The operator of the upcoming Thomson-East Coast Line (TEL) will be the first to run a rail service under a contract similar to the model recently introduced for buses.
The successful bidder will operate the new line for a fixed sum over a fixed period, while the Government collects fare revenue, the Land Transport Authority (LTA) said yesterday. This is identical to the bus contracting model, which was rolled out just last year.
The first ridership contract for TEL will be for a period of nine years, with a possible extension of two. Only the existing rail operators, SMRT Trains and SBS Transit, which are familiar with the local operating context, will be invited to participate in the tender in the first quarter of next year, said LTA.
Although the industry is transitioning to the new rail financing framework (NRFF), LTA has chosen to initially depart from that model in the case of the TEL. Under NRFF, the State takes over the ownership of all fixed and operating assets, while the operators maintain and run the lines, pay a licence charge and earn revenues.
LTA has decided to make an exception in the case of TEL, which it described as the "most complex rail project to date". It said the line, set to be completed by 2024, is being built along with "multiple other projects", such as an interchange with the future Johor Baru-Singapore Rapid Transit System on its northern end, and new connections to Changi Airport on its east.
It added that the line will open in five stages over several years from 2019, and projection of ridership in the initial years will be "much more uncertain and challenging than earlier train lines". Given these risks, a tender under the NRFF might result in bids that are "unfavourable to the Government", said LTA.
After the first licence for TEL expires, ridership figures would have stabilised, and LTA will "revert to the NRFF for subsequent tenders".
SMRT Trains managing director Lee Ling Wee said the firm "welcomes LTA's decision to call for a limited tender to operate the new TEL".
SBS Transit spokesman Tammy Tan said "we will assess the tender as we do all competitive bids".
SIM University economist Walter Theseira said: "The past model of having for-profit private operators responsible for fare-based profit and loss worked well to concentrate the operators' minds on efficiency. Unfortunately, too much concentration on efficiency, coupled with tight margins due to fare regulation, led to compromises.
"Today's public transport model has swung decisively in the direction of focusing on reliability and quality - but will efficiency be compromised?"
He said this was possible as the Government will now assume revenue risk for the line - the first time it is doing so for a rail contract.
"Commuters will benefit from today's renewed emphasis on quality, but taxpayers may yet pay the cost for this," he noted.