The flawed transportation system in Singapore – Go beyond infrastructure in fixing transport woes

4 years after my original post calling for an urgent overhaul to the flawed transport system, the latest to add to the call for privatisation comes from none other than Professor Kishore Mahbubani, the Dean of the Lee Kuan Yew School of Public Policy, who said Singapore’s public transport woes are a result of privatising bus, train and taxi networks. Singapore should not “remain a prisoner of old economic ideas”, said Prof Mahbubani, who was speaking on Thursday (Oct 29) at the Singapore Economic Policy Forum organised by the Economics Society of Singapore.

More: Government should run Singapore’s public transport system: Kishore Mahbubani


In Hong Kong, there is greater duplication of services between the MTR and the buses than in Singapore because the authorities there believe that this competition will benefit commuters, resulting in better service and more affordable fares.” - Han Fook Kwang

“Former NTUC Income CEO Tan Kin Lian yesterday publicly called on Transport Minister Lui Tuck Yew and the Land Transport Authority (LTA) to “take urgent steps to revamp the public transport system in Singapore by increasing the capacity and encouraging more effective competition among the public transport operators”. – Source: Todayonline 23 Jul 2011.

“The transport operators have had less time to do inspections and maintenance due to higher train frequencies for a growing population. One would assume that with increased usage, maintenance frequency has to be increased to ensure tip-top performance. On the contrary, SMRT Corporation did not do so.” – Source: Todayoline 21 Dec 2011.

 

My personal view of the root cause of the flawed transportation in Singapore – Privatisation.

A good blog article by Lucky Tan also give a good rebuttal to Lui Tuck Yew’s flawed and self-serving argument.

Another article by Andrew Tan that appears in Yahoo! News also opined that no matter how we tweak the system, at the end of the day it is about numbers, human traffic. According to the 2010 Census, Singapore’s population stood at 5.076 million. Also in 2010, Singapore saw a total of 11.6 million tourists visiting the tiny island — about 967,000 per month. So, on average, at any given month, there are supposedly more than 6 million people on the island. Is it any wonder then that our transport system is straining?

If Lui is not going to think out of the box and tackle the problem fast, he will risk going down in history in the rank of MBT as one of the most hated ministers and the end to his political career.

“Another innovation that can be explored is the full use of our waters for mass transport.” – Chia Hern Keng

[Updated Dec 25, 2011: In today’s Straits Times editorial “Like buses on water“, the idea of using water taxi as a viable alternative for transport is rasied again. It is time the LTA and MOT give the idea a serious look rather than keep building more roads.]

[Updated 23 Apr 2012: Askmelah and many other critics have mentioned that the transport system urgently need to be overhauled and the transport ministry needs to go beyond infrastructure. It is thus puzzling to see Lui Tuck Yui only summoned SMRT chairman Koh Yong Guan and chief executive officer Tan Ek Kia after a spate of frequent train breakdowns in the space of a week, when the responsibility falls squarely on him to overhaul the transport system.]

[Updated 18Jul2015]: 3 years since Askmelah last edited this article, transport system has improved marginally and then bang! A worst MRT breakdown at peak hours. The lack of decisive overhaul in the transport time bomb is waiting to explode anytime until the useless transport minister doing something drastic. Depsite wasting at least 3 billion dollars over the last three years, the transport woes are still there as evident in todays article: The Big Read: Despite push for public transport, a love for cars endures

Original post dated 7 Jul 2011

Related articles:

  • Putting joy back in bus rides, The Straits Times, Mar 10 2012, “Govt’s $1.1b susidy is not enough; overhaul of bus system is needed” – by Christopher Tan
  • “Should transport system go the HK way?”, The Straits Times  7 Oct 2012

Overhauling Singapore’s public transport model: Giam

Source: Asiaone.com 19 Jul 2011

By Gerald Giam

Editor’s preface: We first reproduced Transport Minister Lui Tuck Yew’s Facebook rebuttal to Workers’ Party’s proposal to nationalise public transport. Since then, Workers’ Party has replied. We reproduce it in full here.

Mr Lui claimed that WP’s proposal had “serious downsides, chief amongst which commuters and taxpayers (yes, even those who don’t take public transport) are likely to end up paying more, and possibly, for a poorer level of service over time”.

He added that “it is the profit incentive of commercial enterprises that spurs efficiency and productivity improvements”.

MARKET FAILURES IN PUBLIC TRANSPORT

These are simplistic and tired old arguments about the virtues of private enterprises which fail to fully appreciate the economic reality of the public transport industry in Singapore.

Firstly, taxpayers who do not take public transport already contribute to the provision of public transport in the form of taxes that pay for the construction of roads, the development of rail lines and the purchase of the first set of trains on every new MRT line.

Secondly, public transport is an industry rife with market failures which the Minister seems to ignore.  The current regime where SMRT Corporation (SMRT) and SBS Transit (SBST) each provide both rail and bus services provides an illusion of competition.

The reality is that SMRT and SBST have clearly delineated areas of responsibility with no route overlaps.  This makes each of them a de facto monopoly provider in their own particular areas.

Commuters do not have the freedom to switch between providers whenever they choose to, nor do we see public transport operators (PTOs) fighting to acquire and retain customers like airlines do with promotions, discounts and loyalty programmes.

The monopoly status is also reflected in the consistent high returns these companies earn. Freed from the discipline of genuine market competition, they have few incentives to raise service standards and keep prices low.

To say that shareholder discipline will create such incentives is naive at best, and wrong at worst.  Shareholders seek higher profits, not better or more affordable services.  The government must examine whether a public utility should be owned and operated by what are effectively private monopolists earning monopoly rents.

Mr Lui claims that the current regulatory regime is a “robust” one that does not allow operators to benefit at the expense of commuters.  This is a remarkable assertion once we consider the profits of PTO’s—$215.4 million last year alone.  The fines imposed for not meeting service standards pale in comparison to these profits.

SMRT and SBST have consistently enjoyed high returns on equity (ROE) of above 15 per cent.  For SMRT, it has been above 20 per cent in most years.  In contrast, the median ROE for a Singapore listed company is about 9.5 per cent.

A company that provides a public good should not earn such excessively high returns, as these invariably come at the expense service quality and benefits to commuters.  The overcrowded trains and buses show how companies which do not face genuine competition can increase profits and raise shareholder returns at the expense of the commuting public.

As a result of such profit-oriented behaviour, the two PTOs’ high returns have been enjoyed by their shareholders.  For example, SMRT has paid out close to 80 per cent of its net income in recent years. These generous dividends could instead have been used to provide better services or reduced fares. However, it is not possible for publicly-listed firms to do this, as their obligations are to their shareholders.
Public transport as a public good

Mr Lui mentions the “serious” downsides of a nationalised public transport system, while ignoring workable examples—even locally—where the government heavily subsidises public services or even provides services directly to the public.

Schools, for example, are mostly government run. Public hospitals and clinics are heavily subsidised.  Even public housing is subsidised by public money.

Yet when it comes to public transport—an essential service for the majority of Singaporeans—the government advocates its provision by listed corporations, whose first priorities are to their shareholders.
Public transport is a public good that serves a national purpose, in the same way as healthcare, education or public housing.  Thus running it on a cost-recovery basis will create positive externalities if it benefits the overall economy, for example, by getting people to work on time and in comfort.

In the face of the pressing need to provide this public good, it is clear that the present public transport model needs to be overhauled.

WP’s NATIONAL TRANSPORT CORPORATION PROPOSAL

WP has, since 2006, called for the MRT and public buses servicing major trunk routes to be brought under a National Transport Corporation (NTC), which will oversee and provide universal transport services.

NTC should aim to provide safe, affordable, accessible, efficient and reliable universal public transportation services, on the basis of cost and depreciation recovery.  As a not-for-profit corporation owned by the government, NTC will serve the needs of the public and not that of listed company shareholders.

WP’s proposal recognises public transport in Singapore as an inherent monopoly and as a public good.  A well-managed NTC can provide superior outcomes compared to the present profit-oriented monopolies.  We would expect no less from NTC, in terms of efficiency and cost-effectiveness, compared to the way any other statutory board is managed by the government.

To achieve these outcomes, the government should set stringent key performance indicators (KPIs) for the NTC.  These KPIs could include:

  • Affordability of fares to ordinary Singaporeans
  • Containment of costs;
  • On-time bus and train performance;
  • Customer satisfaction ratings (through independent surveys);
  • Percentage of public transport ridership;
  • Productivity improvements and innovation.

To incentivise their performance, the bonuses and pay increases of NTC executives should be pegged to the achievement of such KPIs, and there could be negative consequences for not meeting them.  This will be more effective in ensuring service standards compared to the present regulatory regime, where the fines imposed on the companies for failure are a pittance compared to their profits.

CONCLUSION

RELATED STORIESNationalised public transport won’t run well: Lui

The current model of provision of public transport has produced many undesirable outcomes, as evidenced by the “crush loads” experienced by commuters every day and the public outcry each time fares are increased.

It would do Singaporeans no good if the government sticks dogmatically to its narrow philosophy of the virtues of privatisation and the profit motive, without considering the true economic reality of the public transport industry in Singapore.

The writer is a Non-Constituency Member of Parliament and chair of the Workers’ Party media team.


‘Nationalised public transport won’t run well’

Source: AsiaOne.com  14 Jul 2011

By Lui Tuck Yew

Editor’s preface: We reproduce in full here Transport Minister Lui Tuck Yew’s Facebook response on the issue of nationalisation of transport.

Both SBS Transit and SMRT have submitted their proposals to the Public Transport Council (PTC) to raise fares. This has generated some responses, including a suggestion for our public transport system to be nationalised.

While this might seem like a very attractive idea, in reality, it has serious downsides, chief amongst which commuters and taxpayers (yes, even those who don’t take public transport) are likely to end up paying more, and possibly, for a poorer level of service over time.

A nationalised public transport operator that depends on government funding and which operates on a cost recovery basis would have little incentive to keep costs down. Cost increases will be passed on to commuters.

Over time, this will lead to higher costs for the same level of service, which means commuters pay higher, and not lower fares. Not only would people have to pay more, nationalising the operators could result in a stagnation of service quality or efficiency over time.

On the other hand, it is the profit incentive of commercial enterprises that spurs efficiency and productivity improvements. This is the reason why many cities around the world have moved or are moving towards having commercial enterprises provide public transport services.

Some people have said that the public transport operators (PTOs) should not be making so much profit, although we should also recognise that as public-listed companies, it is not unreasonable for the PTOs to earn fair returns from the sizeable capital investments required to sustain their operations and to invest in future public transport needs.

What is important is to ensure that commuters’ interests are safeguarded even as we have commercial enterprises run the public transport services.

Let me highlight the key aspects.

First, we have a robust framework to regulate bus and rail service levels through service quality and operating performance standards so that PTOs do not pursue profit at the expense of commuters. LTA will also continue to work with the PTOs to deliver improvements to the public transport system.

Second, the PTC regulates fares based on a fare adjustment formula (0.5 CPI + 0.5 WI -1.5%) that takes into account macro-economic factors, namely the Consumer Price Index (CPI) and average national wage increases, while delivering a productivity dividend to commuters. The fare adjustment formula protects commuters by capping fare increases – PTOs are not free to simply pass on their cost increases to commuters.

As in previous years, the PTC will have to deliberate on the PTOs’ fare revision proposals bearing in mind the interests of commuters and the sustainability of our public transport system. In fact, there have been some years when the PTC approved fare increases that have been less than what the PTOs proposed but we should let the PTC deliberate on this properly and make its decision.

These two elements have enabled us to put in place an efficient, cost-effective and financially sustainable public transport system. Certainly, there are areas for further improvement so we can deliver a high quality public transport system, and I welcome your inputs and feedback.

Finally, the Government has invested heavily in our public transport infrastructure and we will continue to do so. On the rail network alone, we have invested about $20 billion in the existing rail network infrastructure and will be investing another $60 billion in new rail lines by the end of the decade.

Government funding of public transport infrastructure is a key reason why public transport fares continue to be affordable.

 

Integrate land use with transport planning and don’t forget about buses

Posted in Dismal State of Singapore Traffic Police and LTA

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"I am afraid the cruise ship is over capacity limit, and it used to be a luxury cruise ship. The designer’s claim that it is not sinkable, the name is Titanic. There are not enough life boats, no preparation or provision for failure. Thank you Mr Goh for reminding us." - Low Thia Khiang

"Till today, I am still puzzled by why the PAP cannot fight a fair election without gerrymandering, abusing the GRC system, basically, making sure they enter into a boxing ring with an opponent who is expected to fight them with hands tied behind the back. There is a reason why bullies are not popular in schools. Why not be the school prefect?" - Alvinology

"The question to ask is what lies at the root of the discontent or the disengagement between the G and the people. I am going to stick my neck out and say that it is ministerial salaries. I consider it the root of all evil. Serious. It reduces what should be a social compact into a business contract. " - Bertha Henson