Budget 2012: $1.1 billion Bus Services Enhancement Fund

$1.1 billion bus package is a subsidy for commuters
Without it, public bus operators will hike up fares by 15 cents per journey
By Goh Chin Lian, The Straits Times, 2 Mar 2012

IF THE Government does not step in to help public transport operators SBS Transit and SMRT improve bus services, commuters will have to pay 15 cents more in fares per journey to get the better service they want.

But in providing $1.1 billion to ramp up the bus fleet and cover operating costs over 10 years, the Government will also scrutinise the two operators' accounts, said Deputy Prime Minister Tharman Shanmugaratnam yesterday.

'The $1.1 billion will be reduced as their losses are reduced,' he added.

'And if they make a profit, it all comes back to us. So none of the $1.1 billion will go towards profits for the public transport operators.'

Mr Tharman gave this assurance after 11 MPs in the past three days questioned the controversial decision by the Government to finance the purchase of 550 buses and cover their operating costs for 10 years.

One of their biggest worries was that public funds could be going into the coffers of profitable publicly listed companies and their shareholders, but the minister said the decision was made with commuters in mind.

He said: 'The $1.1 billion government package, or $110 million per year, is a subsidy for public transport commuters and not a subsidy for the public transport operators. It will improve service levels for commuters, not the profits of the public transport operators.'

The Government's intervention - $280 million for 550 buses and $820 million for operating costs - was not a normal budgetary decision, he added.

While the public transport operators (PTO) will also buy 250 buses on their own to keep pace with ridership growth and meet service levels regulated by the Public Transport Council, the service levels commuters want go 'significantly beyond' those required of the operators.

Another 550 buses would achieve these desired targets, which are to relieve crowding on heavily used routes and introduce new services to improve connectivity.

They would also ensure almost all feeder buses run every 10 minutes or less, and for two hours each during morning and evening peak periods, instead of one hour currently.

Financial viability was another reason Mr Tharman gave for the Government stepping in. It expects the bus revenue not to cover higher costs, including paying better salaries to hire more than 1,000 drivers.

'The PTOs' bus operations are already running operating losses. And the 550 additional buses in particular are projected to be a loss-making operation,' he said.

Giving the example of improving frequencies of feeder services, he added: 'More buses, more drivers, more fuel, but same revenue because it's essentially the same pool of passengers.'

Mr Tharman estimated that without government help, fares would have had to go up by about 12 to 13 per cent, a big jump from 0.3 per cent rise in the last five years since 2006.

The $1.1 billion package would remove the need for such huge increases. But regular and incremental fare increases in tandem with the rise in wages and operating costs will still be necessary.

And like before, needy commuters will continue to get help, he said.

The $1.1 billion for buses, he added, complements the $60 billion being spent to expand the rail system that will take several years to come on-stream.

His explanation did not fully satisfy Mr Cedric Foo (Pioneer) who is the chairman of the Government Parliamentary Committee for Transport.

He asked if the Government could 'ringfence' the $1.1 billion disbursement because the actual operating losses may be less than assumed if adding more buses and networks generates more ridership.

The minister assured him that the Government will monitor and scrutinise the operators' actual cost for buying and running the buses. A review of the agreement with the operators at five years is also scheduled.

More details of the bus package will be announced next week during the Budget cuts for the Transport Ministry.

Fares would rise if bus operators bore cost of fleet expansion: Tharman
By Sumita Sreedharan, TODAY, 2 Mar 2012

The two public transport operators will not profit from the Government's S$1.1 billion boost to their bus fleets, Deputy Prime Minister Tharman Shanmugaratnam said yesterday.

Government funding to help the operators increase their fleet will be reduced correspondingly if they turn a profit or make lower losses, he said. The Government will also scrutinise the operators' actual costs for both the purchase and the running of the buses.

Of the S$1.1 billion set aside under the Bus Services Enhancement Fund, S$280 million is budgeted for the purchase of 550 buses over the next five years, while the remaining S$820 million is to cover the net operating costs of the buses over a decade. "There is a review in five years to check the parameters of the agreement," added Mr Tharman.

Earlier yesterday, MPs continued to voice concerns over the Government's move.

Some asked why the two public transport operators had not set aside a sinking fund for the replenishment of buses.

Nee Soon GRC MP Lee Bee Wah suggested three conditions that the Government should impose on the operators in exchange for the buses: Better pay and benefits for bus drivers, concessions for polytechnic students and an understanding that the operators would not increase fares for the next 10 years or beyond.

MP for Mountbatten Lim Biow Chuan, meanwhile, was concerned that the additional buses may result in higher bus fares.

"Would it not be better for the Government to subsidise the costs of public transport directly with the injection of S$1.1 billion?" he asked.

Addressing the concerns at the end of the Budget debate, Mr Tharman, who is also the Finance Minister, felt the S$1.1 billion package would be a subsidy for commuters, rather than for operators.

If operators were to shoulder the cost of the fleet expansion, fare revenue would have to go up between 12 and 13 per cent, which would lead to at least a 15-cent increase in fares, he pointed out.

"We cannot simply mandate the PTOs to add the 550 buses," Mr Tharman said. "First, because it goes significantly beyond the current service levels of the current regulatory framework. Second, the PTOs' bus operations are already running operating losses and the additional 550 buses in particular are projected to be a loss-making operation."

Mr Tharman said the PTOs will have to raise service levels as a condition for the Government's investment. However, despite the Government's fund, he stressed that regular and incremental fare increases will continue to be necessary to ensure that the bus industry stays financially viable.

The Government will ensure that needy commuters get adequate assistance for their transport expenses, he added.

Buses - I use, I pay
by Tan Si An, TODAY, 3 Mar 2012

In his reply during the Budget debate, Deputy Prime Minister Tharman Shanmugaratnam said that in the five years since 2006, bus fares rose 0.3 per cent.

Without the Government's S$1.1-billion package, fare revenues would have to go up by 12 to 13 per cent, a "significant leap", to expand fleets and improve service levels.

However, to put things into perspective, since 2006, crude oil prices rose by more than 70 per cent, our Consumer Price Index rose by 18.5 per cent, nominal and real household income at the 20th percentile increased by 36 and 14 per cent, respectively.

A 15-cent increase per journey pales in comparison. Is it a mystery that bus services have deteriorated such that the Government has to now intervene?

But the Government should explain why it is going against the long-standing policy of having commuters pay for what they use.

Former Transport Minister Raymond Lim said it well in 2008: "There are only two types of persons who pay when it comes to public transport fares.

"One, I use - I pay; and, two, I use - you subsidise my ride.

"What happens when you subsidise my rides? That means the taxpayers are now paying."

Many have claimed that bus operations are wildly profitable. However, SBS Transit's share price is down by about 50 per cent from its price in May 2007.

Do we really expect bus companies to expand their bus fleets?

Commuters should ask themselves if they are willing to pay 15 cents more to spend less time waiting and for less crowded buses or pay the same fare only to suffer ever deteriorating service quality.

Singaporeans should remember that there are 800,000 work permit holders who do not pay much tax but will also enjoy the bus subsidy, and consider whether it would be in our interests to have public transport operators set their own fares.

The writer commutes by bus and train. He does not own a car nor any shares in SMRT or ComfortDelGro.

Don't miss the bus on that $1.1b
Funds for more buses will ease transition as system is reformed
By Paul A. Barter, The Straits Times, 1 Mar 2012

THE $1.1 billion government funding injection for the bus system has ignited debate by seeming to skewer the taboo against operating subsidies. It has provoked calls to make 'cushy monopolies' face real competition. Some say the money just enriches shareholders. Others say: Nationalise!

This Budget bombshell is indeed important but for a reason not often remarked upon. To appreciate its revolutionary potential for Singapore's bus system, look at two policies from the 2008 Land Transport Masterplan (LTM).

The more important of these policies is to restructure the route network towards a more efficient structure. Rather than a complex tangle of 305 routes with much duplication, the idea is to have a simpler and easier to understand hubs-and- spokes network with fewer routes but more frequent services connected with each other. Once this is done and routes stabilise, the Government can proceed to the next stage, of parcelling out routes for competitive tender in a shift towards a so-called 'procurement approach'.

I hope the Government remains committed to these two interconnected changes. The bus system is now the weak link in Singapore's public transport. If pursued, these two shifts will be much more significant than a temporary boost to the bus system while the MRT expands.

And here is the key point: That $1.1 billion funding injection is critical to the success of these two reforms. But we will need to hold our noses and accept some messiness in the arrangement.

In fact, reform of bus routes has been taking place gradually since 2008. The shift to a hubs-and-spokes network means fewer lines but better service frequencies on each line and less waiting time. This shift was the key agenda behind the Land Transport Authority's (LTA) takeover of bus line planning to reduce wasteful networks, and the shift to distance fares.

But there is a political problem here. Reforming bus routes involves taking away some direct services commuters are used to. It requires more transfers. Such changes are unpopular and will spark howls of protest, especially when current bus frequencies are too low and improvements from reform take time.

So there is a need to boost bus frequencies first. Waiting times must be reduced and transfers made more attractive before planners go on to major reorganisation of bus routes. That $1.1 billion injection can buy buses to ease the pain of transition.

Once the network has been reformed, the LTA can continue the shift towards a procurement approach to industry regulation. Under this system, the Government would do more of the system planning, while private operators put up competitive tenders for the right to run bus lines.

How does this compare with the status quo and the alternatives raised?

Singapore's longstanding approach is a common one around the world. It involves giving out monopolies ('franchises') to private companies under regulated fares. Bus franchise holders retain some autonomy on timetables and routes, and do their own marketing. Some cities also keep franchisees on their toes with competitive tendering, as in Hong Kong.

This set-up served Singapore quite well over 35 years or so. But it is reaching its use-by date. Integration improvements have reached a limit. Necessary financial balancing across the public transport system faces obstacles. The route network was allowed to become too complex. Rivalry for passengers between the two operators can be wasteful.

So, according to the 2008 LTM, Singapore should move towards a procurement approach.

How might this work? One successful example is the 'Scandinavian model', practised in Stockholm, Copenhagen, London, Seoul and Perth. A government- owned coordinating agency plans the routes and timetables. Yet there is competition via regular competitive tendering. Private sector companies run the buses but there is a single logo and colour scheme. The companies are profit-making, yet there are usually operational subsidies.

This model is well suited to ambitious integration efforts. Apart from marketing and ticketing, it allows for cooperation with other industries, including taxis and car-sharing. Public objectives are set clearly, and the services procured in an accountable manner.

But what about other alternatives, such as nationalisation or open competition? We can quickly dismiss on-the- road competition where swarms of minibuses crowd onto lucrative routes but neglect others. The experience of Britain, which opened bus systems (outside London) to a more staid version of competition on the road was also disappointing.

As for government-run monopolies, many are inefficient and overstaffed, as in parts of India and North America. Some government-run public transport systems do much better, as in Zurich. Swiss-style public transport is actually similar to the Scandinavian model but with only minor private sector involvement.

Of the three, a procurement approach makes most sense for Singapore's efforts to improve the public transport system, not just the bus network.

But there is a more immediate issue: how to make sure the new funding works as intended, so that the $1.1 billion injection really lays the foundation for longer- term structural improvements.

Injecting funds successfully requires mechanisms to link the funding with clear public objectives. Current arrangements, which rely on quality of service standards as their main tool, may not be good enough.

A temporary arrangement is needed to link this funding with outcomes. One approach could be to use contracts so that payments are for specific, measurable improvements chosen by the LTA, not by the operators.

Ensuring that this $1.1 billion injection actually delivers better service is important not just to reassure the public. It is also a key to the success of crucial reforms to the route network and for a shift to a procurement model. These two reforms are Singapore's best hope of achieving a truly excellent bus system within the decade.

The writer is an assistant professor at the Lee Kuan Yew School of Public Policy, at the National University of Singapore, where he teaches infrastructure policy, urban policy and transport policy.

Strict oversight sought for $1.1 billion fund to bus operators
By Goh Chin Lian, The Straits Times, 1 Mar 2012

IF THE Government is giving $1.1 billion to help the two public transport operators run 800 more buses, it should pin them down to higher service standards.

And it should also ensure that public funds do not go into boosting dividends for the shareholders of publicly listed SBS Transit and SMRT, their share prices or investments overseas.

These demands were made by several MPs yesterday, as they reflected what they said was growing public disquiet over profitable operators receiving public subsidies.

'If the $1.1 billion subsidy is inevitable, then the Government must have strict oversight over these operators,' said Dr Amy Khor (Hong Kah North). The conditions imposed on the operators should also be made known to the public, she added.

Like some of the seven other MPs who spoke on the issue over the last two days, she warned of 'significant resentment' over the funding aimed at expanding Singapore's bus fleet by 20 per cent over five years before new rail lines are built.

Workers' Party's Mr Pritam Singh (Aljunied GRC), too, reminded the House that SBS Transit and SMRT paid their shareholders millions of dollars in dividends and operated in near-monopolistic conditions. 'By any stretch of the imagination, these are not broken-back companies,' he said.

He sought another kind of accountability for the funds. The Government, he said, should claw back the $1.1 billion over a fixed period, though after consultation with the operators.

Commuters have long complained of overcrowding and long waiting times on buses, and Finance Minister Tharman Shanmugaratnam, when announcing the Bus Services Enhancement Fund, had promised less crowding and shorter waiting times with the additional buses. Almost all feeder buses will run every 10 minutes or less, and for two hours during morning and evening peak periods, instead of one hour currently, he said.

Dr Janil Puthucheary (Pasir Ris-Punggol GRC) took a more philosophical approach on the issue, asking if funding publicly listed companies was akin to 'creeping nationalisation'. Was Singapore's 'hybrid' model of public transport model, he wondered, still the best way?

He suggested taking either of two extremes: Nationalise these companies completely, or just free them to run the business according to market demand.

Public bus operators 'should plough back savings'
$1.1 billion fund can go to improving salary and work conditions
By Goh Chin Lian, The Straits Times, 29 Feb 2012

PART of a government grant to help public transport operators (PTOs) raise bus capacity should go to higher wages for bus drivers, three MPs said yesterday.

The Government announced in this year's Budget a $1.1 billion fund for the purchase of 550 buses and running costs for 10 years.

The aim is to ease crowding in public transport while the rail network is being built up.

The two operators will buy another 250 buses.

The decision has proven controversial, with many members of the public asking why taxpayers' money is being channelled to two profitable private companies.

That point of view was echoed by Non-Constituency MP Lina Chiam yesterday. She asked why the two PTOs could not buy the buses themselves.

She cited SMRT's revenue of $969.7 million for the last financial year, and SBS Transit's revenue of $751.1 million.

She suggested introducing competition by letting other bus companies or even a Government-run company run public bus services too.

Nominated MP Teo Siong Seng said that the two PTOs have already raised bus fares eight times from July 2002 to October last year, and revenues have increased annually.

But Nominated MP and unionist Mary Liew disagreed with both Mrs Chiam and Mr Teo.

She said that what mattered was how the $1.1 billion package was spent. She noted that grants, tax credits and incentives are given to companies all the time.

'If $1 billion brings a better bus service to commuters, better pay for workers to join the industry, it is money properly spent,' she said.

Both Mr Seng Han Thong (Ang Mo Kio GRC) and Mr Zaqy Mohamad (Chua Chu Kang GRC) also want the PTOs to plough back extra funds to ensure better wages and conditions for bus drivers.

Otherwise, they said, it will be even harder to find Singaporeans to fill the 1,000-plus new vacancies for drivers when 800 new buses go on the road in the next five years.

Mr Seng said in Mandarin: 'While we need foreign drivers to supplement our workforce, we must also ensure better benefits for Singaporean drivers.'

Bus drivers earn a basic monthly salary of $1,200 at SMRT and $1,375 at SBS Transit, which is considered uncompetitive.

Both PTOs have problems recruiting Singaporeans for the job also because of the long working hours, short breaks, and the need to deal with traffic and passengers.

The shortage of bus drivers will be aggravated when more buses are added, unless something is done to expand the pool of people willing to take up the job, warned Ms Liew.

Mr Teo said private and school bus operators have a more immediate worry: they will lose their drivers to the public transport operators when more buses are added.

WHY PUBLIC FUNDING?
The $1.1 billion bus question
As public debate rages, experts query network efficiency and operators' obligations
By Christopher Tan, The Sunday Times, 26 Feb 2012

The Government's surprise $1.1billion injection to help bus operators ramp up capacity over the next five years was intended to be a bold 'put your money where your mouth is' step to tackle transport woes.

Since it would take time to build up the rail network, one way to relieve daily congestion in public transport would be to add more buses, said Deputy Prime Minister Tharman Shanmugaratnam in his Feb17 Budget statement.

Also, 60 per cent of all passenger trips are made on buses.

The Government will provide funding for 550 buses while the two operators - SBS Transit and SMRT - will add another 250 buses. These 800 buses will mean a 20per cent increase to the current fleet. The Government will set aside $1.1 billion for both the purchase of buses and the running costs for 10 years.

But this move has sparked a lively public debate, with many asking why public funds should be used to subsidise the two profitable publicly listed companies.

A crop of letters to the press took up this issue in recent days, as did Internet chatter and reactions posted on the Government's feedback unit, Reach.

Regular commuter Tristan Yeo found it 'puzzling' that the Government needed to do this when these firms have bought their own buses all along with profits earned from fare revenue and related businesses such as advertising and rental.

Transport researcher Lee Der Horng, of the National University of Singapore, said: 'We do need more buses to cater to the increasing demand. However, I think the public will have concerns regarding why taxpayers' money is being used to help profitable and private operators.'

He added: 'The Government really should configure a transparent and stricter regulatory framework to specify the obligations and responsibilities of the operators.'

SBS Transit, which runs three-quarters of the 4,000 public buses in Singapore, incurred an operating loss of $6million on its bus business last year, down from a profit of $14.9million in 2010.

But the company still made $36.7million overall, via revenues from its other businesses, such as rail and advertising.

SMRT made $68.9million during its first half ended Sept 30, 2011, even though its bus operations incurred an operating loss of $6.2 million. In SMRT's case, its bus business has usually been loss-incurring.

Pointing to how the overall business portfolios of SBS Transit and SMRT Corp are profitable, Mr Zafar Momin, who teaches strategy implementation at the Nanyang Business School, asked: 'Can they not continue to cross-subsidise their bus operations until they figure out a more efficient operating model for buses?'

He added: 'They cannot expect to make high returns on every line of business.'

Hybrid systems

Bus systems in many cities - such as London, Stockholm, Copenhagen, Adelaide and Perth - are 'hybrid' systems, pointed out Assistant Professor Paul Barter, who teaches transport policy at the Lee Kuan Yew School of Public Policy.

They are operated by listed private-sector companies which receive substantial government subsidies.

In countries such as Australia and Britain, the government buys the buses and pays for all or a large part of the operating costs.

It carves up routes into parcels and puts them up for tender. Successful bidders run the services, and are paid a fixed basic fee. They are paid bonuses if they meet set key performance indicators, and are penalised if they fail.

The Singapore Government's latest move, albeit meant as a 'one-time' measure, might signal a shift towards such a 'hybrid' model, said some observers.

But Prof Barter added: 'If there are going to be subsidies, then we need strict government oversight to make sure we get the service improvements we pay for and that the extra money does not just boost dividends or stock prices.'

The ongoing debate gets to the heart of just how transport systems - both rail and bus operations - should be financed.

For rail, the practice in Singapore has been for the state to build the infrastructure and supply the first set of operating assets.

Since the first MRT line was built more than 20 years ago, and including new lines that will roll out by 2020, the Government has committed some $70 billion. (This figure does not factor in the present value of this money.)

Going forward, the rail financing regime will change to one where the Government continues to build the infrastructure but leases operating assets to the operators.

For buses, the practice has been to give out indirect subsidies.

The two bus operators have not needed to bid for Certificates of Entitlement, which practically all other vehicle buyers must secure.

They have also recently been given waiver of the Additional Registration Fee, the main vehicle tax, and duty on diesel, which until a few years ago was dutiable.

Moreover, their buses are allowed to be kept on the road for 20 years, twice that of almost all other vehicles; and they are charged a nominal rent for the space their interchanges take up. Taxpayers also pay for bus stops and interchanges.

To be sure, government financial support for public good is common in a number of other sectors, including health care, public housing and education.

Interestingly, in the case of rail, the state makes back what it spends on its infrastructural investment through land sales around MRT stations. These plots fetch higher prices than elsewhere. This does not happen with its bus investments.

The move announced on Feb 17 marks a significant change. But this does not necessarily mean the current system is broken, as some observers seem to have suggested.

It is, however, a quick fix for the transport crunch.

Singapore's population explosion in the last five years or so - mainly from new residents - has put a huge strain on the public transport system.

Ramping up bus capacity can be done much faster than raising rail capacity. Each new MRT line takes about seven years to build. It is this urgency that has motivated the $1.1billion subsidy package.

Academics and industry experts have posed other questions. Veteran transport consultant Bruno Wildermuth says Singapore does not really need more buses, but 'better utilisation' of buses.

'There are many empty buses moving around because of the lack of a rational network,' he said.

Mr Zafar asked: 'Are our bus operations run as well and as creatively as possible? Over the years, despite many fare increases, how have cost efficiencies improved?'

Whichever way forward, observers say that subsidising bus operations - even if it is a one-off measure - must be executed well so that all the mechanics of the scheme are transparent to the public and the result a positive one for commuters.

Associate Professor Anthony Chin, who specialises in transport economics at the National University of Singapore, says more needs to be done to explain the rationale for the Government's latest move on buses.

'They must manage this well. It's a question of handling the public's perception of fairness.'

Related
$1.1 billion package to expand bus capacity - Who are we subsidising?
Why is there a need for the Government to invest $1.1 billion?

Bus Service Enhancement Programme (BSEP)