This is a follow-up article to PAP government in messy affair with new sweetheart. The earlier article focussed on the government’s muddleheadedness and the mess that it is creating in terms of accountability. In this note, I wish to outline a better way of subsidising bus transport.
I accept that the “user pays” dogma is incompatible with our public transport objectives. This is a criticism I have of the government’s starting philosophy, which they themselves now recognise as unable to meet public objectives. Nonetheless, they do not want to disown their earlier philosophy, so they seem intent on keeping the structures they created under the “user pays” scheme — the sectional monopolies and the two government-linked “private” companies, each with split objectives, not quite sure whether they should focus on rail or bus — while showering them with subsidies. These would be sweetheart deals opaque to public scrutiny; creating the worst of possible outcomes.
Public objectives with regard to public transport consist not just of meeting public demand. They include promoting public transport over private cars for the sake of the environment. A comprehensive, reliable and affordable public transport system is a social equaliser and advances the public good known as social mobility. What do I mean by that? For example, if most of the middle class is going around by private cars, not only will our environment suffer, the less well-off will find that public transport will be reduced to a skeleton service due to lack of demand. Already disadvantaged by income, they will be marginalised further through impaired access to jobs and schools.
Therefore it is entirely justifiable to use public money to ensure a good and affordable public transport system. The question then becomes how to use it effectively and transparently.
I ended the previous essay by saying we should nationalise the two chimera-type companies. It is the simplest route out of the present mess. I accept however, that there are other possible ways, and I am going to outline one alternative here.
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The principle outlined by Raymond Lim when he was Transport Minister remains a viable one. As quoted in my previous article, he said:
Once the new bus network has been implemented, LTA [Land Transport Authority] 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.
Thus, for the government to take back network planning was a good move. Assuming competent execution, the outcome should be packages of routes, designed through public consultation, that are put out to tender. The packages should come with quality standards, and be for a determined period, say 5 or 8 years. Moreover, since it would be in the interest of public convenience to have a standard pricing policy across all services with fare portability, the tender packages will have to stipulate that operators will subscribe to the common fare system operated by TransitLink.
The pitfall is when the tender exercise is restricted to only SBS Transit and SMRT, both being government-linked entities. No tender is truly competitive unless five or more parties take part, with no significant cross-shareholdings or common owners among the participants. To achieve this, the tender must invite foreign transport companies to participate, and it would be in our long-term interest to give preference to new players over the existing two in the first few tender rounds. This will enable new players to gain footholds in the local market and acquire the necessary experience to participate more competitively in subsequent tenders.
But how will subsidies fit into all this?
Simple. Since it is unlikely that tender winners will be able to run the route packages to the prescribed standard and at fares laid down by TransitLink, their bids will be permitted to include a subsidy request. Among those who can satisfy the regulator that quality standards will be met, the party that bids the lowest subsidy (or none) wins the tender. That way, the public will know that we have made the most effective use of public money in subsidising public transport.
Such a simple, transparent, competitive system is far better than what the government is proposing: sweetheart deals (bailouts — some comment-makers have called them) that favour two entrenched companies whose boards also provide cushy sinecures.
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ADDENDUM (4 hours after publication)
A reader emailed me Monday (27 Feb) to say that he had sent transport minister Lui Tuck Yew (pic, left) a letter last Thursday proposing almost exactly the same scheme — tendering of bus routes with Quality of Service criteria, with the key difference related to sharing of TransitLink/EZLink data (which I think is an important addition). London buses have been operating under this model for 27 years already, he informs me.
Here is the letter he sent to the minister:
I welcome Singapore Government’s intention to invest S$1.1B to boost the public bus service standard. I am concerned however with the approach of directing injecting of funds. Both SBS and SMRT are public listed companies and direct Government funding will lead to a free ride for its existing shareholders at the expense of public coffers.
At the heart of the issue is the unhappiness of the commuter over the quality of service (QoS) of Singapore’s public transport. I will like to suggest a different approach that will introduce competition into bus services and keep the cost down while ensuring QoS targets are met. This is done through the tendering out of bus routes with QoS criteria attached and inviting bus companies to bid for these routes.
For each bus route, the Government will need to specify clearly the QoS criteria to be met. The QoS should specify the expected passenger carrying capacity, the bus frequency for each time period etc. The tender should also specify the associated punishment if the QoS are not met. The bidding bus companies will have to take the QoS criteria into consideration and bid for the bus route accordingly. Unlike a normal tender, the tender value that is submitted by the bus companies may be positive or negative. A negative tender value will indicate that the bus route needs to be subsidized in order for the QoS to be met. If the Government were to set a very high QoS such as requiring high bus frequency or large passenger capacity at peak hour, then subsidy of bus routes are likely. By adjusting the QoS standard, the Government is able to influence the amount of subsidies needed. Instead of injecting funds directly into the bus companies, I am proposing that the Government uses that fund to subsidize the bus routes.
This proposal is not without its concerns.
One concern is the lack of information that is necessary for the bus companies to bid fairly. An incumbent bus operator will have some idea how much revenue a bus route can generate, information which other bidders do not possess. This will disadvantage other bidders.
This can be resolved by releasing the Ez-link card usage pattern to the public. Each time a passenger taps his Ez-link card, a computer record is generated. Everyday millions of data points are being generated this way. Data analysis of Ez-link logging data will enable us to find out the expected traffic volume for a particular bus route at a particular time period and the expected variation. It will also enable us to find out how over crowded the bus is. Armed with this information, it is possible for the Government to specify the QoS that is expected of a bus route. Verifying whether the bus company has met the QoS can be done by analyzing the Ez-link logging data.
The same information will also enable bus companies to do their revenue computation and bid for the bus routes accordingly. If the bus route is lucrative, the bus companies will come back with a positive bid value i.e. the bus company is willing to pay for the right to operate the bus route. If the bus route is money losing, the bus companies will come back with a negative bid value i.e. the bus company will operate the bus route only if the Government is willing to subsidize the bus route.
There are currently only 2 bus companies, with SMRT Bus dominating the north and western part of the island and SBS the rest. The duopoly situation may reduce the competitiveness of the industry concerned and make the bus route bidding process ineffective. Unlike MRT it is relatively easy to introduce competition for bus services. The Government should consider liberalizing the bus industry (much like the taxi industry) and allow new players to come in. An introduction of a 3rd or even 4th bus operator will invigorate the industry concerned.
This approach has several advantages. It eliminates the shareholder free ride issue. It tackles QoS directly through the tender process rather than relying on the goodwill of the bus companies to meet the QoS. It spurs competition as bus companies will need to compete for the right to operate the bus routes. I sincerely hope the Government will find the above proposal useful.