As a complex rail project that will be completed in stages from 2019 until 2024, the Thomson-East Coast Line (TEL) may not be profitable at the start, said industry experts.
Thus the move to run the TEL under a contractual model - in which the Government bears the revenue risk - will ensure the operator is focused on delivering a reliable train service for commuters, they added.
Yesterday, the Land Transport Authority (LTA) announced that it will be calling a limited tender - open only to existing operators SMRT and SBS Transit - in the first quarter of next year for the TEL. The winning tenderer will be paid a service fee to operate the TEL for a period of nine years, with a possible two-year extension.
Deputy chairman of the Government Parliamentary Committee for Transport, Mr Ang Hin Kee, called it a welcome move, adding: "When you remove the revenue risk, meeting the service standards becomes the focal point of an operator's ability to deliver."
LTA also said yesterday that it will pilot a new incentive-penalty framework as part of the tender, based on the operator's performance in the "key areas of service reliability, customer satisfaction and maintenance processes".
Similar frameworks have been used successfully by the British, Swedish and German rail authorities, LTA said, adding that it may extend this to other rail lines if it is effective.
Singapore Management University transport economist Terence Fan said: "The TEL is also going to be a very long line and the construction delays are anyone's guess."
He added that it was wise to open the tender to only the two incumbent operators, instead of opening it up to the market, as what was done with the public bus sector.
"There is less margin for error. If you look at the throughput of how many people you carry per train, it's much larger than buses. If a newcomer appears and there are more disruptions, it's not something the authorities want to stomach," he said.
SIM University senior lecturer Park Byung Joon expects the TEL not to be profitable in its initial stages, as the ridership will be small and the potential for retail development will be low.
When the first stage of the TEL is completed in 2019, there will be only three stations in the Woodlands area, and a year later, six more stations in the Thomson region. The remaining stations will be finished in three more batches between 2021 and 2024.
Dr Park said the new rail financing framework, which SMRT recently transitioned to, assumes that the rail operations will be profitable. Under it, both SMRT and the LTA share the revenue and cost risks.
"If the TEL is under that framework, the LTA will have to put in significant amounts of money to guarantee a certain percentage of the operator's returns," he said.