Transport minister Khaw Boon Wan lists benefits of LTA’s $1b take over of SMRT’s rail assets

Transport Minister Khaw Boon Wan opening the media briefing on July 12.
Transport Minister Khaw Boon Wan opening the media briefing on July 12. ST PHOTO: KEVIN LIM

Commuters will benefit from increased rail reliability and reduced crowding, he says

Transport Minister Khaw Boon Wan believes the new rail financing framework will benefit commuters.

"It will allow the Land Transport Authority (LTA) to add trains to respond more quickly to demand, and to replace and upgrade existing rail assets in a more timely manner," he said.

"This should achieve the twin objectives of raising rail reliability and reducing crowdedness."

Mr Khaw noted that the new framework was first implemented for SBS Transit's Downtown Line.

"We now look forward to its extension to all the SMRT train lines," he said, adding: "The new rail financing framework will benefit commuters."

Mr Sitoh Yih Pin, chairman of the Government Parliamentary Committee for Transport, concurs. He said the operator will be able to focus on service to commuters and maintenance of the rail system.


"There will be no more large capital expenditures for the operator," he said.

Mr Sitoh added that the new format also paves the way for "greater contestability".

"The reduction of the licence period to 15 years will hopefully translate to more competition, improved service levels and cost-efficiency," he said.

In a Facebook post, National Transport Workers' Union executive secretary Melvin Yong said the union will study the new arrangement "in greater detail to assess its implications on our rail workers".

"We will continue to work closely with LTA and SMRT to ensure that our workers' interests and welfare are taken care of," he added.

SIM University senior lecturer Park Byung Joon said the new framework translates to "more public funding and accountability".

"The responsibility to invest in assets to improve the system now lies with the Government," he said.

"Although there is no guarantee that this will lead to better service, there is no reason to doubt that it won't," he added.

National University of Singapore transport researcher Lee Der- Horng said: "I think commuters will benefit if it all goes as planned. Hopefully, the operator can focus more on operations, and the Government can make the right judgment on the upgrade and renewal of the system.

"In a way, it is like getting the best of both worlds."

Professor Lee, however, said he was surprised that SMRT was willing to settle for a substantially thinner profit margin in the new framework.

SMRT is expected to get an Ebit (earnings before interest and taxes) margin of 5 per cent on average, compared with the more than 15 per cent it has been getting on average in the last five years.

DBS Equity Research senior vice-president Andy Sim said that may not necessarily be a bad thing.

He said that as "compensation", SMRT is "released from capital expenditure, which is a positive".

"This will lead to more stable financials going forward," he said. "But we will have to examine the details more closely to have a better idea of the exact impact."

The analyst also said SMRT's statement on not distributing the proceeds of the asset sale - more than $1 billion - to shareholders in the form of a special dividend is "somewhat of a disappointment".

Mr Sim's last recommendation for the stock, put out in April, was "hold", with a target price of $1.53. Yesterday, SMRT hit $1.54 before trading was suspended at noon.

A version of this article appeared in the print edition of The Straits Times on July 16, 2016, with the headline 'Khaw lists benefits of new financing model'. Print Edition | Subscribe