A plan for the Government to assume ownership of all rail assets is stuck in second gear, with stakeholders still struggling to come to an agreement almost six years after the policy shift was mooted.
At yesterday's post-results briefing, SMRT Corp chief executive Desmond Kuek said talks with the authorities on a transition to the so-called new rail financing framework is "progressing" - something which SMRT has been saying for at least eight quarters.
Mr Kuek added that when the move is complete "SMRT Trains will be asset-light" as all operating and fixed assets will be transferred to the Land Transport Authority (LTA).
SMRT will then pay the LTA for an operating licence. It will focus on meeting service standards in order to re-tender for operating contracts that last for about 15 years - instead of 30 today. Under such a model, an operator's focus is not diluted by concerns of hefty and lumpy capital expenditures for asset renewal. And the Government can replace a non-performing operator more easily instead of having to wait 30 years.
Asked when the transition would take place, Mr Kuek said he was not at liberty to divulge more - another frequent refrain.
So far, only the Downtown Line operated by SBS Transit falls within the new framework. But even that company has not yet converted its North-East Line contract, which is valid till 2033. SMRT's North- South and East-West line contract expires in 2028, while its Circle Line deal ends in 2019.
The Straits Times understands that most major issues have been resolved, and that the only ones remaining pertain to earnings accrued from non-transit operations but which are tied to transit.
These are namely rental of retail space in train stations, and revenue from advertisements on trains.
In the case of SMRT, the two account for three-quarters of its operating profit. It enjoys an operating margin of about 60 per cent for the pair, largely because it pays only a token rental to the Government for the stations.
Under the new regime, the Government is said to be looking at these fat margins when devising the operating licensing fee it will charge SMRT. This is so that the operator's future margins are more in line with the lower risks it assumes in an asset-light regime.
It is said that this probable formula is spooking some shareholders, who feel it will impact SMRT's earnings in the near term.
Research analyst Abhishek Nigam at stockbroking firm Nomura predicts SMRT's rail margin will be in the region of 5 per cent. That would translate to an operating profit of $34 million based on revenue for the year ended March 31.
That compares with last year's loss of nearly $10 million, if not for a tax writeback.
"It's better for SMRT to move to the new framework. It will help them with their cashflow quite a bit," Mr Nigam said. "I think it will happen, but the timing is uncertain."
