented from the second half of 2016 — and how much taxpayers’ money will be needed to run it.

He also revealed that the Land Transport Authority (LTA) is working on a framework to assess the passenger threshold a new route ought to meet before it can be operated.

Mr Lui said: “The eventual amount of subsidy will crucially depend on whether fares and bus service standards are set realistically. Regardless of industry model, the cost of the overall bus system has to be paid for either by commuters in the form of fares or by taxpayers in the form of Government subsidies.”

He added: “There is surely no free lunch ... The Government is committed to ensure the affordability of public transport fares. However, regular fare adjustments are still necessary to ensure the overall financial sustainability of the public transport system.”

The overhaul of the bus industry was announced in May. Under the new model, the Government will take over all bus operating assets and infrastructure and contract out bus services. Industry observers were hopeful this could prompt operators to ply services along non-profitable routes as they could be packaged with profitable ones.

However, Mr Lui stressed that new routes and higher service standards have to be “assessed judiciously”. “If you operate more and more new routes and the ridership is low, the Government and, indirectly, the taxpayer, take on the burden of making sure it is financially sustainable,” he said.

Mr Lui added that a new route could be tested for a few months and, if it does not cross the passenger threshold, the authorities may have to “sometimes make the painful decision to cut that route and eliminate it”.

He said: “We receive many requests to run bus routes that have low ridership. From the point of view of the select few who would benefit, these routes are, of course, necessary. But if we run too many of these routes ... then higher fares or more Government subsidies will be required.”

Mr Lui declined to reveal the Government’s budget to operate the system and how much it was prepared to subsidise the routes at this juncture, noting that doing so may skew the bids.

Nevertheless, he said the LTA would have to spend about S$150 million to S$200 million to buy about 400 buses for each package of routes. This translates to about S$1.8 billion to S$2.4 billion to pay for buses for the 12 packages in all that will be contracted out under the model.

Responding to Nominated MP (NMP) R Dhinakaran’s question on whether the subsidies will be made known for a route before a tender is put up, Mr Lui said it was unclear right now whether all packages will require subsidies or how much these are going to be. Mr Lui said operators would most probably bid on the cost of running a bus on a per-kilometre basis, and the Government might contract them to run, for example, a million kilometres. If fare revenues collected by the Government do not match what it pays the operators or if fares do not go up enough even though costs rise, then there will be a need for taxpayers to subsidise the system, he said.

Mr Lui noted that the rise in operating cost in the past had exceeded the fare increases introduced each year. From 2005 to 2012, annual fare increases averaged 0.3 per cent but increases in wages and fuel costs were much higher, he said.

Non-Constituency MP Gerald Giam asked how the Government intended to ensure genuine contestability and make it easier for new players to enter the market. In response, Mr Lui noted that with the LTA buying and owning the buses, the barriers to entry will be lower for new players as well as local companies that have been running private buses quite efficiently.

Senior Minister of State (Transport and Finance) Josephine Teo said the new system was among a range of possible public-private partnership (PPP) models that can be adopted for public services, in response to NMP Teo Siong Seng’s question on whether such a partnership is the way forward for government-outsourcing projects. Mrs Teo said PPP models have already been adopted in areas such as healthcare and water management.

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