For decades, the government claimed to be faithfully wed to Self-reliance. Users must pay the full cost of services, otherwise Singapore will slide into the purgatory called a “welfare state”. At the same time, corporations charged with delivering those services must ensure they run a lean outfit, and what better way to ensure that than to subject them to the discipline of the market, the thinking went.
And so bus services were corporatised (“privatised” they call it — though how accurate that term is, we shall see) and told to sink or swim on their own.
Now rumours abound that the government has left the marital bed, and is having an affair with a new sweetheart called Subsidies.
Deputy Prime Minister and Minister of Finance Tharman Shanmugaratnam confirmed as much when he announced a week ago that the government was giving $1.1 billion to the two public bus operators. Like diamond necklaces given to many a lover, there is no contractual condition attached that is firm enough for clawback should ardour be spurned.
Where does that leave Self-reliance? Is she divorced or not? The situation looks very messy indeed, and there may well be loud denials, though of what precisely (denial of divorce? of messiness?) may never be clear. They are just loud.
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Tharman announced that the bus operators are expected to put out 800 new buses over the next five years, of which 550 would be paid for by the government and 250 by the two bus operators. Interestingly, he did not say how many old buses would be withdrawn from service over the same period and thus what the net increase would be. There is the loose remark in the Straits Times that the new buses will “bump up the public bus fleet by 20 per cent” but given this newspaper’s history of uncritical reporting and the absence of information about prospective vehicle retirements and replacements, such a statement is less than credible.
What I can find from SBS Transit’s 2010 Annual Report (page 15) is that its bus fleet numbers 3,003 vehicles, while SMRT has “more than 950 buses” (SMRT’s 2010 Summary Annual Report 2010, page 4). Since each bus is allowed an operational life of 17 years (based on my recollection of a news article I saw recently), this means each year the bus operators retire and presumably replace about 235 vehicles — a figure that is suspiciously close to the 250 buses they themselves have to pay for, as announced by Tharman.
I may be wrong and the 800 new buses would represent a net increase, but if so, would someone please point me to where it’s been said otherwise? What I can see on the Finance Ministry’s website is only this: “The Government will partner public transport operators (PTOs) to add 800 buses over the next five years, or a 20% increase. The Government will provide funding for 550 buses, while the public bus operators will add another 250 buses. The Government will be funding running costs over 10 years. $1.1 billion will be set aside for a Bus Services Enhancement Fund for these commitments.”
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That said, the biggest issue is not that of numbers, but of moral hazard, despite the emollient words used here:
Of the 800 buses, 550 will be paid for by the Government, and the rest by operators SBS Transit and SMRT Corp.
The additional buses, equivalent to 20 years’ worth of fleet growth, will bump up the public bus fleet by 20 per cent. Their arrival depends on how quickly bus manufacturers can supply the fleet, and – more crucially – how quickly drivers can be hired.
All in, the Government is handing out a $1.1 billion aid package meant to cover the operating costs of the vehicles over 10 years. It is understood to include salaries for drivers.
Finance Minister and Deputy Prime Minister Tharman Shanmugaratnam had announced the measure in his Budget speech last Friday, and had said the $1.1billion was a ‘one-off’ measure.
For the bus operators, it will not be a case of generating additional revenue out of capital assets they will have obtained for free. Sources reckon the operators will be ‘persuaded’ to increase service frequency and raise drivers’ salaries, so the net effect may well be revenue-neutral to the operators.
— Straits Times, 22 Feb 2012, ‘Most of 800 new buses to roll out in 2 to 3 years’ , by Christoper Tan
It is already unacceptable that the government gave SBS Transit and SMRT sectional monopolies. (The term oligopoly is often used, but since the two companies don’t even run the same routes, I think the term ‘sectional monopolies’ is more accurate). Surely, in return for the right to operate sectional monopolies, the companies are expected to provide all the necessary levels of service and growth that are needed? It is not even that the government has been tight-fisted about approving fare increases. Almost every year, there has been an increase, and approvals to fare increase requests are liberally given on the basis that the companies should not be held back from being profitable.
But what the new scheme creates is a class of assets, together with their operating costs, paid for by the public. Yet the profits from the application of these assets, including profits from economies of scale, flow into private purses — the directors, managers and shareholders.
Is this not a form of corruption?
The government may say that the reality is that the companies are unable to fund the rapid expansion in fleet sizes that is needed to satisfy public demand. They may say SBS Transit made “only” S$14.8 million on bus operations revenue of $549 million in Fiscal Year 2010. (See 2010 Annual Report, page 81. It appears that this figure represents profit before tax). SMRT’s bus revenue for FY 2010 was S$199.7 million, on which it made an operating loss of S$1.9 million. (See 2010 Summary Annual Report, page 4). Unless commuters are prepared to stomach huge fare increases, there is no way fleet expansion can come about.
But what happened to the old compact where they were supposed to run a lean outfit? Weren’t they supposed to find their own cost savings so they could invest for the future? Didn’t they have an obligation to grow supply in tandem with demand?
As for not being able to find enough drivers because pay is too low, isn’t that a problem any commercial enterprise is supposed to solve by itself? Must ministers rush in with sweeteners to “persuade” the company to raise salary levels? If SBS Transit and SMRT can rely on such kindness, why not Tan Ah Kow and Sons Pte Ltd?
I anticipate the argument that unlike other businesses, the bus companies weren’t free to set their fares, so how could they be expected to generate enough money to invest for growth? This is a bit of a canard because in competitive markets, companies can’t set prices freely either; they have to watch the competition. Sectional monopolies face no competition. Restraints on price-setting occur in both situations. Stop pleading special treatment.
Moreover, if the bus companies are supposed to operate like any commercial enterprise and need to fund a large expansion, why couldn’t these companies do as other corporations do and go to the bond market to raise the required capital, paying the market rates of interest?
It annoys me that this and other alternatives seem not to have been considered. For example, if the government still thinks it is wise to put S$1.1 billion into augmenting bus services, why not treat it as an injection of equity capital, thereby diluting private shareholdings (so existing shareholders get less of a free lunch)? Alternatively, why not set up a third bus company, wholly owned by the government, that competes with the two incumbents? To commuters, it is still the same — more buses on the road — but this at least avoids moral hazard.
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It’s not as if the warning signs had not been seen earlier. Several years before, even the Ministry of Transport realised that leaving it to the bus companies to propose routes left much to be desired. Perhaps complaints that bus companies were plying routes that served their bottom lines more than public needs finally got through the ministry. Then-transport minister Raymond Lim instructed the Land Transport Authority (LTA) to take over the job of designing the bus network by the end of 2009.
Speaking during the budget debate in parliament on 12 February 2009, he said:
When LTA takes over bus network planning, a single agency would be able to plan the entire transport network – bus, rail and roads – holistically as one integrated system, from the commuter’s point of view. Centralised planning will allow us to make the entire public transport journey, from the start to the end, as integrated and as seamless as possible, so that travel is faster and more convenient. For example, feeder bus routes will be reviewed to provide more direct and faster connections to the bus interchanges and MRT stations.
Once the new bus network has been implemented, LTA will then look at how best to package the bus routes for competitive tendering. . . . We are not looking at competition ‘in’ the market where operators compete head-to-head for market share. Experience elsewhere has shown that in the public transport sector, this type of competition will destroy integration and lead to wasteful duplication. Instead, we are looking at competition ‘for’ the market where the operators compete to provide a package of bus services or run a rail line. By introducing greater contestability to the public transport sector, commuters will benefit as the operators would be incentivised to improve efficiency, service quality and innovation. Thus the public interest is best served not by simply having a single public transport operator . . . . but by ensuring there is the threat of competition to keep these dominant market players on their toes.
— Parliamentary Reports, 12 February 2009.
It has been three years since. How many route improvements have we seen? How many new routes added? Has there been any competitive tendering? Do you get the feeling that the incumbent interests of the bus companies might have stymied change?
But there was one bit in Raymond Lim’s speech that is heavy with irony today, though you ought to substitute “financial viability” with the less euphemistic term “profitability” :
Financial viability is an important discipline that bears highlighting. . . . If the system is not financially sustainable, the impact may not be felt immediately. But over time, it will pull down the quality of the whole system, as the network will not be able to generate enough revenue for the operator to invest and upkeep the quality of bus services.
So, for all the care, concern, and dollops of indulgence for SBS Transit’s and SMRT’s bottom line, guess what, they still didn’t invest in sufficient capacity growth.
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But let me speak plainly. It’s no use just bitching about the bus operators, for we shouldn’t deceive ourselves: improving our public transport is going to cost some. It was always a mirage to think that the “user pays” rule is enough for a public service that must remain affordable to the less well-off. This old notion that we can run a country without transfer subsidies is being shown for what it has always been — an illusion. The hope that by corporatising public services, the government can duck hard questions, is being shown for what it is too — cowardice, laziness and a swooning delusion that people will automatically believe that some other party is responsible for any mess just because the government has said so.
The big danger right now is the messiness that comes from refusing to admit that they have been wrong. Denial makes things worse. Denial continues this half-baked scheme where semi-private entities (chimeras, I call them) are supposed to provide public services but when they fail, it is the public purse that is opened up. Meanwhile fat salaries and dividends continue to be paid to a privileged few in the name of “market rates”.
Instead of feeding these grotesque chimeras with S$1.1 billion dollars, we should slay them. Nationalise.