Azhar Khamis /
The Workers’ Party manifesto for the 2011 election contains a proposal to nationalise our public transportation system for trains and buses.
Lim Hwee Hwa, former Second Transport Minister, said then that the government had considered the idea before, but did not think it was feasible and that commuters would even be worse off, citing how other countries have failed in doing so. She did not delve into any specifics.
Is it really not feasible for us to have a nationalised public transportation system?
To answer that question, we probably need to analyse the current system first.
The current public transport system for buses and trains are run by public listed companies with shareholders to answer to and is inevitably profit driven. As no company is willing to operate at a loss in the long run, profits will rule over everything else at the end of the day.
It sounds as if making a profit is a sin. It’s definitely and absolutely not.
However, there are 3 key points that explain why our current public train and bus services, with its profit-generating factor, is actually putting commuters at the losing end.
Firstly, profits made by the transport companies are guaranteed by national policies. The government has openly said that these companies must continuously be profitable to ensure that service standards will not suffer. Profit and loss (P&L) is synonymous with any business but in this case, the companies are ‘protected’ from loss.
Secondly, this ‘protection’ is accorded to two companies only, with no signs that the privilege will ever be revoked. SMRT and SBS Transit are the only two companies allowed to provide public train and bus services as they have been for many years and probably will be for many years more.
Thirdly, the government, hiding behind pseudo private companies in the name of GLCs, is a major shareholder of one of these profitable companies. Temasek Holdings is the biggest shareholder (54.37%) in SMRT, indirectly owning it. Singapore Labour Foundation, a statutory board, also has shares in ComfortDelgro who is the major shareholder of SBS Transit.
Looking at the above 3 points, isn’t our public transportation system already considered nationalised when the government has significant shares in the only two companies that provide the service?
Is there any difference between the current system and a nationalised one? Yes, there is – profits.
So back to the question – is it feasible to have a nationalised public transportation system? Yes it is. We simply need to remove the profit-making portion.
We are a small country, therefore competition in public train and bus services is practically non-existent and the current government is fully aware of this. How else can we explain the reason why
- only two companies allowed to operate train and bus services
- the two companies area of coverage do not overlap, each having their own profitable domain
- fares are practically the same regardless which bus or train service you commute on
Since there is no competition to begin with, why the need to privatise our train and bus services and then have a Public Transportation Council (PTC) with 16 council members, excluding support staffs, to regulate something that can’t be regulated anyway?
With a nationalised public train and bus service, the system is owned by the government and managed by LTA who will then appoint a company to operate this system through profitable contracts.
The company need not even be paid as they can generate revenue through rights to sell advertising space on the trains and buses and collect rentals from retail space in train stations and bus interchanges.
With no shareholders to answer to, the cost to operate this system will then be collectively paid for by commuters without anyone making a profit out of it.
If done correctly, a nationalised public transportation system will definitely be beneficial to commuters.
Profits is NOT the only way to ensure good service as claimed by the government.
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Interestingly, although SMRT makes a profit of $162m, it’s worth noting that their bus division actually loses money ($1.94m this year, $4.886m last year). Most of their income comes from their rail operations, rental and advertising (in that order).
Source: http://www.smrt.com.sg/investors/documents/annual_reports/2010/pdf/SMRT_AR_2010_Financial_Report.pdf (page 174)
So if we were talking purely about recouping costs to run their bus services, they might have a case to raise bus fares. It just so happens that SMRT happens to run some other, more profitable divisions as well.
@La,
-Interestingly, although SMRT makes a profit of $162m, it’s worth noting that their bus division actually loses money ($1.94m this year, $4.886m last year). Most of their income comes from their rail operations, rental and advertising (in that order).
When SBS is not privatise in the early 80s, fare did not goes up as and when they like. But for the last ten years, they have hike after hike, why?
To answer your question on SMRT’s profitablity, they could also lose money because of inefficiency! Look at the Hong Kong Bus system was run by private operator but with OPEN COMPETITION, they don’t raise fare as and when they like because they can be out-competed.
Without competition, is our public transport system running efficiently? Our system now is no difference from a communist system but on monopoly fares!
Had the inefficiency of communist public transport service but the fare of monopoly businesses!
There is only two ways to it, open up the competition where there will be not government involvement(no state funds or subsidiaries of state funds involved) or goes back to Nationalising of Public Transportation!
I am baffled the response given by Lui Tuck Yew.
—
HE Ministry of Transport (MOT) has weighed in on expected fare hikes later this year, saying a process is already in place to ensure that transport operators do not maximise profits at commuters’ expense.
Transport Minister Lui Tuck Yew also rebutted a call by the opposition Workers’ Party (WP) to nationalise public transport.
In a Facebook post on Wednesday evening, he said such a move would likely result in taxpayers and commuters paying more for poorer service.
—-
How could public transport system be worse off if nationalized and why would it lead to a lack of “motivation” to the operators?
What happened to the government’s reowned KPI system that can be used to ensure that the operators remain efficient or improve their performances if public transport system is nationalized?
PAP must use the reserves to pay for the additional transport infrastructure. They added 2 million more people to the country. This also increase wear and tear. If PAP cannot reduce unemployment to 0% and increase wages. They will have to cough up more financial support.
Please break down all your statistics into original citizens, PR, new citizens, foreign talents etc. Please don’t fool the people, especially don’t fool yourself.
Let’s face the problem squarely. THe government has overspent the MRT projects and is in need of fund.
I strongly agree with the article. The arguments on how to manage public goods are plentiful & performed by professors far more wise than I’ll ever be.
Whilst there are risks in nationalised public transport (we shouldn’t dismiss it lightly), there will be a tipping point when the benefits of nationalisation will outweigh privatisation.
Hi Mr Khamis,
Why is my post awaiting moderation since 15th July?
@TS Lim
Let’s face the problem squarely. THe government has overspent the MRT projects and is in need of fund.
……………..
Don’t forget that the MRT projects are making lots of profits for the government.
The lands near all the MRT stations had appreciated by tens of billions that there is no difficulty whatsoever for the government to pay for transportation facilities to lower bus and MRT fares.
It is just that it is too greedy to make more monies for their own extravagant spending on their own benefits and retirements that people are suffering so much.
TS Lim, 18 July 2011
“Let’s face the problem squarely. THe government has overspent the MRT projects and is in need of fund.”
eh, you mean they din overspend by paying themselves too much? i am not refering to those in rank-&-file positions.
like our ministers who dun dare to face their over-the-top salaries squarely, so have to taichi to someone else to decide how much to reduce? but when paying hefty bonuses & wage increase, they never seem any embarrassed about it.
Good analysis by the TOC and WP team and I agree that as a public good, public transport should have some socialist price control mechanism.
http://www.smrt.com.sg/investors/annual_reports.asp
http://www.sbstransit.com.sg/generalinfo/financial.aspx?year=2010
I will like to add that if public transport is brought under a single body, there will be costs savings.
If you look at the annual reports for both SMRT and SBS, you will see that SMRT profit margin is around 18%! That is excessive so I will say no to a price increase.
However SBS margin is only 7%. If they face a reported 5% increase in costs, they are cutting a little too close to the bottomline.
The point is if these 2 companies are both public transport operators, why must SBS bare the burden of relatively higher costs structure as a bus operator as opposed to SMRT which is also a train operator.
If they are running as a single body, the relatively lower costs of train operations can offset those of bus operations.
I think that profits should be pegged to a predefined margin, say between 5-10%. While taking into account variables like median household income.
This single entity can still be privately owned and floated on the stock exchange, no problem. (I think the relative solidarity of a public good will attract investors as well)
But the government will need to have a task force that also monitors the efficiency and productivity gains of the company as well as service standards.
This way, the company will be pressurised to try and make productivity gains instead of raising prices once the 5-10% margin is breached.
Good analysis by the TOC and WP team and I agree that as a public good, public transport should have some socialist price control mechanism.
I will like to add that if public transport is brought under a single body, there will be costs savings.
If you look at the annual reports for both SMRT and SBS, you will see that SMRT profit margin is around 18%! That is excessive so I will say no to a price increase.
However SBS margin is only 7%. If they face a reported 5% increase in costs, they are cutting a little too close to the bottomline.
The point is if these 2 companies are both public transport operators, why must SBS bare the burden of relatively higher costs structure as a bus operator as opposed to SMRT which is also a train operator.
If they are running as a single body, the relatively lower costs of train operations can offset those of bus operations.
I think that profits should be pegged to a predefined margin, say between 5-10%. While taking into account variables like median household income.
This single entity can still be privately owned and floated on the stock exchange, no problem. (I think the relative solidarity of a public good will attract investors as well)
But the government will need to have a task force that also monitors the efficiency and productivity gains of the company as well as service standards.
This way, the company will be pressurised to try and make productivity gains instead of raising prices once the 5-10% margin is breached.
Hi Mr Khamis,
Ok got the post up. Apparently I am not supposed to attach any external links to the blog.
Those links were for the annual report of SBS and SMRT.
did the increase in population actually translated to more profits for the public tranport operators?
its hard to see how a more crowded public transport does not benefit from the economies of scale. higher the ridership, the more money is made.
@mice is nice
This is true for SMRT since train operation could absorb much greater capacity.
But for SBS the increase in population gives them additive benefits, nothing exponential.
Their revenue is based on the number of buses they can put out and the number of full loads they can achieve.
This can be a tricky prospect as we citizens would surely want SBS to ply low traffic roads and times.
But SBS, as a profit driven company will be reluctant to do so as they will lose money if they do so. However, they are forced to do so since they are selling a public good. But they definitely still hold back I think.
This is seen by SMRT making 3 times more $$ than SBS despite having similar costs.
SBS is now under much more pressure compared to SMRT, their margin is 7%, and if LTY is politically smart he will deny the operators fare hikes to keep the populace happy.
This means that SBS will have to find creative ways to work around the current cost pressures.
Nationalising our transport system? Is it not taking a step back? Countries are privatising and here you want us to go back in time? Before you question the $162million in profit have you any clue how much is attributed to proceeds from transport fare? Why are you guys barking on the wrong tree. I know there are certain parties whom seem to want to cash in on the falacy of our transport system. As one who have lived abroad I must say Singapore public transport is world class. You may think otherwise. One cannot compare other public services that cannot go private..and thus have to be government funded. Our transport system has to for it to be kept new, updated. The transport company need to make a profit to fund new purchases, new transport routes, new buses and trains… perhaps hybrids or full electric in the future instead of depending on the government. So guys before you start to debate… GET THE TRUE PICTURE and not what opposition wants you to hear.
Black Hei, 19 July 2011
i can understand where you are coming from, i agree that bus operators do not enjoy the exclusiveness & advantages of the rail network.
trains travel exclusively on rails, that alone makes it immune to traffic accidents, vehicular traffic volumes & road conditions, etc. an idle bus wastes fuel being stuck in a traffic jam that may have been a result of road closures due to accidents, peak hour jams, or floods.
maybe SBS can sue PUB for the floods if any of their buses were damaged? or needed to be diverted? i dun see how loses due to lose of ridership cannot be calculated based on time of day, so surely loses can be qualified. good idea?
sorry SMRT/NEL/Circle Lime, our train network is flood proof, so you all cannot claim compensation or sue PUB ah. i got another idea, but will hold on 1st.
:P
bengonyourbuck,
if its so world class, why cant it cannot even sustain its own operations?
i cannot picture the image of a train or bus on crutches, can you?
@bengonyourbuck19
I agree with you but lets actually do it and not just call it ‘privatisation’.
Are private companies immune from loss?
Are private company protected from competition?
And in case you missed it, Temasek practically owns SMRT. Still private?
GET THE TRUE PICTURE and not just what the govt wants you to hear.
@mice is nice
I have done some further research and I am beginning to understand where SMRT is coming from.
If you look up the financial highlights in the SMRT website, you will see a 13% increase in costs in 1st Quater 2011 compared to 2010.
Comparitively, revenue increased by 9% in the same period. In other words for some reason, cost is outpacing revenue.
Another interesting facet is that operating expenses for SMRT spike in the 4th quater. Margin for SMRT last year was only 8% in the 4th quater. The P/L was balanced out by the strong performance in the 1st and 2nd quater of 2010, 23% margin.
What this means is that something needs to be done. A merger like what WP suggests will bring costs savings in the middle to long term. This is especially so since manpower costs is around 40% of total expenses.
In the short term, I am not sure if anything can be done other than asking the 2 companies to bite the bullet.
The costs of running transport operations is so much our National Revenue of 48 Billion cannot even begin to be of help.
Correction to my earlier post. The gov can help the transport companies as their costs are 0.7 billion, so it is feasible.
Black Hei,
thanks for your effort in researching, but i have an idea, not sure can work anot but i am holding back cos this govt always claim credit & only reward themselves.
there is 1 thing that can be done, & maybe no sugar will ever sweeten the bitter pill enough. & the pill will not be served to the people who have been swallowing bitter pills for the last 2 decades. they have had enough & they (actually its me & all S’poreans lah) deserve better.
not,
S’poreans 1st*… after Tom, Dick & Harry ***, lol…
@mice is nice
Not unfeasible at all. A new gov will have a cleaner slate than new ministers.
The new gov will be popular as well and will be able to get backing for their policies.
The current PAP is met with so much skepticism they are unable to unite the nation even if they come up with something good anyway.
Black Hei, 22 July 2011
eh, my mind wasn’t even thinking in the feasible-vs-unfeasible train of thought. lol.
new ministers inducted do not break the PAP mould simply because that’s how they get to be where they are. the selection process probably already rid those who do not share the party’s idealogy.
i realise 1 thing, & its the opening of the ground for feedback, while not necessarily a bad thing, but they did say they where chosen on merit, it would be odd to run out of steam from the start. hence, the scepticism?
feasibility? S’poreans gotta learn how & when break out of the confines of moulds & really think out-of-the-box.
“is it feasible?” that to me isn’t the right question at all.
@mice is nice
I have given this issue on alternative government much thought.
As you probably already know, among the opposition parties I am supportive of WP and SPP because I believe they are genuine and so far their politicking has been responsible. They are also the most “popular” opposition parties as seen by the number of seats won (including NCMP)
However, WP and SPP alone do not have the numbers to form a gov yet.
So the likely scenarios are:-
1. WP and SPP forms a coalition gov with PAP
2. A coalition gov with other opposition parties with WP and SPP forming the majority.
Here is where things get tricky. The fanboy netizens think that opposition party leaders are heroic larger than life characters as depicted by Mr Brown’s Star Wars parody.
However, once WP and SPP gets into a position of power, the rest of the partisan groups will go into overdrive pressuring them to do silly but “popular” changes. E.g. liquidating GIC and Temasek. YES, that was a suggestion mooted by SDP’s CSJ. OR reducing NS liabilities without a robust analysis on how this will effect our security situation (proposed by NSP, SDP and RP. KJ flippantly compared SG with Switzerland!)
If WP and SPP fail to do as proposed, they will be labelled as “traitors” or “sell-out” by the rest who are not in power simply because they are not DIFFERENT from the PAP enough. A catchy and much used political slogan is “so what is the difference? where are the changes promised?”
This WILL happen because the political ideologies of WP and SPP are very different from NSP, SDP and RP. Also, these parties have political aspirations of their own, now that WP and SPP are in an enviable position of power instead of themselves, WP and SPP will become the next target.
PAP is the boogey man that is keeping the opposition parties in an uncomfortable alliance. That is unhealthy for the political scence. By doing that any opposition that comes into power will come on a wave of anti-PAP sentiment; their own identity is drowned out. Thus voters will not know what they voted for, only what they voted against.
For the sake of Singapore, political parties need to start focusing on their own identities and build awareness of what they stand for. And if they are brave, to differentiate themselves from one another.
That way when they get voted into power, Singaporeans will know exactly what they voted for.
Black Hei,
woh, hold ur horses… i was just thinking about buying back the public transport with the National Reserves. desperate times calls for desperate measures, buying back may really make some elites look really bad, but no pain no gain. this is the 1 bitter pill (1 step backwards), that may well be needed to make stepping forward possible.
as for a coalition govt, what the laternative parties need is a balanced & transparent media. the media’s role is to put out information without fear or favour- this to me is one of the tricky part.
alternative parties must not fear being seen as being similiar to PAP, they must know they are not fighting for fighting’s sake, but to serve the country & its people. they should never be fear adopting policies that are good. the problem is educating the masses why some things remain. there cannot be room for critics to label the “selling” of policy as a spin.
some policies have longer lifespan then others, some only need minor tweeks, some need more changes, & others need to go. they should not focus on being different from PAP, they ought to focus on being better than PAP. the better team, not the other team. people may get the idea there always is another team & all r different. strive to be better.
on being different, IMPO, the obvious would be party logo. why the star & 4-circles? are they Audi & Caltex ripoffs? lol… keep it simple.