SINGAPORE (May 20): Two-minute intervals between trains. Fewer breakdowns. Clean, new buses running at a higher frequency. Bright LED screens displaying details of stops on both buses and trains. To many commuters who are enjoying these benefits, the meltdown of Singapore’s transport system in December 2011, and again in July 2015, is a distant memory.
Certainly, services have improved significantly. There are new trains and buses, while existing ones have been spiffed up. There has been an overhaul of the older rail systems, presumably including fixing the grips for the electricity rail that were, at one point, secured by plastic cable ties. Indeed, the train disruptions were blamed on severe shortcomings in maintenance, as well as a lack of investment in upgrading what was a heavily used, 25-year-old network. There were also complaints about the unreliability and poor frequency of the bus services — which struggled to cope with the hundreds of thousands of commuters who spilled out of the train stations during the disruptions.
Commuters were even more indignant at the fact that the two public transport service providers were public-listed companies. There were charges of a conflict of interest between the drive for profitability and shareholder returns — which necessitated cost-cutting, for example — and the provision of a public service. SMRT Corp was also a landlord. In its FY2012 annual report, released shortly after the December 2011 disruptions, it said it leased out some 34,400 sq m of commercial space within the train network.
In late 2016, state investment company Temasek Holdings bought back SMRT, which ran the offending train networks as well as bus and taxi services, from public shareholders in a $2.6 billion deal. Meanwhile, all the train networks, including those operated by SBS Transit, were to come under the New Rail Financing Framework, which meant that the government bore the burden and attendant risks of owning, financing and upgrading all operating assets and infrastructure. SMRT would only have to focus on operating and maintaining the rail network. At the same time, the public bus services came under the Bus Contracting Model. Similarly, the government would own all operating assets, including buses, and lease them to operators.
According to the government, which would spend billions of dollars on these two schemes and further expanding the transport infrastructure, the objective is to raise the level of service for commuters, as well as allow it to make the public transport services more responsive to changes in requirements. In its explanation of the new rail financing framework, the Land Transport Authority noted that under the previous model, the rail operators bore the full financial risk of building up, replacing and upgrading the network and its assets, and therefore “may be too cautious to undertake costly capacity expansion, replacement and upgrading works”, as well as being “less responsive to growing rail ridership and commuter expectations.”
Owning and operating an expansive bus and rail network did not seem to be a particularly onerous task for SMRT. For its financial years 2009 to 2011, for instance, the group reported about $160 million in earnings annually, on the back of about $900 million in revenue. In FY2012 ended March 31, however, earnings fell 25% from the year before, to $120 million, even though revenue surged past $1 billion.
The following year, as its maintenance issues came to light and the company set about fixing them, it reported a further decline in earnings to $83.3 million, even as revenues were some $1.2 billion.
In October 2015, former CEO Desmond Kuek said SMRT expected to spend about half of its rail revenue on maintenance of the rail network for FY2016. The public-listed company apparently had not disclosed such information before, but in the interest of clarity said that rail-related maintenance costs ranged between 39% and 45% of rail revenue during the 2015 financial year.
For FY2016, however, even as it ostensibly ramped up its track and system maintenance, the company still churned out $109 million in earnings. During the year, it spent $89 million on rail repairs and maintenance, or about 18% more than in the previous year. Meanwhile, the retail business continued to grow. Rentals generated pre-tax earnings of $83.4 million in FY2016, nearly 5% more than in the previous year. It was a lucrative business, generating a rough profit margin of about 60%. And SMRT was also able to reward shareholders who stuck by it, paying out dividends that yielded roughly 4%.
In any case, has SMRT’s privatisation, or nationalisation depending on how one looked at it, resolved the deeper issues plaguing the organisation?
In 2017, before he stepped down from the post, CEO Kuek acknowledged that SMRT was responsible, at least in part, for the disruptions in train services. “We have identified that the level of accountability by supervisors is an area that needs to be strengthened,” he said at a press conference in October. “The level of ownership and responsibility over what is not working well, and the openness in which some of these issues on the ground are reported, are areas that we seek to improve.”
Regardless, the public transport operators’ challenge was to align the interests of the commuting public with its investors. They have been relieved somewhat from that balancing act by the rail financing and bus contracting schemes. However, once the state has developed the train network infrastructure to an optimum level, taking into account its projections for population growth, it may only be a matter of time before the operating companies are both back in the market again. Then, it would be up to them again to make both public and private interests work.
This story appears in The Edge Singapore (Issue 882, week of May 20) which is on sale now. Log in here to read this week's cover story On track or subscribe here
