Fare review committee to look into affordability

Panel also gets more time to study concessions for groups like disabled
By Jermyn Chow And Royston Sim, The Straits Times, 16 Feb 2013

MORE public transport fare concessions could be on the cards for lower-income commuters and other groups like the disabled and polytechnic students.

A high-level committee to review public transport fares has been tasked to look into this, as well as the general affordability of fares in Singapore.

Since it will need more time to complete its work, the committee will hold back on presenting its recommendations to the Government till the end of May, announced Transport Minister Lui Tuck Yew yesterday.

The Fare Review Mechanism Committee, which is headed by former senior district judge Richard Magnus, was tasked last June to relook how fares for public bus and train services are set.

The existing fare formula takes into account three factors: operators' productivity, inflation and national average wages.

Last December, Mr Lui said that bus drivers needed to be paid more and hoped that the fare review would allow for this. His comments followed November's illegal bus strike by 171 SMRT bus drivers from China over pay and living conditions.

Yesterday, Mr Lui added another task to the committee's growing list.

"Affordability is something that we need to, and should, look at closely," he told reporters after a visit to SBS Transit's Sengkang Depot. He noted that fares in Singapore have become more affordable over the years, partly because salaries have risen faster than the cumulative 0.3 per cent increase in fares over the last five or six years.

"But that is not to say that there are certain groups who are not facing concerns and pressures, particularly the lower-income groups and maybe those groups with disabilities and so on," said Mr Lui.

The call to raise drivers' salaries and to keep fares affordable will be challenging given the worsening financial health of bus operators here - a point the Transport Minister raised in Parliament earlier this month.

He said then that it will be a challenge for transport operators to "do more without fare increases or government subsidy".

Asked yesterday how the new fare formula will reconcile rising operating costs with more affordable fares, he said "the money will have to come from somewhere".

"Who and how much they should bear, that's something for further discussion," he said.

Ms Lee Bee Wah, an MP for Nee Soon GRC, and among the most vocal advocates for more affordable fares, said she hopes the committee will take into account profits made by the transport operators' overall business rather than individual operations units. She said: "If they really need more time, then let's not hurry them so long as they study the problem thoroughly and come up with solutions and outcomes that will be beneficial for commuters in the long run."

Nanyang Polytechnic student Joshua Lee, 17, however, hopes he will be paying lower fares sooner. He spends $97 a month on his bus and MRT pass, compared to a junior college student who pays $52.50.

He said: "A discount in transport fares will leave us with a bit more money to pay for other expenses and bills."

Let's not rush the new fare formula
By Christopher Tan, The Straits Times, 16 Feb 2013

DEFERRING the implementation of a new fare revision formula is a good thing on two counts.

One, Singapore is in the midst of restructuring its public transport industry, with a new financing framework for rail operations kicking in, and tentative steps towards a similar regime for buses - a profound and potentially complicated move in itself.

Two, if the new fare formula proposes to do what its review committee has hinted it will do so far - that is, form a closer link between cost and fares - now is probably not an ideal time to unleash the concept on commuters who have been facing a degradation in service standards in the last few years.

In essence, a closer link between cost and fares will see fares - in particular bus fares - rising significantly over a relatively short span of time.

To convince the public to stomach this radical shift from the previous fare formula - one which prevented operators from passing cost increases directly to commuters - at any juncture is not easy. But to do so when sections of the population are still living with packed trains, crowded platforms, stuffy stations, unpredictable bus arrivals, delays and breakdowns is that much harder.

Transport Minister Lui Tuck Yew announced yesterday that the new formula will be deferred till May at least.

The thing now is, why not defer it for a year or more - to give more time for all the moving pieces to fall into place, and service to return to an acceptable level?

To rush into a new fare revision formula now might be putting the cart before the horse.

After all, one of the guiding principles of the fare review committee has been the economic sustainability of public transport operators.

And one measure of that is the return on total assets (Rota). Rota has been cited as a suitable measure of profitability for asset- heavy companies, such as SMRT Corp and SBS Transit.

Currently, SMRT's Rota is about 7.6 per cent, and SBS Transit's is about 4.9 per cent - generally in the range of other public transport operators, noted Mr Lui in Parliament recently.

But what if these companies were to become asset-light? In the new rail financing framework, the Government assumes ownership of all infrastructural and operating assets. The latter are owned by the operator under the old framework.

Hence the transport companies will no longer have these assets on their books; and their capital expenditure will be substantially lower. The Bus Service Enhancement Programme is a similar treatment, except that part of the $1.1 billion set aside for the programme also pays for operating costs over 10 years.

If the Government were to move towards a bus financing framework that is similar to the rail regime, bus companies would likewise become asset-lighter.

Question is, what is a reasonable rate of return for asset-light companies operating in a duopoly? The answer may well influence the outcome of the fare formula.

Separately, Mr Lui has asked the fare review committee to examine more deeply the issue of affordability.

This is heartening. Fares have generally become more affordable over the years because the average rise in incomes has outstripped the rise in fares. This suggests most households will be able to tolerate a fare rise - from a purely economic point of view.

But this tolerance may not apply to the poorer segment.

According to the Department of Statistics, 7.5 per cent of the monthly expenditure of HDB one- and two-room households went towards public transport in 2007-08. The figure for five- roomers was 3.6 per cent. What will the results of the latest survey show?

Should the committee ensure that fares remain "affordable" to one- and two-roomers? Or should this group - which is likely to be more reliant on public transport than others - receive targeted assistance?

This is yet another question for the review committee. It should take time to mull it over, while taking into account the current state of public transport and probable structural changes on the horizon. This will help it to arrive at a formula that will be fair and relevant not only today, but for the next few years.