In 2016, the government took back control of the train network and invested heavily in improving services. But has the system really been fixed?
SINGAPORE (May 20): Annabelle Lee does not particularly enjoy her daily commute to and from work. “I get so tired by the time I get to work because of how stuffy the train is,” says the 28-year-old civil servant who spends an hour getting to her office in the city centre from her home in Sengkang. “The trains are always so crowded and everyone is packed like sardines in the carriages.”
Even so, she concedes that the train system is much better now than it was a few years ago, with fewer breakdowns and delays. Indeed, according to data by the Land Transport Authority (LTA), the public transport system hit a new high in reliability last year, with trains clocking an average of 690,000km between delays, 3.8 times better than the previous year’s average.
SBS Transit’s North-East Line (NEL) was the best performer last year, chalking up nearly 1.4 million train-km between delays of more than five minutes each. Its Downtown Line (DTL) was the next best performer at 928,000km. It is followed by SMRT’s North-South Line (NSL) at 894,000km, and Circle Line (CCL) at 728,000km. The East-West Line (EWL) — the last to have upgrades to its signalling system — clocked 408,000km between delays, but is expected to show continuous improvement.
The oldest lines are the NSL, which spans 45km, and the EWL, which runs 57.2 km. The 10-year-old CCL covers 35.5km while the five-year-old DTL has a 41.2km route that is currently not fully operational.
There has also been a drop in the number of service delays from 15 in 2015 to nine in 2018. With four delays, the EWL was the worst performer, while the NEL and DTL tied with two delays each. The CCL recorded one delay.
The transport network is en route to achieving better reliability, with the NEL exceeding the 1,000,000km mean kilometre between failure (MKBF) goal that Transport Minister Khaw Boon Wan hopes to attain by 2020. The target was “not plucked from the sky” and was decided based on “how the good MRT lines in other cities perform”, he says. Khaw’s initial goal, set in 2017, was to hit 800,000 MKBF, but it was revised on account of improvements in operations. It is benchmarked against the goal of Taipei’s metro operators.
The improvement in the MKBF comes on the back of asset renewal programmes and more train runs. The new trains have been able to provide a more seamless commute, especially along the NSL and EWL, the two oldest lines here. In addition, trains have been moving at an optimally efficient speed of 90 seconds per train during peak hours, significantly reducing waiting times. While trains may still be packed, Rajan
Krishnan, former director of projects at LTA, says they are already running at the “fastest and closest distance” that engineering permits train carriages to travel at.
Satisfied public
Overall, the travelling public appears to be happy with the performance of the public transport system. A 2018 survey on Public Transport Customer Satisfaction found that 97.9% of respondents were satisfied with the public transport system. This is nearly seven percentage points higher than the 91.3% recorded five years ago. The survey, commissioned by the Public Transport Council, is conducted annually. It polled about 5,000 commuters randomly selected at bus interchanges, bus stops and MRT stations during peak and off-peak periods. The top three service aspects the respondents valued were shorter travel and waiting times and easy access to MRT stations, bus interchanges and bus stops.
All this has come about after a hefty investment from the government, under the New Rail Financing Framework implemented in 2016. The arrangement saw LTA taking over ownership of SMRT Corp’s and SBS Transit’s trains. LTA makes decisions on investments in capacity expansion and the replacement and upgrading of operating assets. This relieves the operators from an ownership responsibility over rail operating assets, allowing them to better focus on the operations and maintenance of the rail network. “With all our existing rail lines now on the NRFF, the government will be able to plan network capacity holistically and improve rail capacity for Singaporeans in a timely manner,” LTA said in a statement issued in February 2018.
Under the arrangement, the operators will pay LTA an annual licensing fee to continue operating and earning revenue from the lines. The fee will be structured such that operators will earn a composite pre-tax profit margin of about 5%. It will then go into a sinking fund for asset replacement. When there is a shortfall in fare revenue and profits, LTA will chip in. Both SMRT and SBS Transit did not disclose the impact of this new model on their profitability.
In return, the operators are required to meet higher capacity needs and reliability requirements under the Maintenance Performance Scheme imposed on them by LTA. They include a need to increase maintenance staff by 20% to about 700, along with working towards Khaw’s MKBF goal.
SBS Transit’s DTL was the first to make the transition in 2011, followed by SMRT’s trains in 2016. SBS Transit’s remaining trains were the last to transit in 2018. LTA purchased SMRT’s assets — the four lines it operates — at $1.06 billion in 2016. Its purchase of SBS Transit’s assets from the NEL and Sengkang and Punggol LRT lines was done in mid-2018, for about $30.8 million. Payment was made in tranches with 60% made on the date of transition and the next 15%, 15% and 10% being made on the next three anniversaries respectively.
LTA has also recently signed a $116.7 million contract with Chinese rail transport equipment company CRRC Nanjing Puzhen Co, which has been involved in several overhaul projects in Hong Kong and China — to upgrade the NEL’s 25 first-generation trains. The deal, launched in December 2018, will see the trains’ interior, such as seats, panels and flooring, getting a facelift. The air-conditioning, ventilation and passenger information systems will be upgraded and ageing electrical components will be replaced.
These upgrades are a bid to further rejuvenate the transport network to keep pace with the infrastructure needs of a growing population. In a May 2017 statement, LTA says it “expects to spend more than $4 billion renewing, upgrading and expanding existing rail assets in the next five years. This is in addition to the roughly $20 billion [they] will spend to build new public transport infrastructure”.
Anni horribiles
The impact of the financing framework is evident about 2½ years into its implementation. Observers say the key is in the setting of standards for the operators.
Singapore’s public transport network, particularly the train services, has been under intense scrutiny since the two major breakdowns in December 2011, of the NSL and EWL — the first two in the network built in the late 1980s. Hundreds of thousands of commuters were stranded by stalled trains, and the public buses struggled to cope with the spillover.
On Thursday, Dec 15, 2011, about 127,000 people were caught in a massive delay when four trains on the NSL came to a grinding halt during the evening rush hour. Crowded carriages were left without lights and air-conditioning. There were reports of a passenger fainting and another using a fire extinguisher to break open a window for ventilation. Photos of huge crowds of commuters spilling onto the road in Bishan emerged on social media. Train services resumed after roughly five hours, close to midnight.
Friday passed without incident. On Saturday morning, five trains on the notorious NSL stalled, on the same stretch of track. The breakdown caused “stress and inconvenience” to 94,000 commuters, acknow-ledged the then Transport Minister, Lui Tuck Yew, in a Parliament session the following month.
Lui also reported that the two breakdowns had a similar cause: the misalignment of the carriages’ so-called collector shoes and the power rail, which left the trains without power. Subsequently, LTA slapped SMRT with a $2 million fine.
SMRT’s CEO at the time, Saw Phaik Hwa, later resigned. But more was to come.
In 2014, the operator was again penalised, with a $1.6 million fine, for slip-ups by staff that included train drivers running red signals and maintenance staff forgetting to remove short-circuit clamps after finishing with sleeper replacement works.
Then, on July 7, 2015, nearly half a million commuters were stuck in the evening rush hour when train services were disrupted on the NSL and EWL, owing to water leaking onto the power rail in the Tanjong Pagar-Raffles Place tunnel. LTA found SMRT wholly responsible for the lapses leading to the disruption, and fined the operator $5.6 million.
In August, Transport Minister Lui said he was stepping down from his Cabinet post and would not contest in the general election that was to be held that September.
Eight months later, in March 2016, two SMRT workers died after they were hit by a train while they were on the tracks to investigate the cause of a signalling fault. Then, in October the following year, services were disrupted for more than 14 hours, owing to flooding in the tunnel between Bishan and Braddell stations.
It was eventually determined that SMRT’s lack of investment in the network, and shoddiness in maintenance, including records that were falsified, were in large part to blame for the disruption. Former SMRT group CEO Desmond Kuek, who held the unenviable post from 2012 to 2018, attributed the disruptions to human error or failure, and noted that there were still “deep-seated cultural issues” in the organisation that had to be rooted out.
Rise and fall of SMRT
At the time of the major disruptions, SMRT was a public-listed, blue-chip company. The ownership of the rail assets was transferred to it in 1998, and it was listed on the Singapore Exchange in July 2000, with parent Temasek Holdings selling a third of its stake to public investors. In the years before the breakdowns, SMRT boasted strong operating cash flows, earnings growth and healthy dividend payouts.
Yet, as the system unravelled, accusations of prioritising profits over service quality, maintenance and employees’ salaries were levelled at the company’s managers. SMRT owned the rail assets — from the trains to the signalling systems — and was therefore responsible for the upkeep. Saw, CEO at the time, was criticised for pushing the growth of SMRT’s retail business — the shoplots at stations. SMRT’s revenue from the lease of shop and advertising space grew from $87.5 million in FY2010 to $133.3 million in FY2014. The company reported earnings of $62 million in FY2014 on the back of $1.2 billion in revenues. It also reported operating expenses of $1.1 billion. For FY2015, SMRT’s rental and advertising revenue rose to $156.6 million, and then to $174.6 million the following year.
After its delisting in FY2017, SMRT reported earnings of $26 million, a sharp decline from the $109 million it made the year before. It also reported that operating expenses rose 7% y-o-y to $785 million, as it stepped up maintenance and prepared for the extension at Tuas. Its declining earnings continued in 2018, and it made a loss of $86 million on the back of higher maintenance costs and falling ridership. Operating expenses were up 7% to $838 million, but revenue dipped 6% to $743 million, following lower average fares after a fare reduction exercise and a 2% drop in its total ridership to 753 million.
Professor Park Byung Joon, an associate professor at the Singapore University of Social Sciences (SUSS) and a transport expert, says “it is not fair to blame SMRT” for the mishaps, as its goal in 2011 was to increase profits, and developing a retail arm was seemingly the best way to attain that. “Maintenance issues were not big then,” Park adds.
Indeed, in explaining the move to NRFF, LTA had noted that “as operators bear the full financial risk, they may be too cautious to undertake costly capacity expansion, replacement and upgrading works. They may also be less responsive to growing rail ridership and commuter expectations”.
In October 2016, SMRT was delisted from the stock exchange, after Temasek bought back the shares from minority shareholders at $1.68 per share, or $1.18 billion. Along with the New Rail Financing Framework, it represented the effective nationalisation of the train network 20 years after it was privatised.
Who’s paying
While the enhanced efficiency of the network is welcomed by commuters, it is also set to weigh more on the government’s budget. Is it then feasible for the government to continue bearing the burden of providing public transport services, especially when the opportunity cost on its resources are so high? Will the operations be privatised again down the road?
Since 2018, LTA has issued five bonds totalling $5.5 billion. It had last issued a bond — a $650 million, 15-year issue — in September 2015. The latest issue, launched in January this year, was a $1.5 billion, 40-year bond.
To be sure, figures from the Ministry of Transport show an expected 3.6% decline in the total expenditure on transport from $11.1 billion in FY2015 to the $10.7 billion estimated in FY2019. The disparity comes partly from the higher cost the government had to incur in FY2015 in terms of rail projects and new buses. The estimated expenditure for this year is lower, since most maintenance works have already been accounted for.
Still, there are concerns that transport fares will rise, even as rates in Singapore are comparatively lower than in most other major cities. Says financial planner
Elizabeth Leow, 37, “I already spend almost $130 a month on just bus and train travel. If fares go up any more, it might be a strain.”
Fares were last raised by the Public Transport Council in December 2018. Adults using travel cards had a six-cent increase per journey, while increments to fares for students and senior citizens were capped at one cent per journey. PTC sets the fares and has disclosed that, in addition to the price of oil and gas, inflation and the wage index, a Network Capacity Factor will be included in the calculations for fares. People who report lower income, such as the elderly, receive travel subsidies.
SUSS’ Park cautions that public transport “should not become a money pit for the government”, as is the case in Seoul, where the government subsidy for public transport “has increased nearly sevenfold” in the last 10 years or so. But he does not anticipate a significant increase in the price of public transport and taxes. “You cannot increase costs too much too because it becomes a political issue,” he adds. “Once you offer a subsidy, people will expect the government to continue subsidising public transport. So, it is hard to take it away”.
Higher taxes not a solution
Hsu Wen-Tai, associate professor of Urban Economics at Singapore Management University, does not think taxes will increase to buttress the government’s deeper involvement in the transport network, given that it has “lots of funds in reserves”. Instead, he expects higher Certificates of Entitlement prices on motor vehicles to overcome the higher cost of public transport. “Taxes are a way to [mitigate] inequality,” he says, adding that he expects the government to increase taxes only as a tool to create a wealth transfer between the rich and the poor.
Hsu adds that Singapore could emulate the financing structure of the Hong Kong Mass Transit Railway. The MTR has 11 rail lines and covers 93 stations. “It has the support of the government, but it is still able to make a profit. It is also a listed company,” he says.
The Hong Kong model is similar to SMRT’s before it was delisted. Would SMRT and SBS Transit have been financially able to maintain their own assets? The amount pumped into the system by LTA would possibly have still been needed, regardless of the owner of the assets, observes former LTA director Rajan. For one, the train network’s signalling and power systems were already 12 to 15 years old and nearing retirement.
“When MRT lines are young, the current engineering hours of two to three hours a day are enough. But as the lines age, we have to intensify maintenance,” Khaw said at the Ceremony for Mid-life Upgrade for North East Line Trains on Dec 17, 2018. His comments were in reference to the “underinvest[ment]” in lines by the former SMRT management. Khaw also noted that much-needed maintenance and upgrading works were carried out “only in recent years at a great inconvenience to commuters”.
Ultimately, NRFF — relying on the government to shoulder the bulk of costs and risks — seems to be working out for Singapore’s transport system. This is especially so as the network ages and even more investment is required. Having said that, NRFF — aimed at beefing up the network, making upgrades and ironing out the inefficiencies and practices — could very well be a temporary one to help the operators get back on their feet before they return to the market. Whatever the case, it should also be clear to commuters that, as one expects better service, one should also expect to pay for it, one way or another.
See: Next stop: The interchange of public and private good
Multi-player market for buses helps drive efficiency
(May 20): The total peak-hour capacity of Singapore’s train network cannot be significantly raised by running trains at a faster frequency. Hsu Wen-Tai, associate professor of Urban Economics at Singapore Management University, says increasing the number of buses may just be the solution to overcrowding on trains during rush hour. It will also reduce the number of cars on the road. “For every bus, you can possibly cut down [the number of cars by] 50 to 60,” he says.
Singapore University of Social Sciences’ (SUSS) associate professor Park Byung Joon agrees. He says buses should complement the railway network. While it is ideal for commuters to have bus stops near where they live — 400m or less is deemed a comfortable distance in Singapore — it is also crucial to provide quality connections through direct bus services. This can be achieved by either redesigning current bus routes such that more areas are covered per service or serving more trunk roads through a loop service, says Park.
The introduction of the Bus Contracting Model (BCM) by the Land Transport Authority (LTA) in 2016 is seen to have helped improve connectivity. Its primary benefits are its responsiveness to changes in ridership and commuter needs as well as an injection of greater competition into the industry, thereby raising service levels for commuters over time.
As the Bus Service Operating Licences for buses under SMRT Corp and SBS Transit neared expiration on Aug 31, 2016, LTA revamped the public bus system into a competitive tendering process. Bus services are now bundled into 14 bus packages; each contract lasts five years, with a possible extension of two years with good performance.
The model is adapted from similar schemes used by Transperth in Perth, Australia and London Buses in London. For instance, Transperth has broken up the bus route provision into various zones for which providers can bid.
LTA, too, has broken up Singapore’s bus routes — with SBS Transit serving the northeastern region, SMRT serving the northern region, Tower Transit serving the western region and Go-Ahead Singapore serving the eastern region. Tower Transit has operations in both Singapore and London. Go-Ahead Singapore is a subsidiary of the Go-Ahead Group, which also operates buses in the UK, Ireland and Germany.
Under this model, Park says, bus operators enjoy a 40% subsidy on their operating expenses through government handouts, while 60% of their expenses will be funded from the fares collected.
Research house Daiwa Capital Markets says, “The new asset-light model aims to relieve operators of the burden of revenue and ridership risk, while also more effectively enabling the transmission of changes in the requirements of bus services as well as managing fleet capacity, while ultimately balancing the interests of all key stakeholders in tandem with population growth and an expected increase in the demand for high-quality public transport in Singapore.”
The operators have clearly benefited. SBS Transit posted a 27% y-o-y increase in 1QFY2017 earnings, the quarter just after the introduction of the model. More recently, the group enjoyed a 28.8% y-o-y growth in earnings to $25.4 million for 1QFY2019. It was able to generate an additional $71.4 million in 1QFY2019 revenue from its public transport business to $684.9 million, following higher mileage covered under the Bukit Merah Bus Package it won last year (see “Transport play: SBS Transit only proxy for defensive domestic demand, underpinning its overvalued share price” on Page 22).
Indeed, SBS Transit may just be the main beneficiary of the scheme. Park says having so many players may not exactly be the best solution, especially since “SMRT and SBS Transit have a stronger presence”.
Tower Transit Singapore has shown, however, that it is no pushover and is here to stay. Managing director Andrew Bujitor cites the operator’s training centre in Singapore as a mark of its commitment “to introducing international best practices and engineering know-how in the local public transport industry”.
While the stiffer competition sees the companies adopting various strategies to strengthen their foothold, commuters may make other demands of operators. The 2018 survey on Public Transport Customer Satisfaction showed that commuters were least satisfied with the waiting time for buses. After all, as 66-year-old Hazimah Yazid says, the bus operator is immaterial. “I just want it to come on time and take me from one place to another.”
