Could rail system be nationalised?

Slide in SMRT share price, recent glitches prompt suggestion

By Karamjit Kaur, The Straits Times, 3 May 2012

OPERATIONAL woes that have hit SMRT Corp in the last few months and led to a slide in its share price have prompted some analysts to suggest that the rail system could be nationalised.

In a report on Monday, Citigroup noted that with spending expected to increase, the days of shareholders enjoying attractive dividends of 70 per cent to 80 per cent of profits are probably over.

A week ago, SMRT announced that it will undertake a $900 million upgrading package to address a spate of recent breakdowns.

The bill will be split with the Land Transport Authority but it has not been said how much each will pay. SMRT's share price has since taken a beating. Yesterday, the stock closed at $1.66, the lowest in more than a year. Citi said: 'Having hurt commuter confidence with multiple service disruptions, SMRT also faces zero fare increase this year in a time of rising energy and staff costs, and inflation.'

This, on top of more traffic being pushed to 'an already overloaded rail network' spells more trouble ahead, Citi said. 'Thus we sense more drastic actions are needed, perhaps raising capital to shore up finances. We would even dare conjecture a government-led end game.'

The report did not look into whether a nationalised rail structure would be better and whose interests it would serve.

The 25-year-old MRT network has been hit by several glitches in recent months. In December, two major breakdowns affected more than 200,000 commuters. To add to SMRT's troubles, it is also facing significantly higher costs. On Monday, it reported that annual net earnings slid 25.6 per cent to $119.9 million for the 12 months to March 31.

Mr Cedric Foo, who chairs the Government Parliamentary Committee for Transport, said the state taking over rail operations was not the answer to the problems that have hit the operator. It is not the model that is critical, he said. What is crucial is having in place an effective regulatory system and appropriate penalties to ensure operational efficiency. More competition will also ensure a better system.

Mr Foo said: 'The problem is not enough competition, not just in the rail sector but the bus sector as well... We should bring in people with more experience and expertise.' This includes foreign operators, he added.

SMRT said it will keep increasing passenger numbers, and rental and advertising revenue, and improve cost efficiency. A spokesman said: 'In delivering shareholders value, we endeavour to maintain our dividend policy as well as invest to ensure a safe and reliable rail operation.'