Improving the lot of commuters, operators


IT IS all too easy to deride the current bus operating model as a failure when we are presented with an all-new system that everyone - from investors to political commentators - is hailing as the best thing since sliced bread.

But the soon-to-be-replaced "regulated franchise" model has in fact served us fairly well.

In it, SBS Transit and SMRT have to meet the Public Transport Council's universal service obligation, which states that everyone should have a bus service within 400m, even if the service is unprofitable.

The two operators do not receive upfront subsidies, but are exempted from levies such as Certificate of Entitlement, Additional Registration Fee and diesel duty.

They almost always get annual fare increases, but have to set aside sizeable budgets for asset replacement. The profit motive keeps them efficient.

The operating model however, has one fatal flaw: as service standards rise (which they have in recent years), profits dive.

SMRT reported a loss of $28.4 million for its bus business last year, while SBS Transit posted a bus loss of $4.7 million for the first quarter of this year.

Taken to its logical conclusion, there will eventually be no incentive for the companies to continue the bus business.

In the new arrangement, the Government assumes ownership of operating assets such as buses and depots, freeing the operators from lumpy depreciation and capital expenditure patterns.

Operators bid for route parcels in a competitive tender, while fare revenue is handed over to the Government. This allows operators to meet service standards without having to worry about fares.

The new order also allows Singapore to discover the "right price" for its public bus service through real competition.

The flip side is that it entails Government subsidies - foreseeably, quite a lot.

In London, bus subsidies grew from £41 million (S$86.5 million), 6.5 per cent of the cost of contracts awarded, in 1999/2000, to £653 million, 40 per cent of the contracts' cost, in 2007/2008, according to a report by KPMG.

This however, is an unavoidable trade-off in the new regime. If we want public transport commuters to enjoy good service, and the bus business to be reasonably attractive to private companies - taxpayers have to chip in.

There is no other way. Or so it seems.

Truth is, there are alternatives.

Nationalisation is one, naturally. But it would require the Government to take over SBS Transit and SMRT entirely, and delist them. It would still entail tax spendings, but with less assurance of the efficiency that usually comes with competition. Also, such a drastic move might unnerve the investment community.

On the other hand, such a model will serve only one master (the public), as shareholders will no longer be part of the equation. At the opposite end of the spectrum is the fully privatised model. That will be hugely attractive to operators and their shareholders, but only at the commuter's expense.

There is one other option, however, which does not require us to reinvent the wheel.

It involves packaging the current bus, train and taxi operating licences into one, with service standards - as well as rewards and penalties - clearly spelt out for each transport mode.

This way, the highly profitable taxi business can cross-subsidise the low-margin bus operation.

The trouble is that the two operators are not evenly matched in the three businesses. And hence there will not be any real competition to extract the best efficiency from either of them.

The two could merge to form a transport giant that enjoys vast economies of scale. But "monopoly" is a dirty word no one wants to utter. So, on balance, the service contract model which we are moving towards may be the best compromise. After all, cities in Scandinavia, Britain, South America and Australia have applied it with reasonable success.

It will involve higher costs, which will have to be borne by taxpayers, and quite possibly, commuters as well. The question is, will service be much better?

The Land Transport Authority says that in the new regime, buses will arrive at each bus stop at intervals of no more than 15 minutes during morning and evening peak hours. Today, they are supposed to do so within 30 minutes.

But will there be special exemptions, like those that exist today?

For instance, despite the so-called universal service obligation, there are no buses serving the Kranji countryside, nor the farms in Lim Chu Kang and Pasir Ris. And one serving Mount Faber has recently ceased.

True, demand in these areas may be too low to warrant services with full-sized buses. But what about mini-buses, which have served Hong Kong well?

Also, will we have a bus timetable that operators have to adhere to strictly, which is the case in many developed cities?

Trains may not need timetables because of their high service frequency, but if buses are to call at each stop every 10 to 15 minutes, surely a reliable timetable will help commuters to plan their journeys (including transfers)?

Transforming the current bus system to the new one islandwide will take close to 10 years. In the meantime, it is crucial that commuters are shielded from the inevitable transitional pains as much as possible.

Invariably, the shift will involve route changes. And certain districts which are converted first may have bus services from other areas, which are still under the current system, plying through them.

The Land Transport Authority has indicated that it intends to have one common colour and livery scheme for buses, like in London. This would be wise, as it would minimise confusion among commuters, especially newcomers or those who do not take buses regularly. Also, it will avoid a new operator having to respray its vehicles when its takes over from another, which is unnecessarily wasteful. And during the transition years, will fares remain uniform? Or will buses under the contracting regime have different fares from others?

If so, this may present itself as a test case, to see if commuters are willing to pay more for better service - assuming service is indeed going to be better.