The Straits Times says

Putting rail operations on right track

Questions will naturally arise in the public's mind about the Government's $1 billion purchase of rail operator SMRT's assets - an aspect of public transport arrangements that has gone full circle over the years. The first MRT lines were built and run by the state some three decades ago, before the operating of the systems was privatised for the sake of achieving greater efficiency. The move does not come as a surprise, of course, as the new rail financing framework was adopted by the Land Transport Authority six years ago and negotiations - described as intricate and complex - lasted over four years. The sale price is objective enough, based as it is on the net book value (cost after depreciation) of trains, signalling system and equipment for power, rail grinding, fire protection and other services - over 60,000 operating asset items. But other considerations, like sharing risks between the Government and the contractor, might not be easy for laymen to grasp.

Ideally, one would hope for self-sustaining means of providing vital services that affect the entire economy, without having to constantly turn to the banker of last resort - the Government. Just as there is merit in tapping the ingenuity of private operators to keep a system humming at a competitive cost, the nation should be able to harness private capital to renew assets. Hong Kong's MTR, regarded as the "gold standard for transit management worldwide" by some experts, has been able to expand its network largely on its own by being allowed to reap part of the benefits of property-value gains in areas served by new lines.

SMRT has to set aside part of its earnings for reinvestment in operating assets as well. But limits on fare increases set by the Public Transport Council and pressures of meeting shareholders' demands have contributed to spending constraints that have impacted services. Last year, for example, saw 29 major rail disruptions - over three times more than those experienced by Hong Kong commuters travelling on an older, longer and busier system. It is to address reliability and higher service standards that the new rail financing model has been put in place. By taking ownership of all rail assets, the LTA will be able to "build up, replace and upgrade the assets in a timely manner", said the Government.

This is not a perfect solution, given the risk of taxpayers bearing ever-rising costs if demands for more services and lower fares grow without regard for financial sustainability. The other risk of being left in the lurch when contractors fail would be also unbearable, as a hub city must be kept on the move. Nationalisation is not the answer. That would mean having the state operate all rail services itself, when it should be maintaining the larger perspective and effectively ensuring private operators are on top of their game.

A version of this article appeared in the print edition of The Straits Times on July 23, 2016, with the headline 'Putting rail operations on right track'. Print Edition | Subscribe