17 April 2011

Should the Government Nationalise Bus and MRT Services?

In its manifesto for the coming general election, The Workers' Party called for the partial nationalisation of bus and MRT services in Singapore.

It proposes the setting up of National Transport Corporation to oversee and provide MRT and public buses servicing major trunk/inter-town routes.  This will ensure smooth integration of the overall national transportation network to avoid unnecessary duplication of services and overheads incurred by multiple operators.  Intra-town bus services will be de-regulated and operated by private operators.

National Transport Corporation will operate on the basis of cost and depreciation recovery, not profit.  It will be allowed to operate shops and outlets within the properties under its control to cross-subsidise its operations.

Minister in the Prime Minister's Office and Second Minister for Finance and Transport Lim Hwee Hua disagreed.  She said the underlying motivation for suggesting that the public transportation should be nationalised was that it would be cheap.  But nationalising in many other countries had led to inefficiency.  Ultimately commuters got cheap transport but it didn't quite work out.

She added that the Government had considered the idea, but found that it was not feasible.

By way of background, bus services, bus service operators, ticket payment services, and bus and rapid transit system fares are regulated by Public Transport Council, an independent body established by an act of Parliament in 1987.  Operators which do not meet service standards — such as bus reliability, loading and safety at bus network or route levels — may be fined.

Land Transport Authority plans bus routes, an activity previously the purview of the bus operators.

Two questions need to be asked regarding the bus and MRT services currently provided by SMRT Corporation Ltd and SBS Transit Ltd.

Firstly, do they meet the service standards set by Public Transport Council?  It appears to be so, despite the occasional grouse.

Secondly, are SMRT and SBS Transit profitable?

SMRT's operating profit was S$153 million on revenue of S$725 million in the nine months to 31 December 2010, from rail, bus and taxi operations, rental, advertising, engineering and other services.  Hypothetically eliminating its operating profit may reduce fares by 27.2 per cent.

SBS Transit's operating profit was S$65 million on revenue of $721 million in 2010, from bus, rail, advertisements and rental.  Hypothetically eliminating its operating profit may reduce fares by 9.6 per cent.

Thus, if the public bus and MRT business of SMRT and SBS Transit are operated on a non-profit basis, fares will be reduced from current levels.  There will be no reduction in the level of service to commuters because the proposal calls for the elimination of profit, not a reduction in costs.

Is Mrs Lim concerned that the Government cannot do as good a job as either SMRT or SBS Transit?

Operating the public transportation system, especially that of buses, is not a simple endeavour.

It is one thing to establish quality of service standards for others to comply with but quite another to operate under them.  A multitude of factors can affect the reliability of actual bus schedules and loading of buses.  There will be the inevitable criticism from commuters when they wait and wait for the bus that seems to take forever to arrive.

Recruiting and retaining drivers and other operational staff are more challenging (especially without a legislated minimum wage) than most people are prepared to admit.

Raising fares periodically is never popular, but if fares do not increase, neither will wages of the drivers and others.  Public transport fares are currently reviewed every year.

The combined market capitalisation of SMRT and SBS Transit is almost S$3.5 billion.  National Transport Corporation may need to pay a premium to take these two companies private, as a compulsory acquisition may be bad for Singapore's business image.  Even without any premium, S$3.5 billion is not a small sum.  It is difficult to envisage any one of the Government holding companies wanting to hold the shares in the capital of National Transport Corporation because this company is supposed to break even, not make a profit.  Its zero rate of return will be a drag on the performance of the holding company, and may make it more difficult for the Government to justify the remuneration of its key executives and other staff.

But, is The Workers' Party's recommendation workable?

It envisages keeping the intra-town routes in private hands.  Singapore is not a big place so the merits of this is hard to understand.

Although Housing and Development Board apartment blocks are defined for statistical purposes to be located in planning areas (e.g., Clementi, Jurong East, Jurong West etc.), the delineation of many planning areas may be arbitrary and it may be difficult separate one planning area from another planning area on the ground for operational purposes such as intra-town bus movements.  This difficulty is exacerbated in the case of private estates, especially those consisting of landed properties.  Having different private operators for each town will be confusing and troublesome for commuters who may end up having to take numerous buses to reach their destinations.

The bane of most bus operators is running buses through unpopular routes or at off-peak times.  It's plainly unprofitable.  Will any private bus operators be willing to provide these types of community service without the gravy from the trunk/inter-town routes?  They may have to, but this will push overall fares up.

Will the operators of the intra-town routes have sufficient economies of scale?

Perhaps, it may be better and simpler just to nationalise the entire bus and MRT services.

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Notes

1. The potential percentage fare reduction is arrived at by (i) computing the amount by which the revenue has to be reduced to bring the operating profit (less the operating profit from taxis, in the case of SMRT) to zero and (ii) dividing this by the passenger revenue.  Advertising and rental revenue is retained for cross-subsidisation.  SMRT's support costs are assumed to be reduced correspondingly when taxi operations are eliminated.  Investment and interest income and interest expense are excluded as the financial structure is subjective, but are not material in either SMRT's or SBS Transit's case.

2. The market capitalisation of SMRT Corporation Ltd includes its taxi operations, which are only slightly profitable.

3. Why nationalising public transport won't work The Straits Times (16 Apr 2011).

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