The Straits Times
Published on Dec 17, 2012

Will it lead to a moral hazard?


TRANSPORT Minister Lui Tuck Yew's recent comments ("Higher bus costs to be shared: Lui"; last Friday) on getting the Government and commuters to shoulder a part of the increasing operating costs of public transport operators (PTOs) seem to run counter to the nature of a privately run business.

Government funds are derived from the tax-paying public. Neither tax payers nor commuters should be made to subsidise the capital expenditure of privately run corporations when their subsequent revenue and profits are passed on to shareholders.

At its root, such an arrangement may lead to a moral hazard by socialising losses and privatising gains.

Perhaps it is timely to review our experiment with privatisation and question its underlying assumptions.

The common assertion - that letting both SMRT and SBS Transit remain privately run would allow for greater efficiencies - seems to have little empirical support.

SMRT has had troubles with its core business of the rail system while SBS Transit has not performed up to expectations, with buses that are frequently overcrowded and do not arrive on time.

It was also envisioned that these two privately operated companies would compete with one another in a free market and produce a better variety and quality of services.

However, commuters have little opportunity to exercise their discretion and choice due to the very nature of public transport.

For instance, an individual travelling from Orchard to Woodlands has only SMRT's North-South Line to rely upon, unless he is willing to endure making transfers on SBS Transit's buses.

The reality is that the public transport industry is largely monopolistic, with SBS Transit dominating the bus services and SMRT the rail system.

Affordable and efficient public transport is unquestionably a public good. Yet, recent incidents have cast doubts on the ability of the PTOs to adequately provide such essential services and serve the public interest.

PTOs may well need a stronger mandate to be imposed upon them for the sake of the greater public good.

Singapore's small geographic size and high urban density could be leveraged, together with our civil service and statutory boards' legacy of minimising waste, to allow for re-nationalised PTOs that are neither bloated nor bureaucratically inefficient.

Veerababu Kalaiselvan