Government steering bus industry towards overhaul

Likely contracts model to ensure standards and profitability

Public transport fares have not been adjusted in the last two years, leading to pain for operators.
Public transport fares have not been adjusted in the last two years, leading to pain for operators. ST PHOTO: ASHLEIGH SIM

Transport operators are prepared for an overhaul of the public bus industry, even as the Government deliberates on the exact changes to be adopted.

At stake is the current system, where the two publicly listed players - SMRT and SBS Transit - buy buses and collect fares that are set by the Public Transport Council.

It is expected to be replaced by a contracts model, where operators - quite possibly more than two - bid for route parcels tendered out by the Government. This system gives operators the certainty of profit margins, while the state collects fare revenue and hands out concessions to commuters as it sees fit.

SMRT chief executive Desmond Kuek said his company is "ready and prepared" for the new model, which he described as "more sustainable" than the current structure, in which operators try to meet rising service standards and yet face a cap on fares.

Public transport fares have not been adjusted in the last two years. This has contributed to bus operation losses for the two companies. For SMRT, its bus losses widened to $14.6 million for the first half, ended Sept 30, from $11.8 million for the same period last year.

SBS Transit, which already has operations in countries where a contracts model is used, is also in favour.

"Our experience in the United Kingdom and Australia, where we tender for routes, has been very positive," said spokesman Tammy Tan. "The Government collects the fare revenue and pays the operator for running the services. Operators are given a set of key performance indicators... and if these are achieved, bonuses are given. If they are not, penalties are imposed.

"As an operator, you are generally assured of a certain rate of return instead of being exposed to revenue risk."

The Government has taken tentative steps towards the new structure. It has forked out $1.1 billion to buy 550 additional buses, and will pay for their operating costs over 10 years.

It is also tendering out over a dozen fixed routes - a mix of express and feeder services.

The first one, from Jurong West to the city, was clinched by ComfortDelGro Bus - a subsidiary of transport giant ComfortDelGro Corp, which owns 75 per cent of SBS Transit.

But the Government is taking a slow and careful approach before extending the contracts model to the whole industry.

While the Transport Ministry said it had no updates on this yesterday, Transport Minister Lui Tuck Yew had indicated in March that a switch - at least in part - should be done before the current contracts of the two companies run out in 2016.

Government Parliamentary Committee for Transport chairman Cedric Foo is in favour of a contracts model, which introduces more contestability into the market.

"The market is big enough for more than two players," he said. "But you need to have a central body to own the buses, and lease them out to winning bidders."

He said having more competition is the only way to drive efficiency and for the market to discover the best prices for a set of services.

Join ST's WhatsApp Channel and get the latest news and must-reads.