Downtown Line financing framework to be reviewed
Government may drop current fixed-fee model in favour of risk-sharing one being used for NS, EW, Circle and NE lines
Singapore
THE government could drop the current fixed-fee framework for operating the Downtown Line and place it on the risk-sharing model being used for the North-South, East-West, Circle and North East lines.
Transport Minister Ong Ye Kung said on Friday that the government will review the financing framework for the Downtown Line that receives a fixed fee from operator SBS Transit to ensure the line is run reliably with high productivity and is sustainable.
Speaking in Parliament during the ministry's Committee of Supply debate, the minister said the Downtown Line's operator SBS Transit bears significant commercial risk under New Rail Financing Framework (NRFF) version 1, even as the government owns and replaces operating assets.
"If ridership is healthy and fare revenue far exceeds operating cost, they get to enjoy a good part of the profit. But if the reverse is true, they bear the loss."
Mr Ong, however, noted that it is not ideal for a public transport business to be unstable.
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Walter Theseira, associate professor of economics at the Singapore University of Social Sciences, thinks the government might play a role in risk-sharing for the Downtown Line, by protecting against excessive losses, as well as by imposing a profit-sharing cap.
The government will cream off the operator's high profits but cushion big losses to smooth out commercial volatility under this model, known as the New Rail Financing Framework version 2.
The government dropped its fixed fee financing framework and applied this model for the North-South, East-West, Circle and North East lines.
As for the Thomson-East Coast Line (TEL), it is on NRFF version 3, with the government collecting all the fare revenue and bearing all revenue risk, as well as granting the operator a fee to run the line in the initial period when ridership is still not stable.
TEL's operator SMRT will be placed on the same framework for the North-South, East-West, Circle and North East lines, after ridership stabilises.
Prof Theseira doesn't see the Downtown Line transitioning to NRFF version 3, because this structure is most suitable when ridership is difficult to predict or very unstable.
"DTL's revenue should be stable by now, barring the pandemic, although it may be different from initial projections. Hence there should be enough basis for transitioning to NRFF version 2, unless it turns out that ridership and costs are such that the DTL cannot possibly be run at an operating profit.
"In that case, there is no option but to go for version 3," he said.
Ong Khang Chuen, analyst at CGS-CIMB Securities (Singapore), said the Downtown Line has been a loss-making rail line for SBS Transit, as revenue generated from ridership has not been able to offset operations costs.
With the massive disruption to everyday life in 2020, mobility has been largely reduced, causing further losses.
"In my view, it would be difficult for operators to sustain high reliability of rail line operations in Singapore, when sustaining losses continuously, " he said.
He added it would remain to be seen whether ridership can reach pre-pandemic levels, given there has been a structural change in work arrangements.
The pandemic-driven circuit breaker and the work-from-home directive implemented last year saw average daily ridership for the Downtown Line drop 46 per cent to 257,000 passenger trips, whereas the decline for North East Line was less drastic at 40.9 per cent to 355,000 passenger trips.
Shares of SBS saw a minor boost following the government's announcement of the review.
The counter closed 1 per cent higher at S$3.02.
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