NCMP Gerald Giam has called for public transport to be nationalised and operated on a cost-recovery basis
By Lim Weiliang
Contributor
With public transport operators SMRT and SBS Transit pressing for a fare increase of 2.8% – the maximum allowed by the law – despite persistent complaints of overcrowding and worsening service standards, it is little wonder that Singaporeans are seething with rage.
With inflation continuing at a relentless pace while wages continue to remain stagnant, the last thing that Singapore needed was for public transport fares to go up – and that, too, so shortly after the General Election, during which the ruling PAP promised a more compassionate brand of government.
The furore was so intense that it quickly became political – with the opposition Workers’ Party reitierating its call for the formation of a nationalised public transport corporation. Non-Constituency MP Gerald Giam, who is also the WP’s media chief, argued that public transport should be operated on a cost-recovery basis in order to serve the public good. Currently, both SBS Transit and SMRT are public-listed companies, meaning that they are duty-bound to maximise shareholder returns.
Transport Minister Lui Tuck Yew replied that there were “serious downsides” to Mr Giam’s suggestion, arguing that nationalising public transport would lead to higher costs and poorer service standards. His rationale? The operators would have no incentive to cut costs, and over time, these costs would be passed on to the consumers. On the other hand, the profit incentive of the private enterprise model promotes efficiency and productivity.
Mr Lui, who conducted a widely-publicised personal audit of public transportation services last month, will have had first-hand experience of having to wait for up to 30 minutes before being able to board a bus. In fact, he even related his experiences on Facebook.
Transport Minister Lui Tuck Yew was photographed cramming into packed trains and buses last month
His arguments in favour of the profit incentive would have been relevant but for the fact that both SMRT and SBS Transit are monopolies. Commuters do not have a choice when it comes to public transport. If they are not satisfied with the service, complaining is just about all they can do – they have no other option.
With the monopoly structure in place, the operators have no incentive to improve their service standards – they merely need to do the bare minimum, while at the same time focusing on maximising their top and bottom lines. Apart from increasing fares, this can be done through advertising, which already accounts for a huge percentage of their operating revenues.
Without competition, the profit incentive does not encourage the operators to improve service standards. In fact, this state of affairs encourages the operators to focus on slashing costs, which often leads to worsening service standards.
This then leads us to another question: precisely how much profit is enough? SMRT reported profits of around $250 million last year, while SBS Transit made approximately $70 million. Shouldn’t this be enough to keep the shareholders happy and to pay out decent-sized bonuses to top management? Shouldn’t the companies be mindful of the fact that they are in the business of providing public transport? Of course not – the profit incentive means that profits should always be maximised: the more, the merrier. Even if SMRT made $500 million this year, it still wouldn’t stop them from trying to make more.
This is where the WP’s suggestion carries merit. By removing the profit incentive and reverting to a cost-recovery model, the emphasis can be shifted to improving service standards. Mr Lui’s comments on the problems that come with nationalisation are assumptions which reflect only the worst-case scenario. It is by no means a hard-and-fast rule that nationalisation guarantees higher costs and poorer service. After all, the vast majority of Singapore’s hospitals and schools were nationalised for many years; ironically, things only started getting out of hand when they were privatised.
Even if Mr Lui insists that privatisation is the only way forward, then the least he could do is allow for a more competitive business climate. We have seen how competition leads to better service in many industries and sectors. In fact, this extends even to politics – the increased competition brought about during the last General Election has resulted in a government that is keener to demonstrate that it is caring and compassionate. In Hong Kong, for example, there are several private bus and mini-bus operators competing for business from commuters, and this forces them to keep costs low while seeking to improve service standards at the same time.
Either nationalise public transport or fully liberalise the sector by shattering the monopoly that is currently enjoyed by the operators. With the current state of affairs, commuters are completely at the transport companies’ mercy, and are bound to get left with the short end of the stick.
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The author is currently a post-graduate student. He has a Bachelor’s degree in Economics and has also worked as an equities analyst in a multinational bank.
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To be reasonable,profit should depend on capital and risk.
For our transport operators,risk is about zero %,so what are the capital invested of the two companies?
For the current economic enviroment,a risk free return should be slightly above local fixed deposit rate which is also risk free.
The paid up capital of SMRT is $164 millions
Over the year,it made money,the reserve plus the accumulated profit is now $278 million
In financial year ending 31 March 2011,it made profit after tax of $161 millions
The passengers of SMRT who are mostly citizens of Singapore can decide what type of return on capital they can give to SMRT,a public service which operates on a rail network paid for by their tax money.
In short the return on equity invested and profit retained is 20%+. That is not including yearly dividends which run up to another 15%. That is the share price has run up by 300% in abt 15 yrs. Minimal risk, high return. If they tell me the prospect were so good, I wld hv sold my house and dump everything into smrt!
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Humble, I said earlier that PSA became a top port operator even when it was a stat board which means that a business can be well managed regardless of its ownership. Now you claim that we have different definitions of nationalised entities and seem to imply that stat boards are not 100% govt-owned entities.
Told you that Ausnet has defensive earnings attributes that make them similar as investment class but you said that it is not relevant. Even if you insist on a mrt to mrt comparison, SMRT is still double the ROA of HK’s MTR which is about 5%. But you still ignored the HK’s MTR comparison completely. I just want to reiterate that SMRT already has the world’s highest ROA even before the fare increase! Thanks largely to its duopoly status.
You said that there is no rampant poverty but I said that there is increasing strains on lower income families with cost increases in transportation, housing, food and education. You said good education won’t matter for guys like Clarence B Jones because they achieve what they achieve in life no matter what. Just have one more point to add on this topic – He said that the education that he received despite his background contributed greatly to the person that he became.
And if you truly believe in a free market system, then you must have competition and open up the transportation sector completely.
If you said privatising national transportation sector is equivalent to adopting communist ideals, then by extension you will be saying the world’s most pure capitalist country, America, is a communist country because the New York rail system is govt-owned and operated.
On your point on more taxes from profit maximisation to help the poor, I have this to say. Corporate tax has gone down from 26% to 17% currently. To make up for the revenue drop in corporate tax, GST went up to 7%. Guess what – GST is the only taxation where the poor is taxed!
If the ruling party and its supporters continue to ignore legitimate concerns of the average citizen, then the vote swing that we saw during the last election will continue. And based on this trend, it will mean that the ruling party will lose the majority in 2 elections. For me, this is a frightening prospect because the opposition is not ready to take over the running of the country, which means that the stability that we take for granted is not guaranteed.
We really need more people like George Yeo and Denise Phua who understands how the ground feel. Why Denise Phua? Because at least she recognises that the public transportation should be modified to a mixed private and public sector collaboration. And if we accept that this as the best way forward, a lot of ideas can then flow from how this idea can be implemented because Singaporeans can be quite creative.
Alternatively, we can continue to stick our heads in the sand like ostriches and pretend that Singaporeans will just stomach the latest round of increase without any consequence in the next election. Then LKY’s much feared “freak election result” might just occur!
AlienOnce,
So, the main takeaway from PSA is about leadership. Yes, leadership is important. But does nationalisation give a natural edge in terms of good leadership? If not, what’s the argument FOR nationalisation? And how about other aspects? Which tends to have more advantages?
There is a whole group of defensive stocks whose companies are diverse. It’s not fair to compare ROE/As over such a diverse range. Certain industries will outperform others more often than not. But nevertheless, the low performers still serve a purpose – diversification of risk.
Yes, TRTC is not attractive compared to SMRT. Does TRTC innovate for alternative revenues? Does TRTC go overseas? Any ideas how it finance new assets? Is it self-financing?
Transport is a natural monopoly, especially rail. Even if you open it to many operators, these will consolidate into one or two regional players in time for economic scale. This has happened elsewhere AFTER anti-trust actions – back to square one. The common idea of competition is not applicable to such industries. Regulation seems likely the main approach available and yet allow for enterprise.
The key question is – what is end-goal and form of nationalisation being visualised? (SMRT is already “nationalised” by virtue of Temasek. What further is being suggested then?) Also, what’s the objective? To totally remove the profit factor and hence risk losing innovation? PSA, Changi Airport, SIA can feel the heat of competition anytime, even way before corporatisation. But who’s making rail (anywhere in the world) sweat in their own tracks?
Apart from the extreme measure, what’s the alternative that can preserve enterprise? What do you think about regulation? Temasek will force the operator to maximise returns because after all the initial investment is inherited from past government assets. On the other hand, regulators will force the operator to work harder by capping on prices but still maintaining service qualities. The formula in regulation is open to change (though within realistic viable limits).
As for “communist”, it’s because you seem to unknowingly pit the poor and the haves sometimes in your discussions, especially the part when you mention meritocracy. I think that’s more aligned to communist ideas of class struggle than meritocracy or free enterprise.
I think whether it’s PAP or WP or whoever in government. They’ll need to make unpopular decisions in view of Singapore’s vulnerability and in the best interests of Singaporeans. PAP or any government needs to convince the people about that. Why tinker with big and intricately complex things like GDP and immigration and corporatisation? Isn’t it easier to maintain power and riches in other ways?
Hmmm … I orginally wanted to end with my last posting but since you ask some very intriguing questions in your latest posting, I feel a need to respond because I think that I have some views on the issues you raised.
Let me to start by addressing the communist issue first. Let me categorically state that I am NOT advocating communism because it is silly for anyone to suggest that communism is a good form of govt after seeing what is happening in North Korea.
But that does not mean that I “unknowingly pit the poor and the haves”. You see them as separate issues while I view public transportation as an essential service like public housing, where some form of govt support is required because it affects a lot of low income families. That’s why the reaction to the huge jump in COE prices is very muted compared to relatively small hike in public transportation fares. It also shows that Singaporeans can accept unpopular decisions like higher COEs that are in their best interests. But the public transportation fare increases is a different matter altogether and they find it quite hard to accept because
a. mrt is crowded meaning service is poor
b. SMRT already earn the highest return in the world for a rail operation in terms of ROA (your preferred measure).
c. the CEO is PERCEIVED to be making millions in annual compensation at their expense
I agree that rail transports are natural monopolies and it may not be efficient to have too much competition. Equally, monopolies are never known to be efficient or innovative because of the lack of competition. SMRT has operated as a private entity for many years but can you name me an innovation from SMRT which did not come from other operators abroad which may well be govt operated.
On the other hand, they are known more for exerting their monopoly powers to increase price. That’s why anti trust laws are created and using regulation alone has not helped to improve service levels or control prices in the past. What makes us think that it can in future.
To quote George Yeo in the last election, people are getting angry and they are angry with policies that do not seem to benefit them, especially when they see the less fortunate suffering a little bit more.
So something has to change and the same old argument that we have to make unpopular decisions in the best interests of the population is sounding more and more hollow. The ke question is what? What can be done to address the issues that you highlighted and the ones that i raised.
In my view, we must first recognise that public transportation cannot be treated like normal businesses that operate on the profit motive alone. Following from this, then the question is how do we do it in an affordable manner. That’s where Denise Phua’s suggestion that it should be private and public sector collaboration makes a lot of sense. Here’s some of the ways that her suggestions can be implemented
a. Temasek collects a dividend of abt $60m annually for the last 2 years and the amount of fare increase for SMRT amounts to about $20m based on my computation. Does it not make sense for Temasek to use $20m of the $60m dividend to keep fares at current level? SMRT continues to operate in the current form but one third of the dividend is given back to SMRT to bring down fares. Afterall, the taxpayers is the ultimate shareholders so this is one form are paying back dividend to the shareholder. For $20m a year, imagine how much goodwill it will generate?
b. The govt deliberately help the transport operators to earn higher rental income by giving them more lettable area at or near stations. This will compensate them for the lower fare revenue and commuter will get to shop on the way home. It is a win win situation.
There are many other ways to skin the cat but we must first be prepared to look at public transportation differently for us to start thinking laterally.
On the question of the country’s vulnerabilities, I would like to point out that we also face vulnerabilities are from within. What are these? Firstly our low birth rate which if not arrested will mean that our native population will drop by half in 30 to 40 years and secondly, a population that is increasingly angry at the government for not dealing with the cost of living issues such as transportation. Like I said previously, if PAP loses the majority because of this anger and the opposition is not ready to take over, no one knows how the political landscape will pan out. While we spend billions on defence, it makes no sense to be stingy on things that cost only tens of million that can help the less well off cope better with cost of living issues and win their hearts in the process. More so when other countries are already subsidising such services either directly or indirectly
Roger, AlienOnce. I concur that there are many ways to do things.
But rather than revamping the system, it’s better to take a closer look to understand its details first. Our transport is a regulated market. The keyword is regulated which is usually overlooked. It’s easier to investigate and tweak the regulation first before trying big changes. That’s the practical aspect.
Personal view, I also feel nationalisation isn’t efficient. Transport should/can be privatised with targeted subsidies. Then capital, public and private, will be tapped and utilised well. Quality and costs can be regulated, and regulation is the part open to discussion.
In my opinion, it’s best that everything is done this way up to the extent that the government of the day is still able to maintain some control (despite privatisation) on setting and steering the directions for the country’s development. Of course, probably transport is easier since it’s more “hardware” than “software”.
I’m not a politician. They’ll have win the people. Probably, they should exert greater pressure on the operators. And they must do that with more visibility. But I do pity the people working there somehow. The pressure will be high all the way down to the lower rung managers and crews. Hang on and innovate hard, guys.
About Temasek’s role of giving back, it’s a good idea too.
But instead of giving back to SMRT, it’ll be better to do it with more public fanfare. Sorry it’s so “wayang” but the world is realistic. Maybe set up a transport related fund for the needy and old?
Hmm.. maybe it’s even better that the operators themselves can pool together to do something like that.
Glad that we have some agreement that public transportation cannot operate purely on the profit motive. The key issue is how we can keep fares low by either direct or indirect subsidises (eg allowing them to build more retail space at the station for free).
I don’t have a strong view that a privatised entity is the best way to go because TRTC (a 100% govt owned entity) appears to be one of the best run rail operators. They are so good that even their arch rival, China, also send teams to learn from them. Go through their annual report and you will realise that the emphasis is on how many trains arrive on time, how many were delayed for more than 5 minutes for those that did not arrive on time, etc. These service standards are tracked over many years to see whether there are improvements. On the other hand, SMRT only seem to focus on financials which is to be expected.
And I also don’t believe that regulation alone can help bring up standards. If the regulators did not catch the commuters frustration the last 1 to 2 yrs, what give us the confidence that they can do the job in future. Maybe they need an independent consumer watchdog to supplement the existing system.
Also never like targetted help for essential service like public transportation. It is a half measure! Why do things half way when the cost is small and benefit so large in terms of its ability to generate goodwill since millions use the service every day.
Alas, we are wasting our time in this discussion because the outcome is already predetermined and PAP will continue do things the PAP way!
There ought to be more ‘Humble”s clarifying issues here and in TR. Thank ‘humble’ for sharing insights.
On the flip side, apart from the shareholders, the riders and the regulators are also very important stakeholders of the operators. If any of the stakeholders are not happy, then the operator won’t be happy also. However, as stakeholders, riders and regulators have to be reasonable in our demands too. It’ll defeat the purpose of privatisation if we force the operators into a corner and they become a loss-making entities or unattractive companies for capital.
On that note, operators, please innovate fiercely and seek hungrily for new revenues to help us and so also yourself.
Nani, not all private companies are well run as well. But there are govt owned entities tt are well run. Take a look at Taipei Rapid Transit Corp annual report and compare it to smrt. Even though TRTC is 100% govt owned, it is so innovative that other countries are going there to learn from them. They still make a profit but not as much as smrt. I may be wrong but hv not heard anybody coming over here to learn from smrt.
AlienOnce,
PSA isn’t different from SMRT, except it’s not listed. PSA is corporatised and held by Temasek. It operates like a private corporation. It’s not nationalised.
If you consider PSA “nationalised”, then SMRT is already “nationalised” and it’s not necessary to debate for the nationalisation of SMRT. It’s important to understand the concepts of SWF and nationalisation. SWF can own companies but that’s not nationalisation, a very different thing. China SWFs own some companies outside China. Abu Dhabi SWF owns some too. These companies aren’t “nationalised” by the respective SWFs.
Ausnet is a different industry. It’s more representative and usual to compare utility with utility or transport with transport.
This is not connected.. but meritocracy is not related to the socialist/communist themes of rich versus poor or capitalists versus proletariats.
Opportunities comes with enterprise and hardwork. You can be born poor, but you still have opportunities to move up with lots of hardwork when you have a strong motivation for success. You can be born rich, but you won’t last if you’re complacent. It’s the same in schools – the standard examinations are the same. And there are scholarships, both private and public. At worst, there are night schools and distance learnings. There’s no lack of opportunities. It all depends on the individuals drive for success.
If you try to follow communist/socialist doctrines, then everyone is the same and there’s no point for enterprise and hardwork in the first place. How do you implement meritocracy when you abhor distinctions? Therein lies the catch.
It’s the same with stocks. Companies compete for capital by showing that they can use it in the most productive way. In this way, capitals will move to the most worthy uses.
If you disallow this competition, then there’s a chance that capital will be used complacently. That’s one reason why communism couldn’t survive.
SMRT is doing its part by competing with other companies to raise capital to finance itself. If not, taxpayers may need to finance SMRT. So, maximising returns is equivalent to minimising taxpayers’ burdens.
In this way, the tax can then be used for other purposes. For example to help the poor and old which is your concern.
The WP’s agenda is a well-disguised but sinister socialist agenda.
First they want to nationalise transport. Next, they will want to nationalise healthcare. And then, they will want to nationalise certain natural resources industries, including oil refineries.
This will result in SLUGGISH economic performance because those nationalised entities will have no incentive to make profits. Instead, these organisations will become bureaucratic and top heavy. Need evidence? Just look at the National Health Service in UK. Why do you think so many Americans opposed Obama’s plan to nationalise healthcare in the US?
We should stand up for our democratic principles and oppose the WP’s dastardly and insidious plan to nationalise transport.
Do not assume or accuse with simplicity without substantiation. We as a small nation, are ALREADY currently suffering from the Law of Diminishing Returns from our over-worked, over capitalised small local workforce. It’s a clear case of addressing + restoring the strength of our Social Fabric as a people and workforce via restoring/reinvigorating our people’s Work Commitment, Ethic and Living Culture and sense of belonging before Productivity can truly be raised and sustained. Incentive in the form of immediate Profit margins cannot be an end in itself (in Public Services like Transport no less) -> unlike where the conditions that make it possible and reinforce it must be present before greater Heights can be reached…..i.e. continue flogging a half dead horse and constantly inviting unrecognizable herds into our own herd and you’d see how Loyalty literally runs out of the picture. Times are difficult for this critical aspect of our overinflated society. Notice the sheer joy when a return to the M’sian cup was recently announced and the contrasting subdued responses we got from any other mass sport. We miss being a society, not the imported population inc that we’re still increasingly becoming. Reinforce/Strengthen the means (our nationhood) before making/having the means more productive if you will, if any wealth can be consistently created. Certainly not one situation where people are increasingly treating even the display of our national flag as a “just do it don’t get into trouble” chore meant to please the ruling party. Sinister socialist agenda? Please. We’ve experienced more than our fair share of Sinister Authoritarian Rule, the political-socio climate institutionalised by someone I’d admit simply hates losing debates even when in the right or wrong. Yes I admit the ruling party has made many areas of our government efficient but your statement of a negative result from support for WP, over-bureaucracy and top-heaviness, doesn’t hold up because we are ALREADY filled to the core with Yes-Men who think little and constantly look over their back shoulders for instruction -> wherein the Productivity gains compared to the Japanese? Of course, this is our Society. But trust me, even as someone in management, me and several friends have noticed that Monopolistic Society Pte Ltd can only go so far, and its about time we introduced Strong Competition in Political circles to get us across the Seas not just the rivers. We were deaf whilst growing up, but we’re certainly not Deft this day and age.
Too early to tell what WP’s agenda is. But have this to say. Singapore was built by man like Howe Yoon Chong. Someone told me that he wanted to build Singapore’s first container terminal in 1970s when he was heading PSA then because he saw an emerging trend of goods around the world being shipped in boxes. Singapore was poor then and had to apply to world bank for funding. Guess what – world bank refused to grant the loan on the basis that PSA does not have the core competencies to manage container terminals. Somehow, LKY found the money for him and the rest was history. It was and still is 100% govt owned – a nationalized entity.
SIA – similar story. When we wanted to have our own carrier, the malaysians laughed at us. They say we wanted an airline to fly from paya lebar to changi. JY pillay turned it into one of the most profitable airlines in the World. When it started, it was 100% owned by the govt.
My point – leadership determines how well a business perform, not ownership structure.
I have no problem with competition in political circles, as you put it.
However, I have a problem with political gridlock. How do we know that the WP and PAP won’t be at loggerheads all the time? How do we know that the WP won’t make life difficult for the PAP just to score political points? How do we know that the WP will actually act in the interest of the country rather than in their own political interests, as they did in Aljunied?
We are a small country and we can’t afford to waste any time on political bickering and electioneering. Otherwise, how can our government focus on improving things in the country?
First of all, profit is not a dirty thing. The important concept here is that profit is the amount left after deducting everything including remunerations and dividends. So, profit is not used to “line” pockets as implied.
Profit is retained in the company. It doesn’t go to any individuals or shareholders. It’s retained there for a purpose. It’s for future capital expenditures and investments like buses, trains, stations, renovations to old buildings, signalling equipment.
If you don’t allow them to keep any profits, how are they going to pay for these things in future when the buses, trains, finishings, equipment become old and worn out?
Must the taxpayers pay for these？
In a cost recovery model, there won’t be any profits. So, are taxpayers supposed to pay for the replacement buses, trains, stations, finishings when these are due? In order words, profit is there to pay for these in place of taxpayers money.
It is well known that any government boards and services in the world will always be fill with bureaucratic and red tape paper works of approvals and so on. Do you think a nationalised company will be efficient and innovative to reduce costs and maximise profit (instead of asking for taxpayers money)?
In a sense, by maxmising profit, you minimize the need for taxpayers money. If there’s not enough profit, the company will fold or the service will drop severely. In such a case, the taxpayer will eventually need to inject money into the company because the company fails to keep itself afloat with sufficient profit.
By the way, taxpayers already support the acquisition of rolling stock for MRT lines. Our transport operators are not totally private.
But how about the future rolling stocks? The buildings? Future improvements like new signalling system, platform doors, cctv?
New signalling systems (such as the one being installed now), platform doors and CCTV are all paid for by the government. As for new rolling stock? SMRT is adding 22 trains this year (the first in 8 years), all financed by LTA (i.e. government!).
LPK, you’re misinformed, my friend. LTA will handle the projects and procurement of stocks and infrastructure. But the operators will pay LTA back for those operating assets (eg rolling stock, stations, signalling; eg of non-operating assets: tunnel).
This is an interesting comparison of Singapore’s MRT system with the Taiwan’s system. It is written by a ex journalist from The Edge. Found in on one of the blogger’s website. Bear in mind that the Taiwan’s MRT is owned by the government.
“TAIPEI’S CITY Hall is so proud of its mass rapid transit (MRT) system that it runs a competition every year, asking people to send in poems about the MRT. I can see why. The MRT is clean and comfortable (in addition to chewing gum, the nasty habit of betel chewing nut has been banned). People queue up in a civilised fashion before boarding trains. And, when the doors open, they don’t barge in before passengers can exit.
Signs and announcements are in Chinese and English and all carriages have electronic displays showing which station is coming up next. Every carriage has special seats for old folks, pregnant women or people with disabilities. I’ve never seen fit, young people pretending to be asleep in these seats.
However, the best part about Taipei’s MRT is its frequency. According to Taipei Rapid Transit Corp (TRTC), the company that runs the system, trains arrive at two to four-minute intervals at peak hours. Off-peak, it is four to seven minutes.
In reality, it is much more frequent. I know because I’ve timed it. At peak hours, trains come as often as every minute. As for off-peak hours? Well, I’ve never had to wait more than three or four minutes. As a result, even during the morning rush hour, the trains are never as packed as they are in Singapore.
TRTC has won praise not just locally but internationally. It has been ranked No 1 for reliability for four straight years (2004 to 2007), according to the Nova/CoMET International Railway Benchmarking Group (of which Singapore’s SMRT Corp is also part).
All this got me wondering just how TRTC is able to deliver such a world-class MRT service. Perhaps, it doesn’t have to transport as many people as in the crowded Lion City? Perhaps, it’s government-owned and isn’t under pressure to make as much money as possible and can run more trains?
So, I pulled up some numbers (see table). And the broad conclusion is that Taipei proves it is possible to offer a high-quality, high-frequency and affordable MRT service without losing money. It also suggests that certain services, such as public transport, tend to function optimally as natural monopolies and ought not to be owned by companies that seek to maximise profits.
Let’s look first at the one common element between the two: the cost of taking a train. Average ticket prices in Singapore and Taipei are about $1. This is pretty low by international standards, as anyone who has had the misfortune to take the London Underground knows.
Singapore and Taipei are also pretty dense cities, but the latter packs more folks (5.5 million of them) into a smaller area (272 sq km). In comparison, Singapore is home to 4.6 million residents spread over some 692 sq km.
As such, in terms of coverage, Singapore’s network of five MRT lines is more extensive, totalling 109.4km, versus TRTC’s 74.4km network. However, TRTC has more stations on its smaller network, which means less distance between stations and greater convenience for commuters.
MORE TRAIN RUNS IN TAIPEI
Just how many people take the MRT each day? In 2007, Singapore’s MRT moved an average of 1.56 million people a day. That’s just over a third more than what TRTC transported last year. So yes, TRTC’s network is smaller and it moves fewer people, which is one reason it feels less crowded.
However, what is illuminating is the difference in frequency. Last year, TRTC made an average of 2,171 train runs a day. SMRT clocked in at just over 1,000 a day for its fiscal year ended March 2008. This is not strictly an apples with apples comparison. SMRT’s system is older, has heavier loads and travels further than TRTC’s — factors which play a role in how often trains can be run. The comparison also doesn’t include data from SBS Transit, which runs the North- East Line. But, as SMRT accounts for more than four fifths of total MRT ridership, it is fairly representative of the whole picture.
Since February this year, SMRT has added about 900 extra train trips each week. According to the company, on average, its train frequency during peak hours is between two and five minutes. During off-peak hours, it is now between 3.5 and seven minutes. Given the existing signalling system and infrastructure, its average peak-hour frequency puts it among the top 20% of the world’s major metro operators, SMRT adds.
Source: Land Transport Authority statistics in brief, SMRT, TRTC Annual Report 2007.
SMRT MORE PROFITABLE
Still, it’s safe to assume that its bumped-up frequency continues to lag TRTC’s. And this, to an extent, is reflected in SMRT’s bottomline, which is much heftier than TRTC’s. In FY2008, SMRT’s rail operations saw revenue of $436.9 million. Earnings before interest and tax was $129.3 million. In comparison, TRTC saw approximately $415 million in fare revenue in 2007 and just $41.3 million in pre-tax profit.
TRTC is 73.75% owned by the Taipei City Government. The Ministry of Transportation and Communications owns a further 17.14% while the Taipei County Government owns 8.75%. Clearly, public-listed SMRT’s returns on its rail operations are far better for its shareholders than TRTC’s. However, TRTC — which has been profitable every year except its first two — is better for its commuters, who have been inspired to pen a poem or two in praise of their well-regarded metro.
Sunita Sue Leng, previously an associate editor at The Edge Singapore, is now based in Taipei and writes on Greater China issues”
It’s very funny to think that nationalised company is the way to go to keep costs down. What is the cost in “cost recovery”?
For example, can you replace some parts instead of the whole train? Can you find a way to extend the life of a bus without compromising on service and safety? Can you redesign some space in the station for commercial use (hence rental)? Can you constantly look out for new technology to improve efficiency? All these are costs. Cost is not fixed and definite. It’s variable and open to innovation and ideas for reduction. It can be offset by creative concepts to generate other revenues.
Do you seriously think a statutory board or public service is suited to innovation and creative ideas for cost reduction and revenues?
A nationalised company will just follow the book. Papers will be shot all over different departments for approval. Everyone will just work from day to day without needing to look out for creative ideas or innovative methods. Why? Because it’s all ah gong’s money.
Need a new fleet of buses? Shoot a paper ask for money. Finishing and furniture due? Shoot a paper to write off and buy new ones. Space unused in station? Sorry, not my department.
Ah gong has money, why worry so much?
The article on Taiwan’s MRT system should show you that what you say is not entirely true.
But what is true is that monopolies almost always make huge monopolistic profits! Let me put it this way. If I were to give you an investment that will give you a 20% return and the nature of the investment is like a fixed deposit in the sense that the returns are very stable which means you will make the return even in a financial crisis like the recent one, would you grab it? I know a lot of people who would because it is very hard to find such a low risk and high return investment.
This is exactly the type of investment you find in SMRT! Through the downturn, they continue to enjoy a very good profit with a return of equity in excess of 20%. They did not have a drop in profit even as companies globally were going under. How can this be justified? More so when it comes at the expense of some poor Singaporeans who are struggling to make ends meet and eating off left over food at some hawker centres???
Hi AlienOnce,
I don’t know the culture in TRTC. Does Taipei government allow it to run more “private” with less bureaucratic reportings and approvals? I won’t bet that a nationalised company will feel more pressure/motivation than a private one to innovate.
ROA leh? A lot of its ROE must be plough back into the company to guarantee continued future returns. That’s not so attractive anymore.
I don’t know why you describe poverty as though it’s so rampant. But if private enterprise can save and stretch taxpayer’s money in the long run rather than waste it in bureaucracy, it’s also beneficial to the poor since there’ll be more money to spend in programmes to help them.
There is nothing wrong with nationalisation if the national entity is run by the right people.
Since PAP isn’t able to do it, why not give WP a chance to run it.
Fleur, even if you bring in the US secretary of transport, it’ll be the same. It’s in the mindset – ah gong’s money.
Hi Humble,
You are probably right that TRTC has a innovative culture even though it is 100% govt-owned. But then PSA used to be a stat board but it did not stop them from becoming one of the most efficient and profitable port operators in the world. What is impt is leadership!
ROE vs ROA. Most businessman will want to know what return he made on the money he invested i.e. his equity. But no matter, if you look at ROA, it is about 11%, about half of ROE. Since SMRT says that they have a “strong and stable earnings” base (from their latest investor presentation) with defensive qualities (from earlier presentation, it means that their earning is utility like, similar to SP Ausnet. So if you compare to Ausnet’s ROA, SMRT ROA is 11% vs 6% for Ausnet (adjusted to take out interest). Still almost double for a similar type business. And if you make SMRT’s balance sheet more efficient like what PSA did by extracting the cash from the asset base, then the ROA jumps further to abt 13%.
Mind you SMRT dividend went up from $85m in 2006 to $129m in 2010, an annual growth of 11%. After all that they still have $300m+ on their balance sheet. After looking at these objectives figures, is it still reasonable to claim that it is justifiable to increase fares given that it is a monopoly???
You are right that poverty is not rampant but if you don’t live in district 9, 10 or 11, then you wld have realise that it is rising. Go up to a block to rental flats to see what I mean. I have personally seen old folks picking left over food at Golden Shoe when it is not so crowded towards the end of lunch. I see old folks going from trash bin to trash bin looking for cans and cardboxes at Thomson. And a boy related to a relative of mine that he wldn’t be applying to go into independent school SJI. The grades are similar but the one who is better off will be given a better education. Is this the meritocratic society that LKY was speaking of?
You know what – Singaporeans are not mad about high COE prices because it does not impact the poor. But public transportation is something which the poor cannot do without and it is almost a sin when you charge them more when the transport operators are already making what is a supernormal profits. Investors know it – that’s why they drove up SMRT’s share price went up from 60 cents about 15 years ago to $1.80 recently. It is a 300% increase with about 15% dividend yield for someone who bought at 60 cents. This kind of return is meant for high risk, high return stocks not utility like businesses.
AlienOnce,
PSA isn’t different from SMRT, except it’s not listed. PSA is corporatised and held by Temasek. It operates like a private corporation. It’s not nationalised.
If you consider PSA “nationalised”, then SMRT is already “nationalised” and it’s not necessary to debate for the nationalisation of SMRT. It’s important to understand the concepts of SWF and nationalisation. SWF can own companies but that’s not nationalisation, a very different thing. China SWFs own some companies outside China. Abu Dhabi SWF owns some too. These companies aren’t “nationalised” by the respective SWFs.
Ausnet is a different industry. It’s more representative and usual to compare utility with utility or transport with transport.
AlienOnce,
By right, this is a little not connected to the topic… but meritocracy is not related to the socialist/communist themes of rich versus poor or capitalists versus proletariats.
Opportunities comes with enterprise and hardwork. You can be born poor, but you still have opportunities to move up with lots of hardwork when you have a strong motivation for success. You can be born rich, but you won’t last if you’re complacent. It’s the same in schools – the standard examinations are the same. And there are scholarships, both private and public. At worst, there are night schools and distance learnings. There’s no lack of opportunities. It all depends on the individuals drive for success.
If you try to follow communist/socialist doctrines, then everyone is the same and there’s no point for enterprise and hardwork in the first place. How do you implement meritocracy when you abhor distinctions? Therein lies the catch.
It’s the same with stocks. Companies compete for capital by showing that they can use it in the most productive way. In this way, capitals will move to the most worthy uses.
If you disallow this competition, then there’s a chance that capital will be used complacently. That’s one reason why communism couldn’t survive.
SMRT is doing its part by competing with other companies to raise capital to finance itself. If not, taxpayers may need to finance SMRT. So, maximising returns is equivalent to minimising taxpayers’ burdens.
In this way, the tax can then be used for other purposes. For example to help the poor and old which is your concern.
AlienOnce,
By right, this is a little not connected to the talk.. but meritocracy is not related to the socialist/communist themes of rich versus poor or capitalists versus proletariats.
Opportunities comes with enterprise and hardwork. You can be born poor, but you still have opportunities to move up with lots of hardwork when you have a strong motivation for success. You can be born rich, but you won’t last if you’re complacent. It’s the same in schools – the standard examinations are the same. And there are scholarships, both private and public. At worst, there are night schools and distance learnings. There’s no lack of opportunities. It all depends on the individuals drive for success.
If you try to follow communist/socialist doctrines, then everyone is the same and there’s no point for enterprise and hardwork in the first place. How do you implement meritocracy when you abhor distinctions? Therein lies the catch.
AlienOnce, this is by right not related.. but meritocracy is not the communist idea of leveling rich and poor or capitalists and proletariats.
Opportunities comes with enterprise and hardwork. One is poor but still have opportunities to move up with hardwork. One can be rich, but won’t last if complacent.
It’s the same in schools – the PSLE/O/A levels are the same. There are scholarships, private and public. Even night schools and distance learnings. There’s no lack of chance. It all depends on the individuals drive and thirst for success.
If you try to follow communist ideas, then everyone is the same. There’s no point for enterprise and hardwork. How do you implement meritocracy when you abhor distinctions? Therein lies the catch.
On PSA, they were the top 3 ports in the world, making slightly less than $1 bil even when they were a stat board. So, the govt owned based on yr narrower definition still doesn’t hold water.
On Ausnet, investors usually classify companies with stable defensive earnings as utility like and will not require high returns bec the risk is lower. But no matter, hk’s mtr makes abt 5% ROA last yr. So smrt still look very high in comparison. Looks like they are already the highest in the world based on my limited research. And it will get higher after the fare hike. Hope u can find evidence to prove me wrong.
On meritocracy, agree tt it is a little unrelated but was just trying to let u know tt there is an increasing number of singaporeans struggling with cost of living issues. Public transport like public housing needs to be kept affordable because they made up a significant part of household expenses for the bottom 20%. education as well. So when tt kid who probably falls between the 5th to 10th percentile can’t get the best education bec he doesn’t qualify for a scholarship, the country also loses in the long term. Let me cite an example I heard over BBC. Clarence jones was the speechwriter who drafted Martin Luther king’s “I have a dream speech”. His parents were domestic workers and because his mother wanted the best education possible for him, she sent him to a good boarding school run by Irish nuns. After going through that school, he said tt he don’t know how to speak bad English. That speech played a significant part in changing race relations first in America which then spread across the world. My point – if he was in Singapore, he wld not have gotten that kind of high quality education because he wld not hv qualified for scholarship.
On communism, the subways of a lot of capitalist developed countries are owned by the state. And a lot of them don’t provide public housing the way we do. So if you extend yr logic to housing, sounds like lky is also communist. Even in the most capitalist country in the world – USA – they also have policies tt benefit the poor and the unemployed. It isn’t reasonable to claim someone is communist simply bec they think some services should not be left up to the market to determine the pricing, especially those with monopoly powers.
Anon (or AlienOnce?),
Ok, we see “nationalised” differently.
As for meritocracy, I don’t catch the relevance of Clarence. If he has the intense drive to make it big, then he’ll be big. He’s only limited by his willpower.
There are ample opportunities and many routes. Unless.. he’s living in a place where.. bribery or favour is the only means with no other alternatives, or discrimination leaves him outside the system, or there are no avenues because they are all destroyed by war or rendered unviable by instability..
Ok, we also see “communism” differently.
AlienOnce,
PSA isn’t different from SMRT, except it’s not listed. PSA is corporatised and held by Temasek. It operates like a private corporation. It’s not nationalised.
If you consider PSA “nationalised”, then SMRT is already “nationalised” and it’s not necessary to debate for the nationalisation of SMRT. It’s important to understand the concepts of SWF and nationalisation. SWF can own companies but that’s not nationalisation, a very different thing. China SWFs own some companies outside China. Abu Dhabi SWF owns some too. These companies aren’t “nationalised” by the respective SWFs.
Ausnet is a different industry. It’s more representative and usual to compare utility with utility or transport with transport.
This is not connected.. but meritocracy is not related to the socialist/communist themes of rich versus poor or capitalists versus proletariats.
Opportunities comes with enterprise and hardwork. You can be born poor, but you still have opportunities to move up with lots of hardwork when you have a strong motivation for success. You can be born rich, but you won’t last if you’re complacent. It’s the same in schools – the standard examinations are the same. And there are scholarships, both private and public. At worst, there are night schools and distance learnings. There’s no lack of opportunities. It all depends on the individuals drive for success.
If you try to follow communist/socialist doctrines, then everyone is the same and there’s no point for enterprise and hardwork in the first place. How do you implement meritocracy when you abhor distinctions? Therein lies the catch.
It’s the same with stocks. Companies compete for capital by showing that they can use it in the most productive way. In this way, capitals will move to the most worthy uses.
If you disallow this competition, then there’s a chance that capital will be used complacently. That’s one reason why communism couldn’t survive.
SMRT is doing its part by competing with other companies to raise capital to finance itself. If not, taxpayers may need to finance SMRT. So, maximising returns is equivalent to minimising taxpayers’ burdens.
In this way, the tax can then be used for other purposes. For example to help the poor and old which is your concern.
AlienOnce,
It’s the same with stocks. Companies compete for capital by proving they are the most productive use. In this way, capitals will move to the most worthy uses.
If you disallow this competition, then there’s a chance that capital will be used complacently. That’s one reason why communism couldn’t survive.
SMRT is doing its part by competing with others to raise capital to finance itself. If not, taxpayers may need to finance SMRT. So, maximising returns is equivalent to minimising taxpayers’ burdens.
In this way, the tax can then be used for other purposes. For example to help the poor and old which is your concern.
First of all, profit is not a dirty thing. The important concept here is that profit is the amount left after deducting everything including remunerations and dividends. So, profit is not used to “line” pockets as implied.
Profit is retained in the company. It doesn’t go to any individuals or shareholders. It’s retained there for a purpose. It’s for future capital expenditures and investments like buses, trains, stations, renovations to old buildings, signalling equipment.
If you don’t allow them to keep any profits, how are they going to pay for these things in future when the buses, trains, finishings, equipment become old and worn out?
Must the taxpayers pay for these?
Humble,
You are right. How much profit is enough profit? A point to consider about nationalization, the maintenance and upkeep of vehicles, roads and rail lines is a recurring cost, the profit made in one financial year may not be sufficient for long term and regular servicing. But, the funds for the maintenance should not only come from the profits made in the provision of commuter services alone, the income from other profit making sectors in the country like investments, tourism and banking and financial services. Since transport is a public good, a percentage of the profits from the national income of the nation after tax and other net deductables should be allocated to the transport sector. For example, education is a public good, but the resources for its provision is acquired from taxes and profits from other business investment and sectors.
Return on equity of 20%+. Cash on balance sheet of $300+ mil after paying $100+ mil in dividends annually. Almost no business risk because there is little fluctuation in revenue, even in financial crisis years. If this is not excessive profit, what is?
You know what’s sad – the increase is almost a done deal!
AlienOnce, the cash is there for a purpose – future investment into heavy assets. We should always remember about ROA. ROE is not everything.
Singapore was lucky in the financial crisis. The crisis was harsh but swift. Unemployment was kept low. If not, the revenue won’t be spared. Even natural monopolies won’t be spared had the crisis pan out differently.
PSA and Singtel does not have cash on their balance sheet but still can invest for the long term. The problem is that they pay out a lot of money in dividends but still have lots of money on their balance. Still they are asking for a fare increase.
SIA drop so much that they almost made a loss during the financial crisis and many S chips collapsed. So it is short but not that short. The difference is that SMRT is almost a monopoly.
Employment was kept low because someone in the govt came up with a plan to pay companies even though there is little work during that time. That one was brilliant!
Liz,
There are many ideas on allocation and efficient resource use. Some think a free market model, others want a populist way, still others hope a socialist method. Is it likely to have popular socialist way and still be efficient (not waste tax)?
I think basic education is public. But high education is private with scholarships. Transport is private but highly regulated. Health is mixed with focused subsidies for the real needs。
Public transportation can run on a cost-recovery model that is for sure. LTK is talking nonsense!
@ aeryn …………Well said. Even the old illiterate Ah Mah and aunties can see through the smoke screens.
The writer is right – duopolies and monopolies are never efficient because they can increase price quite easily with their market power. That’s why most countries have anti-trust laws to break up giant US companies like AT&T and standard oil (into exxon and mobil). This is standard business textbook stuff. For LTY to defend them on the basis of efficiency is utter nonsense! Just look at a company like apple – higher commodity price, higher labour cost in china because of foxconn and weak US dollar but still they give you a better version of iPad at the same price. That’s what competition does.
The only way to modify behavior of the CEOs of the 2 companies is change their incentive schemes – raise the transport and they do not get any pay increase for 3 years. Same with a drop in service.
Alternatively, Singapore should follow hong kong – the operators get to buy a few pieces of land near key mrt stations at lower price on the basis that land enhancement value is brought about the mrt in the first place. The land is then used to build malls and rentals used to subsidise the operation of the public transportation system.
Pragmatism and objectivity in raising transportation and living standards in a self-reinforcing model with profits as a resource to be put back into improving the system and the welfare of the citizens it was meant to keep up. Addressing directly what are and can be incentives before motivating service providers -> good points and examples AlienOnce
I presumed LTY &/or his advisers studied the economic model by theory without consideration of local context , w/o taking into the account that our local commutation is a monopoly. hence all the cost effectiveness he mentioned , empirical evidences show otherwise.
I agree that the downside of nationalized LTY argued r assumptions. His endorsement of privatization is lame by fact that monopoly discourages cost effectiveness & more thn often, abuses general public interests since it’s profit oriented. LTY’s argument cld hardly stood on its own ground. Profit shd be ploughed back to lower cost of commutation to further the interests of commuters who mostly come from lower & middle income groups, whose pay often stagnant.
Nationalised public transport won’t work.. people will just slack as no need to make profits and no need to be efficient.
As for the suggestion of competition, Singapore is not a big country. Do we really need more than 1 public transport operator? This may lead to inefficiency. I rather see RADM (NS) Lui Tuck Yew do something about improving service. I see that he is trying but maybe he just needs more time.
Smrt and sbs are not efficient at all after privatization for more than a decade. Have they even achieved the standard of sia? A big fat no. So what is wrong? Being linked to TH AND NTUC IS the problem. Returned them back to 100% government owned and not quasi gov n private owned. The rot has to stop.
What you say about nationalisation is equally true when you have just a single public transport operator.
There is no incentive to be better because people have no choice but to take public transport. As long as the fares are not so high as to make walking or taxis an appealing alternative, a single operator can carry on without heed for their customers preferences.
You’re absolutely right. If he wants to privatise it, then please fully privatise it by having COMPETITION. In Singapore, all the GLCs have monopolies with fake competition e.g. SingTel, SBS, SMRT, SP Services, SPH.
This system is designed to enrich the PAP-linked cronies (retired generals or civil servants) who are sent there to helm the companies after their retirement.
If there was REAL competition in the transportation industry, I can be sure that service standards would improve. Last time when there was TIBS and Bus Plus, I think service standards were actually higher.