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Govt to ensure contracting model for buses is viable

Tuesday, July 8, 2014 - 06:00

[SINGAPORE] The government will carefully assess potential bus routes and enhancements to service standards as well as consider regular fare increases to ensure the new public bus contracting model remains financially sustainable in the long run.

"One (way) is to make sure we judiciously assess all the requests that come in, whether it is to operate new routes or to improve service standards," said Minister for Transport Lui Tuck Yew yesterday, responding to a question from Member of Parliament (MP) Christopher De Souza. "If you operate more and more new routes and the ridership is low, the government, and indirectly the taxpayer, takes on the burden of making sure it is financially sustainable. If you run too many new routes where the ridership is low, then subsidies will, of course, have to go up."

Increased frequency of bus services also translates to higher operating costs, which would require bigger subsidies to be paid out to public transport operators. "So we again have to be quite judicious when we raise service standards to make sure that we do not overstep and ultimately result in a much bigger bill in terms of the subsidies we have to pay," Mr Lui highlighted.

And while the government is committed to ensuring the affordability of public transport fares, regular fare increases of the right quantum will also be needed, he said. Between 2005 and 2012, the annual fare increase was on average 0.3 per cent, even as wages and fuel costs rose at a sharper pace.

"There will be a need for us to make sure we have regular fare increases of the right quantum," he said, adding that fare adjustments will continue to be guided over the next few years by the Public Transport Council and the revised fare formula developed by the Fare Review Mechanism Committee.

In May, the Land Transport Authority (LTA) announced a major restructuring of the public bus industry which would see a shift from the existing privatised model to a government-contracting model - one that seeks to inject competition, boost service standards and create more flexibility to address changing commuter needs. Currently, the two bus operators SBS Transit and SMRT own their buses and keep all fare revenue.

Under the new system, the government will own the buses and the bus infrastructure, and will contract out bus routes in 12 packages through a tender process that will be open to both local and foreign players. Operators will be paid a fee to run the services, while the government retains all fare revenue.

To start, three of the 12 packages of bus routes will be put up for grabs in H2 2014, with the winning bidders commencing operations from H2 2016. The remaining nine packages will be released in phases with the aim of having all 12 packages being awarded by way of tender by 2022. The first package to be tendered out is made up of 24 bus services originating from the western part of Singapore.

French joint venture Veolia Transport RATP Asia has indicated its interest to enter the market while Woodlands Transport Service - which has one of the largest private transport fleets in Singapore - had said previously that it would study the tender details as well. The shake-up to the bus industry is also seen by some analysts as positive for SBS and SMRT, given that both their bus businesses have been suffering operating losses.

In Parliament yesterday, non-constituency MP Gerald Giam as well as Nominated MPs R Dhinakaran and Teo Siong Seng asked if the government is setting aside a budget for the new bus contracting model and how much would be provided to the bus operators in subsidies.

But Mr Lui noted that it isn't in the government's interest to reveal any budget and subsidies before the tenders are issued as this could skew the bids.

"It is not clear at this point in time that all the packages will require a subsidy, or how much the subsidy is going to be. The operators will bid, most likely, on the cost to run a bus on a per kilometre basis. If the fare revenues do not match what we have to pay to the operator, there will be a need for a subsidy. Or if the fares do not go up enough in subsequent years even as the cost may go up based on what is built into the tender returns, then there will be a need for a subsidy," Mr Lui said in response to questions on how the subsidy would be structured.

For details on how the new contracting model will work, click here.

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