Downtown Line to shift to new financing framework from January

From next January, the Downtown Line (DTL) will shift to a financing framework that will see the Government shoulder part of any losses made by operator SBS Transit and get a greater share of the profits.

This will bring the DTL in line with the majority of Singapore's other rail lines, except for the new Thomson-East Coast Line, which has a model where the Government collects the fares and bears the full revenue risk.

The Land Transport Authority (LTA) and SBS Transit had reviewed the DTL's financing model to ensure it could continue to deliver reliable train services in a financially sustainable manner.

Several factors prompted the review - the first was rising costs due to higher reliability standards and the expansion of the rail network.

This was coupled with a pronounced dip in ridership due to the Covid-19 pandemic and an expected shift in commuting patterns resulting from flexible work arrangements. Last year, average daily ridership for the DTL fell by 46 per cent to 257,000 trips.

LTA said yesterday that the DTL was the first rail line placed on version one of the New Rail Financing Framework (NRFF) in 2011.

Under the first two versions of this framework, the operator collects fare revenue from commuters and pays the Government a licence fee to use operating assets such as the trains and signalling system.

Under the first version, the operator bears significant commercial risk as there is no mechanism for the co-sharing of losses, LTA said.

With the second version of the NRFF - introduced in 2016 - the LTA shares some of the shortfall in fare revenue should ridership fall below expectations.

Conversely, if profits exceed expectations, the LTA gets a greater share through increased licence fees paid by the operator. These fees are channelled into a fund used to renew operating assets.

This mechanism also effectively caps the operator's profit margins.

In a statement yesterday, SBS Transit said the change in financing model for the DTL will reduce commercial volatility for the company.

"The new licence framework is certainly a more sustainable model for the group's rail operations and will enable us to focus on the operations and maintenance of the rail systems," said SBS Transit chief executive Cheng Siak Kian.

SBS Transit will be given a single 11-year licence to operate all three of its rail lines - the DTL, the North East Line and the Sengkang-Punggol LRT - under version two of the NRFF.

As part of this transition, SBS Transit must hand over its rail advertising business to the LTA from 2024, and may need to pay a fee to continue operating the advertising business after that.

Meanwhile, five of SBS Transit's bus contracts - Bedok, Tampines, Serangoon-Eunos, Clementi and Bishan-Toa Payoh - will be extended by an average of three years but will have lower service fees.

The revised fee was benchmarked against recent bus tender prices, which have fallen by about 15 per cent, said LTA.

It added that these arrangements will help to preserve the balance in costs incurred by SBS Transit and the Government due to the change in the DTL's financing model.

Transport economist Walter Theseira said ridership on the 42km-long DTL has fallen short of initial forecasts and Covid-19 only made it worse. The DTL was projected to have a daily ridership of about 500,000 after it was fully opened.

Said Associate Professor Theseira: "If the ridership doesn't materialise, you cannot run these services at an operating profit."