Tuesday 23 April 2013

A step closer on road to nationalisation

By Christopher Tan, The Straits Times, 22 Apr 2013

SHOULD public transport be nationalised? The question crops up now and again, and not only in Singapore.

About three years ago, Britain nationalised a London-to-Scotland rail service after persistent calls by MPs, only to announce last month that it will be returned to the private sector.

In Singapore, MPs have of late been asking if public transport can or should be nationalised.

MPs Baey Yam Keng (Tampines GRC) and Lily Neo (Tanjong Pagar GRC) were among those who raised the question in Parliament recently. This followed strong lobbying by the Workers' Party, who argue that the wheels seem to be falling off our partly publicly-funded, privately-operated - and once well-run - system.

The two public transport companies continue to reap relatively handsome profits against a backdrop of deteriorating service standards: overcrowding, rail breakdowns and buses which are seldom punctual despite repeated attempts to fix the problem.

Non-Constituency MP Gerald Giam of the Workers' Party made a strong argument for nationalising public transport in an op-ed piece published in The Straits Times in July 2011, where he reiterated his party's call for a government-owned non-profit National Transport Corp (NTC) to run rail and bus services.

"A well-managed NTC can provide superior outcomes compared to the present profit-oriented monopolies," he wrote.

Transport Minister Lui Tuck Yew has stoutly defended Singapore's current system, arguing that nationalisation may lead to higher fares and a heftier burden on taxpayers at large.

While the debate may continue on whether nationalisation is the answer to our public transport woes, Singapore is already moving closer to a situation where the state takes on a far larger role than it ever has.

In 2010, a Bill was passed to change the rail-financing framework, which essentially puts all fixed and operating assets under state ownership and shortens service contracts to operators. The latter will then be left to focus on running and maintaining the system, with the threat of being replaced if standards are not met.

SBS Transit became the first operator to come under this new framework when it clinched a contract in 2011 to run the upcoming Downtown Line for 15 years - far shorter than the current rail contracts of 30-40 years.

Last year, the Government made a tentative move in the same direction for buses when it announced a $1.1 billion plan to expand the public bus fleet. It also said operators will get advertising revenue from bus stops, and that bus depots and parking spaces will be built by the state.

Then in February, the Land Transport Authority put out a tender inviting private transport companies to bid for a Jurong West-to-city service contract. The winning firm will run the so-called City Direct Service for a fixed sum, while the Government collects the fare revenue.

This is a profound change from the current system, in which operators assume the revenue risk.

These moves mark a shift from a regulated franchise regime to one where the state does proactive planning (such as bus routes) and operators bid for service contracts with clearly spelt-out service standards, as practised in cities such as London, Stockholm, Copenhagen, Seoul and Perth.

This is just one step away from nationalisation. Interestingly, many transport firms actually prefer it because it removes revenue uncertainty and hefty capital expenditure for asset renewal.

Associate Professor Paul Barter, who teaches transport policy at the Lee Kuan Yew School of Public Policy, feels this is a better system and one that allows for a "more elegant way" for subsidies to be handed out.

For instance, the $1.1 billion bus plan, which includes operating costs and driver salaries for 10 years, drew flak. Critics, from MPs to the man in the street, questioned why tax money is used to subsidise private and profitable companies. The Government says it is actually to "subsidise commuters" and that revenue generated from the investment will be ring-fenced so that operators do not benefit financially from it.

A recent move by the Government to pay for pre-morning peak free travel drew similar criticisms from observers, who questioned why taxpayers are paying for operators' capacity shortfall.

If buses and other operating assets were owned by the state in the first place, there would be less cause for such doubts.

In such a model, it is foreseeable that operators will have thinner profit margins because they will assume less risk. This should go down well with the public.

SMRT chief executive Desmond Kuek is in favour of the new regime. In a recent interview with The Straits Times, Mr Kuek revealed that SMRT had made its submission to the authorities on adopting the new system, which he describes as "superior".

It "gives better clarity on who owns what", Mr Kuek says, adding that SMRT will also have a less "lumpy" capital expenditure pattern with the new format.

Insiders at SBS Transit are also in favour of the state being the owner of all transport assets.

"We can focus on running the system and meeting service standards, and the Government can decide on how many trains and buses it wants to buy and who it wants to give subsidies to," a senior executive says.

Indeed, the issue of subsidies is cropping up with some regularity now. Concessions are being considered for polytechnic students, the disabled, those with low income and even children not yet in primary school who are taller than 0.9m, the limit currently set for free bus and train travel.

The Fare Review Mechanism Committee headed by Mr Richard Magnus is also considering a monthly adult travel pass to cap travel expenses for average-income families.

While a nationalised entity will be equally well placed to decide on subsidies, history has shown that state-run public transport systems generally fare poorly.

Prof Barter says they tend to be "inefficient and overstaffed, as in parts of India and North America". The late British prime minister Margaret Thatcher recognised the inefficiency of state-run entities, and went on a privatisation spree when she was in power.

That however, led to unfettered competition, cherry-picking of routes and diminished service standards outside London. Singapore experienced this before SBS Transit was formed in 1973.

So, it would appear either extreme model can be problematic. But National University of Singapore transport economist Anthony Chin says any model can work if it is well run and regulated.

"It's the institutional and governance structure which you put in place," he says. "For example, Singapore Airlines and PSA are contrasting cases. The former commercial and listed, and the latter for all intent and purpose a national corporation which is efficient."

London leads way but overhaul needed first
By Christopher Tan, The Straits Times, 22 Apr 2013

SINGAPORE is looking to London as an example to follow. But it has not been smooth sailing for the British city. It went from private to nationalised to privatised to the contracts model.

Before the 1930s, London's public transport was pretty much private and laissez-faire.

From 1933 till 1984, the system was in various forms of state ownership, according to a 2006 report by Mr Richard Pond of the London Metropolitan University.

When the late Margaret That-cher became prime minister in 1979, she began "the sale of state industries and the introduction of market forces into sectors that had been dominated by state monopolies", the report reads.

The London bus industry went through several stages of liberalisation and privatisation, with bus routes outside London fully deregulated by 1985. Today, the vast majority of bus routes - tendered out by the state - are run by a number of private companies, including Metroline and FirstGroup.

London Underground, however, remained under state ownership but the track infrastructure and maintenance were farmed out to public-private partnerships.

The present model seems to be working well, and is emulated by many cities across the world.

Sir Peter Hall, a professor of planning and regeneration at University College London, says: "I think there's general agreement that the London model - franchising the bus service to various operators with strict control over service levels - has worked brilliantly, while the total deregulation in the rest of the UK has not. Curitiba and Bogota have used the London model successfully."

But detractors have called the system inefficient and wasteful, citing soaring state subsidies for bus trips. Subsidies have, according to a government report, risen from £24 million or 2p per passenger trip in 2001 to £393 million (S$740 million) or 17p per passenger trip last year.

At the same time, bus commuters pay a flat £2.40 per ride if they pay cash - hefty by many standards. (Trains cost more.)

Associate Professor Paul Barter, who teaches transport policy at the Lee Kuan Yew School of Public Policy, points out, however, that card payments are much lower (£1.40), and many commuters travel for free. These include those over 60 years, the disabled, and children up to 15. Those between 16 and 18 pay concessionary rates. Card users also enjoy a daily cap of £4.40 regardless of the number of trips they make.

Observers reckon this may be the way Singapore is headed if it adopts the London model.

But first, the bus sector will have to undergo a dramatic change. Perhaps along the lines of the restructured rail industry, with a new financing framework.

Government Parliamentary Committee for Transport chairman Cedric Foo paints this scenario: "This is how it works. Public transport operators (PTOs) will sell all the expensive assets like rail cars, buses and heavy maintenance equipment to a public trust.

"In turn, the PTOs will lease the assets from the trust according to a public tariff. Against a set of operating standards, prospective PTOs will bid for a parcel of service every five years or so."

The operator with the lowest bid and reasonable track record wins the contract, while the Government keeps fare revenue.

Meanwhile, Transport Minister Lui Tuck Yew says the Government is looking at various other options, including a co-op model.

"We are always on the lookout for other possibilities... If there are interested entities like NTUC who may perhaps offer to run part of the bus system... this is certainly something we will be prepared to look at very, very carefully," he told Parliament in February.

This is the fourth of 12 primers on various current affairs issues, which will be published in the run-up to The Straits Times-Ministry of Education National Current Affairs Quiz.

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