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New rail financing framework may lead to smaller fare increases, say analysts

Analysts say the new rail financing framework could translate to better service levels and smaller or less frequent fare increases.

SINGAPORE: The new rail financing framework is not expected to be implemented before 2016, say transport analysts in response to a recent tender called by the Land Transport Authority (LTA) to engage consultants to help build up its asset management capabilities.

Analysts also say the framework could translate to better service levels and smaller or less frequent fare increases.

Last week, transport operator SMRT said its business outlook will improve after it sells its rail assets to the government.

The new rail financing framework was introduced in 2010, in which the government will pay for and own rail assets.

These operating assets include the trains and signalling systems, which will then be leased to operators. The burden of capital expenditures on asset replacement will thus be removed from operators.

All new rail lines starting from the Downtown Line will come under the framework. Meanwhile, the authorities and operators are in discussions to bring existing lines into the framework.

Analysts expect commuters to benefit from this arrangement because operating expenses should decline when the new framework kicks in.

"When they become more financially sustainable, we can reasonably assume the commuters may not face the frequent fare adjustments,” said Professor Lee Der Horng from the National University of Singapore’s department of civil and environmental engineering.

“By looking at the fare adjustment formula, we can see that if the operator's responsibility can be further lessened, then the operators may not have strong reasons to raise the request through the government to adjust the public transportation fares."

The good news may not just stop at fares, as experts say service levels may also see improvements.

"If the government will put a lot of money to have a huge increase in capacity and have a huge increase in the maintenance structure, the capacity will increase and the maintenance will be done more properly,” said Dr Park Byung Joon, head of the urban transport management programme at SIM University’s School of Business.

“We should see better quality services, we should see less disruptions. But, on the other hand, we have to ask ourselves how much are we willing to pay to have that kind of improved services."

Rail operator SMRT said it has submitted a proposal to the government on the new rail financing framework. It believes the framework can help the sustainability of its business.

However, experts say this depends on the cost of the licence for the assets leased to the operators.

"Don't forget the operators in the future still need to pay the fees to the government in order for them to use all these operating assets. Therefore, how the charging scheme is going to look like at this point of time, we do not know," said Professor Lee.

Analysts say the new rail financing framework should be implemented after the LTA has worked out its asset management capabilities.

LTA recently called for a tender to engage a consultant on this and the final report is expected in early 2016.

Dr Park said: "The LTA is more of a regulator. They don't have the capacity, or they don't have the human resources, to be able to manage the assets. So, this is the first step moving from the existing system to a different system." 

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