SMRT

you don't need two MRT companies to run the same line to compete, just having SBS running the same route with more buses. The competition will be there.

By contestability, I meant dividing up the rail and bus networks for bidding by the operators to operate for X no. of years. The operators submit a bid price to the govt/LTA for a license to operate for those X years. New operators can be encouraged to come in to bid for the license. In return, the operators can set their own fares, subject to guidelines or a cap from LTA/Govt. By setting guidelines or a cap on fares, hopefully this will prevent the operators from bidding over aggressively and charge high fares. Service standards and reliability can be incorporated into the KPIs of the operators and in subsequent rounds of license renewal, the KPIs and the bid price will be considered together when awarding the license.

(29-04-2012, 10:11 AM)freedom Wrote: you don't need two MRT companies to run the same line to compete, just having SBS running the same route with more buses. The competition will be there.

I agree with your view. LTA's optimization on the route coverage by bus/MRT, is a flaw in planning

My experience as commuter convinced me that sometime taking bus is as convinience as taking MRT, if not better. IMO, If more overlapping coverage allow for Bus/MRT with an improved Bus service, Bus service can be an effective competitor to MRT service.

(29-04-2012, 09:43 AM)shanrui_91 Wrote:

(29-04-2012, 02:10 AM)rafflesplaceguy Wrote: My 2 cents:

In my opinion, I think people are complicating the various issues toegther.

When the trains keep breaking down, this is a engineering issue which SMRT needs to address since it is the operator of the trains and the rail infrastructure. This includes spending whatever is necessary to maintain the operational readiness of the trains and the rail infrastruture that comes with it. I think LTA's role here should be just to provide technical expertise and work closely with SMRT to resolve the engineering issues, including advising SMRT on certain strategies to overcome the aging infrastructure issue. However, if the aging infrastructure issue is something that is more deep rooted and beyond the responsibility and expertise of SMRT, then LTA (and/or the govt) should step in to address this problem.

SMRT does have the responsiblity to maintain the track since it has been given the license to operate. However, when it comes to the scale of this project, it will make more sense for LTA to be more involved simply because these assets belongs to the LTA especially with the new leasing model where even the trains are procured by LTA. LTA should then charges a higher licensing fee to the operators. It does not make sense if the operators are forced to build MRT network in the future, since they will not bother building additional network.

Quote:As for the overcrowding issue, in a way, both SMRT and SBS have an incentive to resolve this issue to the best of their abilities, as the more passengers they ferry the more fares they collect.

You are right that the more passengers they ferry the more fares they collect and the higher the revenue is. However, profit will increase only if the number of train and bus trips remain the same. Solving overcrowding issue does not has a significant impact on passenger volume because the alternative is to walk, take a taxi or to buy a car.

As for buses, the more crowded the buses are, the more happy SMRT and SBS are. Buses have high fuel expenses and they operate like airline does. The optimum profit generation is achieved when each bus trip is overcrowded, which means the less bus trip the better it is. It is the passenger load factor that counts and not the passenger volume. This is also why both SMRT and SBS suffer losses and poor return in their bus operations.

Quote:As for the setting of transport fares issue, or the lack thereof, the govt should have pressed ahead with reforms and introduce an alternate fare setting mechanism. Along with a new fare setting mechanism, the govt could have also incorporate greater contestability among the different operators (e.g. introduce more operators). But it has now backtrack on its plans in the face of public backlash (arising from the general election and the spate of train breakdowns). And we are back to square one with a system that clearly leaves everyone unhappy.

There is no such thing as greater competition between different operators unless you are talking about 2 operators running the same network. Even so, will one really chooses SBS over SMRT if SMRT train is here while you have to wait for another 5 mins for SBS train? What type of better services are we expecting from the operator - a better seat, more entertainment, service staff to greet you when you board the train?

MRT has a higher fixed cost component which means the more passenger they have, the more profitable it is. To allow them to compete will result in heavy losses for the MRT. Just to illustrate, SMRT's rail has a 21.5% profit margin (despite the circle line not reaching its peak yet) while SBS's rail only has a 14.5% profit margin.
Why is there this 7% differences?

The answer lies in SMRT operating on NS and EW lines, which have 27 and 29 stations respectively. As for the NEL that SBS operates, there are only 17 stations. A train that is running over 27 stations will obviously be more profitable than a train that is only running through 17 stations.

As such to allow them to compete will result in losses for the operators which will then ask for an increase in fare to cover the losses. Some industries are simply not viable to have too much competition. For e.g Mediacorp and Media Work.

As for a new fare mechanism, the best will still be to nationalize them and consolidate the mrt as a whole anSome d bus as another entity to take advantage of economics of scale. Using MRT to cross-subsidize bus, then with the help of advertisement and rental, the government will then charge at 0 profit which is price = cost. Only when profit is taken out of the equation will we be able to truly enjoy lower transport fares.

How do you determine what is your cost? Should it be based on economic cost, accounting cost or some other basis? Some of the costs are variable by nature (e.g fuel). Do you then subject fares to fluctuations? Some people might suggest hedging to fix some of the variable costs. Then the question would be do you include the cost of hedging? Should the govt then hedge 100%? And you need to set aside reserves to buy renew or upgrade operating assets. Should these be included in fares then?

Like I said, I don't think we should lump all the issues together and start taking about nationalizing etc. And nationalizing it doesn't mean trains won't break down in the future and the overcrowding issues will be solved. Train breakdown is train breakdown and fares setting is fares setting. Just because they have a common denominator doesn't mean the answer lies in applying one solution to solve the problems.

My personal opinion is all the issues come from a basic conflict of interest:
1) SMRT and SBS are listed companies which have to answer to shareholders regarding profit and dividend.
2) The public and the government will want to have cheap and good services.

This conflict of interest is not easy to handle and has been the cause of multiple problems. For cheaper and better services, other than cutting fare, more money also needs to be pump in to maintain them. Breakdown of train occurs due to the aging of infrastructure and the lack of incentive to replace them. If it ain’t broken, why fix it? If you are running the business and train breakdown has min impact on your profit, will you be willing to fork out $900m to fix it?

Running more bus services – Buses have always been the one with lousier return compared to MRT and has made losses for both SMRT and SBS. To ask them to run more buses will be to ask them to go further into the red. Just to recruit and retain more drivers, SBS has recently increased the wages by 10%. To support 550 buses, the government has to come up with $1.1 billion to cover the cost. These are heavy costs that if the government is not the one pushing, it will never occur. Overcrowding occurs because the ROI of adding additional buses and trains does not make sense to profit-seeking operator. The cost of doing so outweighs the benefit they get from additional ridership as a result of more comfort.

The thing about nationalizing is instead of the profit going into pocket of shareholder as dividend; it can be used to subsidize the fare and goes into better services. Cost can also be greatly reduced if there is only 1 train operator and 1 bus operator. However, as the bus operator will be loss-making, the train operation will need to subsidize the bus operation as well. Such cross-subsidy and solo train and bus operation can only be possible if the government has full control of it.

I simply don’t see what harm is being done in nationalizing it other than the often cited word of “competition” and the loss of a dividend stock for shareholders.

(29-04-2012, 01:30 PM)shanrui_91 Wrote: I simply don’t see what harm is being done in nationalizing it other than the often cited word of “competition” and the loss of a dividend stock for shareholders.

IMO, "nationalizing it" will provide all the benefits mentioned, but with a hidden assumption.

After nationalizing the MRT/Bus services, the operators are as motivated, profitable and "effective" as current operator.

If the assumption is not true. The end result may be much more public fund needed, and probably with sub-standard service quality, worse than service level today

A potential "lose-lose" position

(29-04-2012, 03:54 PM)CityFarmer Wrote: IMO, "nationalizing it" will provide all the benefits mentioned, but with a hidden assumption.

After nationalizing the MRT/Bus services, the operators are as motivated, profitable and "effective" as current operator.

If the assumption is not true. The end result may be much more public fund needed, and probably with sub-standard service quality, worse than service level today

A potential "lose-lose" position

I cannot deny the possibility of the "lose-lose" situation, but the chance of it happening will still be remote. I don't see how our SPF, CPF and EDB become inefficient as a result of lack of competition.

Singapore's bureaucracy and civil servant are much more effective than many other countries. Unlike countries like China where SOE relies heavily on the government support, our many stat boards have been operating successfully if you don't take into account the policy-making by the ministers and perm sect.

While profit is no longer the incentive for the company, the head and management of the transport operator will want to perform well to enjoy their peformance bonuses and promotion. If service standard drops or it becomes inefficient, the government will have to answer to the public and some heads will have to roll.

The way SMRT is run now is to me SEMI-NATIONALISED already. So are many other GLCs in Singapore. Ha! Ha! The best is any company that can make money Semi-Nationalise it. Company that can not you run it. Ha! Ha! Am i joking?

(29-04-2012, 04:21 PM)shanrui_91 Wrote:

(29-04-2012, 03:54 PM)CityFarmer Wrote: IMO, "nationalizing it" will provide all the benefits mentioned, but with a hidden assumption.

After nationalizing the MRT/Bus services, the operators are as motivated, profitable and "effective" as current operator.

If the assumption is not true. The end result may be much more public fund needed, and probably with sub-standard service quality, worse than service level today

A potential "lose-lose" position

I cannot deny the possibility of the "lose-lose" situation, but the chance of it happening will still be remote. I don't see how our SPF, CPF and EDB become inefficient as a result of lack of competition.

Singapore's bureaucracy and civil servant are much more effective than many other countries. Unlike countries like China where SOE relies heavily on the government support, our many stat boards have been operating successfully if you don't take into account the policy-making by the ministers and perm sect.

While profit is no longer the incentive for the company, the head and management of the transport operator will want to perform well to enjoy their peformance bonuses and promotion. If service standard drops or it becomes inefficient, the government will have to answer to the public and some heads will have to roll.

Favorable comment rarely appear nowadays for "Singapore's bureaucracy and civil servant"

Your observation is aligned with mine. Many stat boards have been operating successfully. IMO, The success of stat boards should not exclude ministers and perm sec, since they are part of it.

IMO, The success of the stat boards lies with their "business-mind-set". In this case, we are refering to Ministry of Transport, or more specifically, the LTA. LTA successfully put up LOA with private operators, and operate successfully till recently when breakdown, congestion, crowded stations etc starts appearing.

IMO, the solution is not to reset and start all over again, with totally different mind-set. The problem is the lapse in execution by LTA, instead of the failure in the setup.

I thought about the passenger load factor being mentioned. My thoughts are that perhaps we should have more bus operators from the current two. The issue of overcrowding and the resulting public unhappiness means the incumbants are obliged to run additional services even if it is less profitable for them to do so. Consequently, this also puts a strain on their resources. Why not allow or licence a third or even a fourth bus operator to run additional services? Then you allow the operators to set their own fares and to decide on the level of service they want to provide. For example, the new operators can attempt to target a different mkt segment by providing a premium service (e.g. guaranteed seats) for higher fares for those who don't mind paying more. Or they can choose to provide a basic service together with the incumbant for the same fares. Hopefully, this will mean more buses plying the popular routes and alleviate the overcrowding issue. The key thing is to let consumers have a choice. And the bus operators may not lose out: they can pick and choose which turf they want to fight. Under the current model, SMRT and SBS have no choice.

The bus assets can be owned by LTA/govt and the bus operators will bid for a licence to operate the buses for X years by paying a fee upfront. The awarding of licence would be based on performance KPIs, public feedback and the bid price. The bus operators would be responsible for the servicing and reliability of the buses. LTA/govt can also set the fare guidelines for the provision of basic bus services that should be affordable for the vast majority of commuters. Transport vouchers can be provided by the govt to the needy to help them defray their transportation costs. When the buses are purchased by LTA/govt, LTA/govt can bulk buy and negotiate for a discount. This also takes away the dilemma and reluctance of the operators on whether to buy more buses or when to do fleet renewal. The main thing left for the operators to decide is on their business model and how much to bid for the licence to operate. Hedging, financing and other business costs are also best left to these operators, who are profit driven, to decide what suits them best.

And obviously the above has to be integrated with any plans for the mrt network for a seamless commmuting experience.

I am under no illusions that what I have said above will work. But my point is we should reform the transportation system such that it is viable for profit driven entities to operate and for commuters to have more choices.