More fine-tuning needed on LTA-SMRT deal

The Government has agreed to take over rail operator SMRT's rail assets for about $1 billion ("LTA to take over rail assets in move to improve service"; July 16).

While this is a step towards better rail reliability here, it seems that there needs to be some fine-tuning done on the structure of the deal.

It was reported that the Land Transport Authority would own and make decisions on the building up, replacement and upgrading, while SMRT remains responsible for maintenance.

Does this mean that if SMRT requires a part to be replaced, it will have to arrange with the LTA to get the job done? This seems like double work.

I hope maintenance will gradually be taken over by the LTA because, as Transport Minister Khaw Boon Wan has said, "creating an excellent rail system requires an integrated approach, from design to construction, actual operations and maintenance" ("LTA must be ready to take over MRT ops: Khaw"; Dec 5, 2015).

It was also reported that the authorities wanted SMRT to have "some skin in the game".

But the LTA would levy a licensing fee that is flexible to allow SMRT an average Ebit (earnings before interest and taxes) margin of 5 per cent.

There does not seem to be an incentive for SMRT to do well or attract more riders.

An increase in ridership, giving higher revenue, would translate to a higher licensing fee, while a decrease in ridership would reduce licensing fees.

In fact, some factors to attract more riders - higher train frequencies and fewer breakdowns - would depend more on the LTA rather than SMRT.

Perhaps the bus contracting model would be better in this case.

Rail is also only one part of SMRT's range of businesses. Does the 5 per cent Ebit cover its other businesses, such as taxi, public bus and engineering services?

It is not good for a business if its Ebit margin is stuck at 5 per cent, with no space to outperform.

Ng Chee Siang