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As LTA’s operating deficit balloons, it’s time to rethink bus subsidies, say analysts

SINGAPORE — The Land Transport Authority’s (LTA's) operating deficit has ballooned almost 3.6 times over the past five years from S$672 million to S$2.412 billion, largely due to the introduction of the bus contracting model.

Analysts called for a greater discussion over the right share of public transportation expenditures that should be paid by commuters.

Analysts called for a greater discussion over the right share of public transportation expenditures that should be paid by commuters.

SINGAPORE — The Land Transport Authority’s (LTA's) operating deficit has ballooned almost 3.6 times over the past five years from S$672 million to S$2.412 billion, largely due to the introduction of the bus contracting model.

Despite the eye-watering figure disclosed last Thursday (Oct 10) when the LTA released its annual report for its 2018/19 financial year (FY), transport analysts noted that the authority had already signalled in 2016 that these numbers were to be expected.

They, however, see a need for a rethink if the continued practice of providing substantial subsidies for the bus industry was sustainable — deficits in this area were significant, increasing from S$866 million to S$1.013 billion in the financial year ended March 31, 2019.

Transport Minister Khaw Boon Wan had made a similar point in July, when he signalled the need for higher public transport fares, saying that it would be unsustainable to continue relying on government subsidies to fund public transport infrastructure. Mr Khaw said then that subsidies given out “have exceeded their intended scope”.

LTA's annual report showed that expenditure in bus operations grew from S$1.77 billion to S$1.925 billion, but the total bus fares collected grew marginally from S$832 million to S$834 million.

Deficits from expenditure in the railway sinking fund make up S$128 million, up from S$101 million in FY2017/18. The fund is intended for the renewal of rail operating assets, including trains.

The rest of the deficit — S$1.271 billion — comes from the general fund, which includes the depreciation of property, plant and equipment, employee compensation, bond interest, maintenance and upkeep, and IT expenses.

Although bus operation losses were eye-popping, analysts said that it should come as no surprise since it was already announced in 2016 that the Government would plough S$3.5 billion to S$4 billion over five years for the bus contracting model.

Under the model, the Government owns all operating assets, is responsible for buying and replacing buses, and collects fare revenue. Transport firms, such as Go-Ahead, Tower Transit, SMRT Buses and SBS Transit, bid to run route parcels for a fixed sum over a set period.

Taking in Government grants, which increased from S$1.84 billion in FY2017/18 to S$2.251 billion in FY2018/19, the bus contracting model ends up with a surplus of S$14 million, while the general and railway sinking funds continue to be in the red, at a deficit of S$33 million and S$111 million respectively.

The S$3.5 billion to S$4 billion investment was expected to translate into higher service levels for commuters, including more frequent buses. Analysts said that there is no telling if bus operation costs will remain at those levels after the five-year period.

It came on the back of the S$1.1 billion five-year Bus Service Enhancement Programme, which had put on the roads 80 bus services and 1,000 new buses by December 2017.

WORLD-CLASS SYSTEM ‘COMES WITH A PRICE TAG’

The public needs to recognise that a world-class public transport system comes with a price tag, analysts told TODAY, as they called for a greater discussion over the right share of public transportation expenditures that should be paid by commuters.

Urban transport expert Park Byung Joon from the Singapore University of Social Sciences (SUSS) said: “So far, we have been complaining about a lack of bus services, but we haven’t really discussed what level of service we want to have — how much it would cost, and how to fund it.”

Associate Professor Park said that about 60 per cent of the cost of operating Singapore’s bus system is borne by taxpayers.

It is also time to think about containing the costs by looking into operational efficiency to lighten the financial burden, or seek society’s view on whether the spending is justified, he added.

“If you see public transport as vital infrastructure, then it is the Government’s responsibility to provide this infrastructure,” he said, drawing the link to the cost of building public roads. “We build roads because it creates an economic effect, so even if we spend S$1 billion, it is S$1 billion well spent.”

Transport economist Walter Theseira, who is also with SUSS and a Nominated Member of Parliament, questioned if the expenditures are “cost-effective” and whether such resources should be allocated to more important things.

“It is not a problem of fare revenue, but it is a problem of cost containment… The real problem with public transport is that we have prioritised service quality and reliability, and this has been quite expensive to achieve,” he said.

Elaborating on how costs could be contained, he added: “An important part of contracting is the service quality requirements. If the Government desires fewer services to be run, costs will automatically fall. But finding the right balance here between service quality and cost is also difficult.”

Dr Theseira said that the higher costs could be a result of the manifold objectives in the initial phases of adopting a bus contracting model, pointing out that the priority then was to introduce “meaningful competition” to the two incumbents here — SBS Transit and SMRT Buses — and toy with new ideas.

More emphasis was placed on quality then, beyond pure costs, he said. But “today, cost containment is clearly more important”, he stressed, signalling that costs should go down subsequently.

“It takes a while to work out the right balance between quality and cost as targets for contracting. And it is not unusual for prices to change over time especially as incumbents learn from their experiences,” he said.

THOSE WHO ‘BENEFIT THE MOST’ SHOULD PAY MORE

Transport anaylst Terence Fan from the Singapore Management University said that the Government could be more “vigilant” in saving some costs. These requirements are now set by the LTA, and it is not clear if there is room for bus operators to adjust their service frequency, he said.

“Can we take out some of the costs with relatively surgical precision, such that the bulk of passengers won’t notice very much?” he asked.

As an example, Assistant Professor Fan said that one or two buses can be taken out of the equation in the reverse direction of buses that travel towards the Central Business District during peak hours. This is because he noticed that buses moving into the city are jam-packed, but buses travelling in the opposite direction are often relatively empty.

He also suggested that lower frequencies can be applied to certain time belts.

At the same time, society should do some “soul searching” to decide what fraction of the costs to be covered by taxpayers ought to be, he said, seeing that suppressed public transport costs can serve a social good as well, helping the disadvantaged.

The recently announced fare hike of 7 per cent would likely narrow the gap between expenditure and income, but not close it, he said. “Expenditure should come down next year, but there will still be a big gap based on what we’ve seen.” 

In Asst Prof Fan’s opinion, the people who benefit the most from having a world-class transport system at their doorstep, such as those living a stone’s throw away from an MRT station, should subsidise a greater part of the cost.

He said that a mechanism could be set up to redirect the monies from land auctions at such sites, which contribute to the Government’s coffers, towards subsidising public transport expenditure.

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LTA transport bus train cost deficit subsidies fare

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