Channel NewsAsia

SMRT says proposal for rail financing model submitted to govt

Transport operator SMRT said it has submitted its proposal for a rail financing model to the government a month ago.

SINGAPORE: Transport operator SMRT said it has submitted its proposal for a rail financing model to the government a month ago.

Speaking at the company's fourth quarter results briefing on Friday, SMRT's CEO Desmond Kuek said it hopes the government will respond "as soon as possible".

Mr Kuek added that should the changes to the rail financing and bus operating models be approved, SMRT should "see a much more sustainable business outlook".

Parts of the Downtown Line are still currently under construction -- but when fully completed, it will be the first rail line in Singapore to come under the new rail financing framework announced three years ago.

This means the rail assets on the line -- such as the trains and signalling systems -- are paid for and owned by the government, and then leased to operators like SMRT.

The new framework was introduced in 2010 and applies to new rail lines, starting with the Downtown Line. This is supposed to allow operators to better focus on meeting operating service standards and maintenance.

To mitigate operating losses, SMRT hopes that this model can be extended to existing train lines such as the East-West and Circle Lines.

Mr Kuek said: "I think there is an alignment of interest on both sides -- both the government as well as the company -- for a transition towards the new financing framework as quickly as possible.

"But for an incumbent like SMRT, that owns operating assets, there are quite a lot of implementation issues that need to be worked through, there are legalities that need to be looked at as well. And so, this does take time, for us to do this properly.

"So, as I've said, we certainly look forward to completing this as soon as possible, but I really don't know how much longer it's going to take."

He added: "About whether I can give any update on the impending transition to a more contestable framework for the bus business, I think the government has made quite a lot of announcements on its intentions, and at this point, I don't have anything further to add to that."

While talk of any timeline could be premature, analysts said there are three broad possible outcomes -- SMRT could sell all existing rail assets to the government, the government may acquire only some lines, or there may be no change to the status quo.

If SMRT manages to offload the assets, analysts said costs associated with asset replacement will be lifted.

These costs have been increasing amid train breakdowns and service outages, which started about three years ago.

However, these assets will not come cheap.

Edison Chen, an investment analyst at DMG & Partners Research, said: "There is a chance the government may take over the existing assets, which they (SMRT) already own for the East-West Line, as well as the North-South Line.

"For that, it is over a billion Singapore dollars, (so) I don't think it's likely because it's as good as saying that we are taking taxpayer's money to bail out the company.

"Even if that happens, we will definitely have to go through a few rounds of parliament debates and public consultation, that will require lengthy discussion. So it's not going to happen in the short run, and I don't think it's likely to happen (at all)."

And the debate could be intense, given that SMRT is still a profitable company overall. SMRT's shares jumped 20 per cent last week on investor speculation over the rail financing plan.

Over the longer term, the stock has been on a steady decline. SMRT shares are currently hovering at S$1.25, half of its peak seen in 2010.

SMRT has reported a net profit of S$16.9 million in the fourth quarter, compared to a loss of S$11.9 million in the same period a year ago.

For the full year ending March 31, 2014 SMRT booked a profit of S$61.9 million, down 25.7 per cent from a year ago.

The other operator in Singapore's duopoly transport system, SBS Transit, did not respond immediately to queries from Channel NewsAsia on whether it has also submitted a similar proposal to the authorities. SBS Transit owns and operates the North-East Line.

An MOT spokesperson told TODAY newspaper that it has received the proposal from SMRT but reiterated that discussions "will take time".

Tweet Photos, Videos and Update on this Story to  #cna