- POSTED: 26 May 2014 22:11
- UPDATED: 26 May 2014 23:28
Analysts said there are major differences between the new bus contracting model and the rail financing framework. Comparing the two models, they said current negotiations under the rail framework are more complex.
SINGAPORE: Analysts said there are major differences between the new bus contracting model and the rail financing framework. Comparing the two models, they said current negotiations under the rail framework are more complex.
Last week, the Land Transport Authority (LTA) announced the overhaul of the public bus system, where the government will own operating assets and decide on bus routes.
Under the bus contracting model, the government will own all buses. However, LTA has not decided whether to buy all existing buses, or acquire them when they are due for replacement.
Bus licences expire in 2016 and the LTA is currently discussing this with bus operators.
One concern is the diverse set of buses.
Assistant Professor Walter Theseira, from the division of economics in the school of humanities and social sciences at the Nanyang Technological University, said: "You've got some buses which were bought recently, some were bought years ago, and obviously these buses have now depreciated in value as assets.
"The major concern going forward is going to be what is the fair value for these assets, what is the market value?
"If the government wants to instead purchase new buses as they become ready for replacement, in some sense this is going to be a process that is a lot more transparent.
"The reason why it will be more transparent is that all the government will have to do is issue a competitive tender to buy a fleet of new buses, and the vehicle manufacturers will then have to submit their bids. So, that might be more transparent than negotiating with the public bus operators to buy over the existing fleet."
At the same time, LTA is negotiating with rail operators on how to transit the existing lines to the new rail financing framework.
Under the framework introduced in 2010, LTA will own all trains and infrastructure.
Analysts said negotiations to put the existing rail lines into the new rail financing framework is more complex. One of the reasons is because there are a number of train licences to consider, each within a different period of time.
For example, SMRT was granted a licence in 1998 to operate the North-South East-West Line for a period of 30 years.
Existing train licences are granted for between 30 to 40 years.
For the Bukit Panjang Light Rail Transit operated by SMRT, the licence expires in 2028. The licence for the Circle Line is for an initial 10 years, but may be renewed for a further 30 years.
Analysts said the rail financing framework may even be implemented before the expiry of existing licences.
Edison Chen, an investment analyst at DMG & Partners Research, said: "Market may talk about a more aggressive case scenario whereby the government will even take responsibility to take over all the legacy assets which SMRT or ComfortDelgro had previously purchased under the old framework or the old commitment.
"That to me is not likely because it's complex and will create many debatable issues, whereby you are using taxpayers money to bail out the company."
Currently, rail operators can collect proceeds from retail spaces in and around MRT stations. Analysts said whether this should continue under the new framework is probably being considered in ongoing talks.
Asst Prof Theseira said: "All these other things basically helps to subsidise the core functions, but there is a danger when these other revenue generating activities generate more of your profits, or more of your bottom line than your core functions itself.
"When that happens, it may lead to the company losing focus on the core activity, which is what some people said would have had happened to SMRT in the past."
As part of the bus contracting model, operators get to keep non-fare revenues such as from advertisements and billboards.