You are here

Lui defends increase in public transport fares

Operators have to make profits to pay for future capital expenditure, he says

MR LUI: Said manpower and maintenance expenses make it inevitable for operators to face the same cost pressures as other entities.


THE issue of whether Singapore's two public transport operators should be allowed to raise fares at a time when they are making healthy profits was debated in Parliament on Friday.

Raising this point at the start of the sitting, MP Lee Bee Wah (Nee Soon GRC) also wondered if the existing fare review formula could factor in the profitability of the two companies - SBS Transit and SMRT - and not just their operating costs.

Transport Minister Lui Tuck Yew noted that running buses and trains is "not a highly profitable" business here, given that this segment, in the case of SMRT, makes up only about 5 per cent of the profits generated.

Market voices on:

The remaining 95 per cent comes from the "non-fare business", said Mr Lui, and this covers areas such as commercial operations, rentals and taxis.

"It is only in recent quarters that fare revenue and income have crept marginally above costs. The operators have to make profits to pay for future capital expenditure," he explained.

Mr Lui shared how SMRT will spend S$2 billion in various commitments until 2019. This, he said, is equivalent to thrice the cumulative profits that the company has made in the last five financial years.

SMRT has been losing money on its bus operations for several years, said Mr Lui, and part of the turnaround in its fortunes was due to the "fortuitous reduction" in the cost of fuel.

As for Ms Lee's point about weaving profitability into the fare review formula, the minister said he preferred to allow the current formula - in place since 2013 - to run its course until 2017 before it comes up for review.

There needs to be an incentive for a public transport operator to ensure it runs an efficient business and can boost its productivity, which ultimately benefits commuters in the form of a 0.5 per cent dividend when the fares are adjusted each year.

"If you stifle every possibility of a private operator making some profit . . . and ultimately if it results in an even larger increase in fares, is that of benefit to anyone?" Mr Lui asked.

As with all other entities, be they public or private, the public transport operators in Singapore face the same cost pressures and expectations from their employees for a reasonable increase in their wages.

"Driving buses is a very manpower-intensive operation. Together with the maintenance of buses, I think, inevitably, you cannot avoid coming under the same pressures that are reflected in the formula that we have derived," said Mr Lui.

The fare review formula is pegged to changes in the core consumer price index (CPI), the wage index, and the energy index over the preceding year, and this reflects the operating cost structure of the public transport operators.

The core CPI and wage index each accounts for 40 per cent of the formula, while the energy index (which covers energy and fuel costs) makes up the remaining 20 per cent.

In the 2014 fare review exercise exercise, the adjustment quantum yielded by the existing formula worked out to be negative 0.6 per cent.

However, the previous exercise in 2013 had announced an increase of 6.6 per cent in two phases. A first increase of 3.2 per cent was made in April last year, and the remaining 3.4 per cent was carried over to the 2014 review.

So the fare adjustment quantum for the 2014 review exercise, which will take effect this year, works out to 2.8 per cent.

Mr Lui reiterated a point he made in Parliament last month: that the next fare review exercise, set to take place later in 2015, could see fares reduced by one per cent due to the drop in oil prices.

"When deciding the fare adjustments, the Public Transport Council has to ensure that the overall public transport system remains financially viable," he said.