Buses and trains make policy U-turn

In the aftermath of the 7 May 2011 general election, a creeping policy U-turn is becoming discernible in transport and housing policies. There is no grand change of heart yet, but with each announced step, the government is turning its back on its former policy of protecting corporate profitability at the expense of service delivery.

That former policy was demonstrated in a number of ways. For example, when the Northeast metro line was opened in 2003, the ministry allowed SBS Transit, the operator, to keep Buangkok and Woodleigh stations closed because there wasn’t enough traffic to justify costs. SBS Transit, which had most of the bus routes through the northeast corridor, also discontinued several bus services that ran parallel to the line for part of the distance, in order to drive passengers onto the metro line, regardless of whether those commuters’ final destinations were anywhere along the line.

Recall the ‘bus rationalisation’ exercises that riled residents. Whenever a new rail line is built, most trunk bus services running parallel to it are removed.

Hougang and Serangoon residents had the most recent bitter taste of this policy thinking – when the North East Line starting running in 2003. No fewer than a dozen bus services were removed from the corridor. Besides SBS Transit and SMRT services, supplementary Scheme B buses – run by private operators – were also ‘rationalised’.

— Straits Times, 11 June 2011, Go bigger on buses, even as rail network expands, by Christopher Tan

Meanwhile, the Housing and Development Board (HDB) put virtually all its housing program on a Build-to-order (BTO) basis. Under BTO, construction tenders are not even called until a project has pre-sold 70 percent of the flats within it.  Another way of looking at it is this:  the first 70 percent of buyers have no certainty when or whether their apartment blocks will be completed. The aim of this policy is to sustain pent-up demand — never mind the frustration it causes citizens — in order to protect the profitability of the HDB.

This madness can be traced to the 1980s, when in the wake of the Thatcherite revolution in Britain, the Singapore government embraced the idea of “privatisation” — with a twist. Most of the time, what happened was corporatisation, where an erstwhile government department was reconstituted as a corporate body charged with paying its own way. This idea swept though the transport, housing, health, telecom and power generation sectors, among others. However, in most of these sectors, the second, and essential, part of privatisation was not carried out, that of opening up all these sectors to competition. Instead, the newly-corporatised units continued to enjoy either legal or effective market monopoly (or duopoly) through subsequent regulatory actions of the government.

There were also complaints that these bodies were filled with ex-civil servants, ex-military officers and People’s Action Party (PAP) stalwarts. For example, a quick look at the 2010 Annual Report of SBS Transit will reveal that the non-executive chairman of the Board of Directors, Lim Jit Poh, is a “a former top civil servant” (page 8), while the Chief Executive Officer, Gan Juay Kiat, “started his career in the Singapore Armed Forces where he held several senior command and staff appointments” (page 9). The board also comprises at least two former PAP members of parliament whose names I recognise: Chin Harn Tong and Wee Siew Kim.

Gan Juay Kiat earned a total compensation of between $500,000 and $750,000 in 2010 (see page 76 of the Annual Report). About half was salary and half bonus. The other eight directors (all non-executive) earned a combined $333,000 in directors’ fees, or an average of $42,000 each.

Between the need to go easy on these amakudari personalities, and the dogma of trickle-down economics, the social responsibility of government was all but forgotten. Trickle-down was the convenient excuse to look away. If corporations remain profitable, they would have the means to provide good service, it was believed. Having the means was confused with actually providing it. The possibility that making profits might be achieved at the expense of good service (especially in the absence of competition) seemed to have been ignored.

Not any more. After the erosion of vote-share in the general election, the PAP realised that it cannot be business as usual from now on. Khaw Boon Wan, taking over the housing ministry, announced that he was tweaking policy:

In his Housing Matters blog, Minister Khaw said that he has ordered the HDB to ramp up capacity and to bring forward projects scheduled for early next year to this year.

In line with this, the HDB has confirmed that it will be able to raise the number of build-to-order (BTO) units from the earlier planned record number of 22,000 to 25,000.

He said he also told HDB to “build ahead of demand” by tendering projects as soon as architectural drawings and documents are ready.

At present, a tender is called only after 70 percent of orders have been confirmed, hence the term BTO.

“Given robust demand, I told them to proceed to build, knowing that the orders will definitely come,” he said. “We can return to normal BTO approach after we have stabilised the situation.”

— Yahoo News Singapore Scene, 28 May 2011, HDB ordered to ramp up building of flats. Link.

He is abandoning the 70-percent rule for the time being, building ahead of demand instead to ease the backlog. What he hasn’t yet done is to ease the pricing problem, an equally big issue.

Meanwhile, Lui Tuck Yew, the new transport minister, acknowledged problems with public transport. After personally riding trains and buses soon after taking over the ministry, he announced that:

. . . the Government will be working with the two bus operators to add ‘significant capacity’ to the bus network in the next three to four years, as new rail projects are being built.

He said that if it were left to the bus operators to add capacity to the overall system, they would take a ‘relatively cautious and gradual’ approach.

‘We are mindful that sometimes, it may not be at the speed necessary given the bottlenecks that we face in the transportation network,’ he said after the launch of tunnelling works for the MRT’s Downtown Line Stage 2 in Bukit Timah.

‘So, it is necessary for the Government to work together with the operators so that we can inject this capacity in a very timely fashion,’ he said, but did not elaborate.

Mr Lui, who took over the transport portfolio on May 18, said that adding significant capacity to Singapore’s public transport system was ‘very, very high’ on his to-do list.

‘We do need to buy more trains, we will build more lines, but they will take time to come into effect,’ he said, noting how rail projects can take seven to eight years to materialise. ‘So, for me, buses will be a matter of high priority in the coming months.’

— Straits Times, 9 June 2011, Coming your way: More buses, travel information, by Christopher Tan

But who will pay for the new buses? One idea being examined is that of the government buying and owning the vehicles and letting SBS Transit ad SMRT operate and maintain them, just like the arrangement for train sets. These two companies have the duopoly for public transport in Singapore. With this, the government is taking back responsibility for public transport, now acutely aware that despite the mantra of privatisation, in citizens’ minds, public transport has never left the responsibility of government.  Actually, the previous transport minister, Raymond Lim, made the first U-turn, when he took back control of route planning. He must have realised that these corporate entities were not all that interested in planning routes that catered to commuter needs.

Frankly, I am not sure why Lui should be so quick to let SBS Transit — the larger of the two bus operators — off the hook by musing about the government paying for buses. SBS Transit made an after-tax profit of S$54.3 million on revenue of S$720.9 million (7.53 percent), which translated to an 18 percent Return on Shareholders’ Equity (page 6 of Annual Report). This is not particularly rich, but should it be when it is one of a protected duopoly?

No doubt the details will be picked apart and argued over, but the significance is still worth noting. At long last, the government is paying more heed to its social responsibility. Finally, it realises it cannot go on prioritising the concerns of the big corporations, the rich and the powerful. But this is only just the beginning. It is very easy, after giving a few sops to the angriest of the citizens, to revert back to form, since its powers of coercion and muzzling remain in place. It still has not embraced the idea of greater competition for government-linked companies; it has not even begun to question amakudari and the distortions this practice brings.

Keep up the pressure, not just on transport and housing, but over a slew of other issues fundamental to liberty, democratisation and the citizens’ right to speak up. Without these, the U-turn will not be permanent.

25 Responses to “Buses and trains make policy U-turn”

  1. 1 The 13 June 2011 at 17:06

    /// That former policy was demonstrated in a number of ways. For example, when the Northeast metro line was opened in 2003, the ministry allowed SBS Transit, the operator, to keep Buangkok and Woodleigh stations closed because there wasn’t enough traffic to justify costs. ///

    Alex, I think for these two cases, the key consideration is not protecting corporate profitability, but rather punishing voters who dared to vote the opposition in.

    Buangkok Station was not opened for business although everything is built and ready – so as to penalize the Hougang voters who voted for Low Thia Khiang. (Remember the almost comical planting of “white-elephant placards near the station?) Likewise, Woodleigh Station was not pressed into operation to punish Potong Pasir voters who voted for Chiam See Tong.

    The official reason is that there is no critical mass of commuters for those 3 stations. This is patently false. The Marina Bay MRT station was operating way before the area it serves was developed. In fact, for many years, people are wondering why on earth do the trains bother to go there when the area was still not developed.

  2. 2 Chanel 13 June 2011 at 17:51

    “18 percent Return on Shareholders’ Equity (page 6 of Annual Report). This is not particularly rich…..” ??!!

    Are you kidding!!

  3. 6 Gard 13 June 2011 at 18:19

    There is an idea that ‘privatisation’ would allow the entity to take risk (such as R&D) otherwise not taken by a government conservative on using taxpayers’ money. Private companies are also not seen carrying the political baggage in cross-national deals.

    Hong Kong’s MTR Corporation does not just operate in Hong Kong. Effective privatisation should see these privatised Singapore companies expanding overseas to face international competition. This should be a real measure of corporate performance.

    I am reminded how civil servants do not have to worry about cost control and cash flow since budget is allocated. In fact, I think the main worry has been about not spending enough to meet allocated budget. So, for all the noise, Dr Vivian made that first U-turn to blow the budget.

    • 7 yawningbread 13 June 2011 at 23:01

      Indeed, the parent company of SBS Transit, Comfort Delgro, has overseas operations. However, SBS Transit is purely local, from what I can see of their Annual Report. About 75% of their revenues come from bus services, 20% from rail operations and 5% from advertising.

    • 8 Fox 15 June 2011 at 12:13

      What are the difficulties of spinning off a particular sub-unit of the entity? For example, it is possible to keep SBS as a publicly owned entity and then spin off its overseas branch to profit from its expertise.

  4. 9 sgcynic 13 June 2011 at 20:01

    Wee not Wong, Siew Kim?

  5. 10 yuen 13 June 2011 at 20:14

    I believe the overarching idea of operating transport services as commercial concerns has not changed, but the content of the commerce is being modified, in a direction somewhat like Hongkong: transport companies are allowed to utilize their real estate to generate income in order to subsidize the public service component. For some time SMRT has been adding shopping/F&B space to its underground passages; if the operators are also allowed to construct offices next to or on top of MRT stations/bus interchanges, they would be able to derive additional income, without paying the high land cost a property company will need to pay to use similarly located land.

    Another Hongkong idea that SG might find it worthwhile to follow is (from my article on a different topic http://singazen.com/singapore_inc/investment_and_immigration )

    “I recall the Hongkong minibus system, that fit somewhere between buses and taxis..They run all over the place, following a particular route as their license specifies, stopping to pick up passengers at the kerb where this is permitted by the road signs, dropping them as they make request to the driver to stop. Even during rush hours they can zip around rather fast using the reserved bus lanes, and the cost of a ride is quite low. They meet a need and provide employment. So why no investor has tried to set up such a system here?”

  6. 11 The 13 June 2011 at 20:34

    Amakudari – yes, that’s how our retired generals/civil servants and politicians are parachuted into GLCs, and ex-generals and civil servants into politics.

    Over-aching all these you-take-care-of-me-I-take-care-of-you is the adoption of the former USSR’s concept of Nomenklatura.

  7. 12 anon 13 June 2011 at 20:37

    The transport operators each enjoy a geographic monopoly. This is the chink in the Govt’s free-market ideology. It’s not free market economics per se but effective monopolies. Plus, the Spore market is just too small to expect monopolies to factor in social costs without public policy dictates. Why would they, when it’s a free ride to a profit annuity?. And having run its privatisation model to its logical conclusion, it becomes politically costly to explain any u-turn to the private sector. So don’t expect any. It means the public will continue to bear the brunt of the huge negative externalities, which people who have to use public transport feel, see and smell everyday. Of course, ivory tower planners would know. Btw, it’s not just transport. Doesn’t anybody teach these things in political economy any more?

  8. 13 Xmen 13 June 2011 at 21:07

    An 18 percent return on shareholders’ equity is obscene for an essential utility. For ROE comparison of international gas utilities, UK is 6.25%, Canada 8.78%, US 10.35% in 2007. Note most transport systems are government subsidized and probably have negative ROEs.

    IMHO, the 18% is yet another hidden tax to enrich private corporations and indirectly the Reserves.

  9. 14 jem 13 June 2011 at 23:01

    Did you mean ‘Wee’ Siew Kim?

  10. 17 prettyplace 14 June 2011 at 01:08

    To know where SBS stand, you need to go as far back as 1950s, to know who actually owns what?

    Thatcherism, they call it, turning all departments a profit center.
    It has evolved into full on capitalism, which naturally would.

    Another interesting point to note, is that most industries in monopolistic competition is gradually becoming oligopolies.

    Which means, they have control in products & prices. Its going to be a difficult world ahead.

  11. 18 DetachedObserver 14 June 2011 at 09:31

    As I see it, the PAP leadership in the 80’s was merely following a trend behind Thatcherism but never bothered to study where she was coming from – i.e. Hayek’s work, etc.

    So at the end of the day, we end up with half-bastardized entities which were private-in-name-only, not to mention Singapore ended up with its own version of amakudari and the eventual entrenchment of an elite class living in its own bubble.

    As for why there are no mini-bus services running ala in Hong Kong, someone should pose that question to LTA. I suspect Lui will be staring at you blankly as his brain shorts out.

  12. 19 tk 14 June 2011 at 10:03

    minibus? go ride a bike.

    • 20 yuen 14 June 2011 at 11:26

      why dont you tell HK people that? – they have some experience riding minibuses;. no use saying it to locals here; they wont know what you mean

      • 21 tk 15 June 2011 at 14:22

        have you been to HK? i’m guessing you have. i wouldn’t fancy riding a bike up and down to the midlevels every day 😉 hence, minibuses work for HK (island, anyway) where cycling may not. it’s much nicer riding a bike here than there – less traffic, less pollution, wider roads and lanes, and most importantly, it’s flat.

        i’m not saying minibuses won’t work here, but for the kinds of short trips you’re talking about, it’s cheaper, easier and faster to ride your bike than wait for a (mini)bus.

        National Bus (the UK company) tried to introduce a similar ‘mini’ system in Melbourne in the late 90s – 98/99 i think? They bought in these small Mercedes transporter type buses with one door up the front that sat about 30 people and could vary off ‘the route’ as people requested. They lasted about 6 months, just not enough volume to justify the cost.

        other cities have introduced buses that can portage a couple of full size bikes on a front rack, for those longer trips. It takes about 30 secs to load/unload a bike. In addition to allowing >1 folding bike on board too. although given the frequency of sbs buses here driving into busstops, crashing into light poles or catching fire, i’m not sure i’d trust them with even my crappy bike as a bumper bar 😉

        transport solutions should be tailored to the people and landscape of the city they serve. its crazy the level of privilege and priority (and real estate) that has been given to cars on an island with such a low percentage of car ownership.

  13. 22 fpc 14 June 2011 at 21:45

    letting one of the 2 bus operators to increase capacity is also wrong.

    should have allowed external parties to compete.

    like the social media… that would put a lot of pressure on the bus operator to perform.

  14. 23 Kim 15 June 2011 at 10:36

    I am glad to see that this is happening. The benefit of services CANNOT always be measured in terms of profitability of that particular enterprise and public transport is a classic example. For every extra bus / train on the road there is less need to build parking garages and increase the size of roads to deal with increased traffic. These also have a cost, but because the only cost that is measured is the profitability of the bus company and not the benefit to the economy as a whole the wrong decisions are made.

  15. 24 The 21 June 2011 at 08:00

    Well, well, well, the Woodleigh Station finally opened yesterday.

    Let’s do the maths.

    Since 2003, the cost of building and competing the station has already been sunk. How much can a few staff to man the station cost? Compare this to the loss of rentals, advertising revenues and commuters’ time and money. What are the opportunity costs?

    It is not even a case penny wise pound foolish. It is clearly to do with the fact that the station is situated in Potong Pasir. And now that Potong Pasir has been won by the PAP…………..

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