06 June 2013

Fare Review Mechanism Report Delayed Yet Again

Fare Review Mechanism Committee ("FRMC"), which was supposed to submit its report to the Government this month, will now need another few more months to complete its report.

What's happening?

Public Transport Council Annual Report 2010/11
In its annual report for FY ended 31 March 2011, Public Transport Council ("PTC") noted that its fare adjustment formula[1] applied to the period 2008-2012.
 
A new formula was needed for 2013, and it takes time for a new fare review mechanism to be formulated, approved and implemented.
 
4 June 2012
FRMC was appointed to carry out the review of the public transport fare review mechanism for implementation in 2013.  It was expected to complete its work and submit its recommendations in early 2013.

FRMC invited feedback from the public for the fare review mechanism, to be submitted by 12 August 2012.

2 July 2012
FRMC announced that it planned to conduct focus group discussions.

FRMC clarified that its mission was to specifically review the effectiveness of, and recommend improvements to, the fare review mechanism and the fare adjustment formula.  Changes to concessionary travel schemes fell to PTC.
 
28 August 2012
FRMC reported on its discussions with public transport operators ("PTOs") and academics/experts.  These dealt with affordability, type of fare formula and service quality.
 
26 November 2012
FRMC reported on its discussions with the general public.  These dealt mainly with affordability.
 
FRMC held the view that the price-cap approach of the fare formula and the productivity component should be retained.  It would look at other refinements to the formula to better reflect the PTOs’ cost structures.
 
15 February 2013
Minister for Transport Lui Tuck Yew instructed FRMC to review the public transport concessions framework within the broader issue of affordability of fares, something that FRMC had considered not to have been explicitly set out in its original terms of reference.

4 March 2013 
With its terms of reference expanded to review the public transport concessions framework, FRMC said that it faced "quite a bit of [additional] work" and would be engaging more commuters in focus group discussions in the months ahead.

5 June 2013
FRMC explained that there were difficult trade-offs in working toward a framework that ensures affordability with a safety net for financially constrained commuters and that aligns PTOs’ incentives to provide the best service at the best price.

FRMC believed it would be helpful to gather quantitative feedback on issues such as prioritising the granting of concessions among competing interests of different commuter groups; sustainable funding of concessions; cost pressures facing PTOs etc.

The result: several more months before FRMC can finalise its report.
 
Comments
Although the existing fare adjustment formula could have been applied to the review of public transport fares in 2012, public transport fares were not reviewed and not adjusted (or were reviewed but not implemented) in 2012.  While that no doubt pleased commuters, it didn't seem fair to the PTOs.

Why did Mr Lui expand FRMC's terms of reference so late in the process?  It is very unusual, at least for this Government.  Was it an afterthought or was dealing with the fares concession framework too much of a hot potato for the Government?

It looks like there will be no fare review this year.  By the end of this year, PTOs will not have had any fare increase for more than two years.  Again, while that no doubt will please commuters, it doesn't seem fair to the PTOs.

Unlike wage reviews which can be applied retroactively, fare reviews cannot.  A upward fare review not undertaken or undertaken and implemented more than 12 months after the last review means revenue foregone for the PTOs and penalises them.

It may be very difficult for the PTOs if there is a recession next year.  In the last recession, the PTOs not only decided not to (or believed they could not or were persuaded not to) request a review of fares but also reduced fares in 2009.

In the meantime, PTOs have to meet their expenses in an environment where inflation is far from benign.
 
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Notes
 
1. The fare adjustment formula for 2008-2012 was:
 
Maximum fare adjustment = 0.5ΔCPI + 0.5ΔWI - 1.5%

where:

ΔCPI is the change in Consumer Price Index over the preceding year

ΔWI is the change in Average Monthly Earnings (Annual National Average) over the preceding year, adjusted to account for any change in the employer's Central Provident Fund contribution rate

1.5% is productivity extraction based on half the average productivity gains achieved by public transport operators.

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