Review of transport fare formula needed to reflect rising cost of operating MRT system: Khaw Boon Wan
SINGAPORE: There will be a need in future to review the formula by which transport fares are determined, in order to reflect the increasing costs of operating Singapore's MRT system, said Transport Minister Khaw Boon Wan in Parliament on Monday (Jul 8).
Rail companies are operating at a loss, he said, as fares paid by commuters do not cover operating costs.
Mr Khaw was responding to questions from Member of Parliament Sitoh Yih Pin on how efforts to address rail reliability will be sustained and funded.
Singapore's MRT system is now on par with other world-class systems like the Taipei Metro and Hong Kong MTR. This is due to "rigorous operations and maintenance, disciplined investment and countless personal sacrifices by thousands of public transport workers who have worked day and night to improve the network", said Mr Khaw.
However, this has come at a "substantial expense" to the operators and the Government, he added.
"In practice, as fares have been inadequate to cover the cost of operations, government subsidies have exceeded their intended scope of funding the civil infrastructure and the first set of operating assets," said Mr Khaw. "With intensified maintenance to reach the current level of reliability, the government operating subsidies have increased further."
WHY HAVE FARES FALLEN BELOW OPERATING COST?
Fares are determined by the Public Transport Council (PTC). Its latest annual fare review exercise last year resulted in an increase of six cents in bus and train fares for adult card users.
"PTC’s fare formula is supposed to keep fares in line with macroeconomic cost factors, such as inflation, wages, fuel costs and increases in the network capacity, with a productivity extraction," said Mr Khaw on Monday.
"But until recently, the PTC fare adjustments were not fully implemented," he added.
"If we had strictly followed PTC’s fare formula, the operators would have been better able to cover the costs of the intensified maintenance. As it is, the additional costs have been partly covered by increased government subsidy and partly absorbed by the operators who have been incurring substantial losses. So this is clearly not sustainable."
PTC's current fare formula, which is valid until 2023, takes into account a new component called the network capacity factor (NCF) measuring commuter demand, as well as enhancements and growth in public transport capacity.
But there needs to be the "discipline" to implement the formula fully as fares are adjusted over the next four years, said Mr Khaw.
"In due course, the PTC will need to review the fare adjustment mechanism to reflect the increased operating cost to support the intensified maintenance and the additional operating subsidies from the government to the MRT system," he said.
In the meantime, the Government will provide operators with a temporary enhanced maintenance grant, added Mr Khaw. Details are being worked out between the Ministry of Transport and Ministry of Finance.
In a statement on Monday, SMRT said it welcomes the grant.
“We welcome the temporary enhanced maintenance grant to support the increase in operating costs for the improvement of train service reliability," said Ms Margaret Teo, chief communications officer of SMRT Corporation.
"We remain committed to bringing our commuters better journeys.”
A COSTLY ENDEAVOR
Giving some figures of the operating costs involved, Mr Khaw said between 2016 and 2017, the total cost of running the rail network increased by around S$270 million.
In the latest reported financial year, SMRT Trains incurred a loss of S$86 million, he said, while SBS Transit’s train division also lost "tens of millions" of dollars.
He also pointed out that the Government has spent around S$1.9 billion to take over ownership of all rail operating assets.
"While the S$1.9 billion is once-off, the government is now also responsible for the proper and timely renewal of these assets, and this is a huge and continuing financial liability," Mr Khaw said.
He added that over the next five years, the Government expects to spend S$4.5 billion on operating subsidies - nearly S$1 billion per year. And this will be on top of government spending of S$25 billion on civil infrastructure, to build and equip new lines.
Mr Khaw stressed that there must be continued efforts to improve the rail system.
"We have stabilised our MRT service. But we have to sustain these efforts over the long term, in order to prevent problems from gradually building up again," said Mr Khaw.
"This requires discipline - on the operating side to ensure that LTA (Land Transport Authority) and operators invest in upgrades and preventive maintenance of the rail system long before problems become apparent and serious, and on the commuter side, to implement regular fare adjustments to keep the rail system financially viable and government subsidies under control, so that we can sustain a high quality and affordable public transport network."
Responding to a question from Workers' Party chief Pritam Singh on whether recent news of resignations within SMRT hinted at a "deeper issue" within the company, Mr Khaw said with a change in leadership, some changes would be "useful".
"With the change of leadership of SMRT ... and the team that I worked with both above ground and underground, I know them well and it’s a very good team of people. And, sometimes some attrition is useful."
Mr Khaw added that not all reports on resignations were entirely accurate.
"There was a recent report - not quite media reports - (a) Straits Times report, it was only in the Straits Times, probably one particular journalist who reported that there was a major upcoming resignation by the head of trains etc," said the minister.
"So yes, I read in the newspaper and immediately texted the chairman (of) SMRT. He was in the air then and as soon as he landed at the airport, he replied to me that it is fake news," he added.
"ST gave an apology in tiny font size."