Transport Minister Raymond Lim said yesterday at a visit to the Circle Line's Kim Chuan Depot that transport companies will have to 'compete for the right to operate rail services'.

But once they win that right, they will 'have to meet service obligations or risk being replaced at the end of their term', he said.

The Government plans to enhance 'contestability' by shortening the tenure of operating licences to 10 to 15 years, from the current 30.

It cited Melbourne, Manchester and Dublin as cities which also award relatively short contestable rail contracts.

Mr Lim clarified, however, that contracts already awarded and those in force would not have their tenures shortened unless there was 'mutual agreement' on both sides.

He added: 'You can't do it the other way because ... this is the reputation of the Singapore Government - if we've given you this for 30 years, then you have it for 30 years.'

Industry observers and analysts said if existing contracts were cut short, the Government would probably compensate the operator - just as SingTel was paid $1.5 billion when its monopoly was ended in 2000, seven years ahead of deadline.

The downside to letting existing lengthy contracts run their course is that rail liberalisation will be a long time coming.

SMRT's current contracts for the North-South and East-West lines run till 2028; its contract for the Circle Line is for 10 years, but has not commenced. Elsewhere, SBS Transit's contract for the North-East Line is till 2033.

New lines not yet awarded are the Downtown Line and the just-announced Thomson and Eastern Region lines. The first among these to be completed will be the first stage of the Downtown Line, scheduled for 2013.

No time frame has been drawn up for stepping up competition, but some industry observers think it will be sooner rather than later.

ABN Amro analyst Fera Wirawan, for example, expects it to be implemented in about a year, with the change to be more positive for ComfortDelGro, the smaller rail operator here.

But head of the Government Parliamentary Committee (GPC) for Transport Cedric Foo said current operators may not necessarily be worse off:

'If you're going to spend $40 billion and double the rail network, you can create a second SMRT.'

ComfortDelGro chief executive Kua Hong Pak was also sanguine: 'The introduction of contestability in the rail sector will serve commuters well and give operators room to grow.'

He said, however, that he would wait for details before deciding on bidding.

SMRT president Saw Phaik Hwa said she could not say how the change would affect SMRT because details were not available, but added that SMRT was 'well equipped and well positioned to be extremely competitive' as a bidder.

JP Morgan analyst James Tan said the opening up of the market 'could entail a margin squeeze for current operators'.

He also said that it would be especially negative if the Government decided to own all operating assets, a move that would effectively remove the high capital outlay as a barrier to entry into the business.

Competition however, will be positive for the public, said MP for Marine Parade GRC Seah Kian Peng.

'What's important to the commuter is that there's better efficiency and there's a possibility fares may be kept in check,' he said.

The Government is also reviewing the financing criteria for new lines.

Till now, new lines are built only if they are independently commercially viable.

But soon, they could be built as long as the viability of the entire network is intact - a move which 'potentially enables future new lines to be implemented a few years earlier' than previously, said Mr Lim.

The Transport GPC's Mr Foo, who mooted this in an interview with The Sunday Times last September, said it is the way to go because a new line brings more benefit to the community than just transit.