Historical perspective on liberalising public transport

by: Donaldson Tan/

One of the highlights in the Workers’ Party (WP) General Election Manifesto 2011 is the nationalisation of public transport in Singapore. The WP proposed to merge the public transport operators (bus & rail) and the public transport council into a single entity known as the National Transport Corporation. In response, Second Transport Minister Lim Hwee Hua dismissed the proposal, saying this would be ‘a step backwards’ in the level of services commuters currently enjoy. If the WP’s underlying motivation is to have cheaper public transport, it would result instead in an inefficient transport system, she told the Straits Times on 16 April 2011.

According to the WP, the justification of having two public transport operators so as to enable the public to reap benefits from competition has proven to be hollow. Commuters have no choice between operators, due to the carving up of rail and bus routes between the two operators. The WP further emphasised that the percentage share of peak hour morning travel on public transport fell from 63% in 2004 to 59% in 2008. It also added that the government acknowledged the fall is due to the lack of major infrastructural improvements to the public transport system between 2004 and 2008, while the human population and vehicle numbers were allowed to grow.

These are certainly valid concerns, but it remains a question whether nationalisation can address the imperfections. The alternative to nationalisation is liberalisation of the public transport sector. In either case, quality of service, return on investment, fare affordability and coverage of scope are important factors for evaluation. The government’s failure to ensure public transport infrastructure to be in pace with population growth certainly raises questions on the current duopoly arrangement involving SBS Transit and SMRT Corporation, in particular, the responsiveness of public transport operators to the growing needs of the commuters.

Back in 2006, Mr Ngiam Tong Dow (Former Permanent Secretary of the Prime Minister’s Office) called for the Public Transport Council (PTC) to take “a sabbatical”. According to Mr Ngiam, the government administration has made Singapore’s transport system an uneven playing field where bus and rail operators cannot compete freely. In fact, if he had his way, fare increases and decreases would be decided by the respective operators, including school bus companies, while the PTC takes “a sabbatical”. He supports the notion that the Government should learn to leave well alone.

Singapore is not new to a deregulated public transport system. Before 1970, there were 11 bus operators offering 117 services. Each operator served a different sector without any integration of fares, routes or timetables. Bus services had become grossly inadequate for serving the ever-increasing population. Buses were overcrowded while bus drivers skipped bus stops and bus conductors were involved in quarrels with commuters. The inability to maintain a profitable operation led to poor vehicle maintenance and frequent vehicle breakdowns among the bus operators. Subsequently, government intervention led to the merger of the 11 bus operators to form the Singapore Bus Services in 1973, a predecessor to the SBS Transit today.

The problems that plagued the public transport sector in the 1970s and today are similar – increasing strain on the public transport sector due to ever-increasing population. But there are dissimilarities too. For example, corrupt management practices are weeded out. The bus operators are sufficiently capitalised. Bus operators today meet a minimum standard for quality of service which includes service coverage, frequency, bus loading and passenger information. The problems of numerous poorly planned and operated bus services with wasteful duplication and no common fare structure have been overcame. In another words, there is room for more private sector participation in the public transport system.

One has to be careful to ensure that the things had worked for the betterment of commuters should be kept, while enhancing competition. Instead of depending on public transport operators to plan routes and managing transport hubs, these centralised roles can fall under the purview of the PTC. The PTC would also be in charge of the ticketing infrastructure. Instead, routes are planned by the PTC while profitable and unprofitable routes are bundled together and put up for tender. The PTOs then can submit their bid to the PTC whereby they can tweak various parameters of the bid. For example, the PTO can promise a share of the cash revenue to the PTO, which can be broken down into cash upfront component and subsequent percentage of the revenue. This is known as competitive tendering.

The idea of competitive tendering is to use competition forces to promote efficiency while encouraging PTOs to look for opportunities on a continuous basis and to innovate to maintain if not expand markets. While PTOs may not be planning routes, they can lobby the PTC to establish new routes based on their own internal market research. Since PTOs provide complementary services, the only way for them to compete is to outbid each other to provide a particular service to the commuters. Competitive tendering can be applied to trunk and feeder services. It is important to note that no idea is perfect and can be implemented directly.

The following conditions are necessary for the implementation of competitive tendering:

• Careful identification of networks and bundling of routes;
• Provisions on mitigation of operational risks such as recession or oil increase;
• Knowledge on cost centre behaviour (economies of scope and scale) and implication on unbundling;
• Creation of level playing field for potential entrants;
• Potential for a hybrids such as introduction of yardstick competition;
• Strong and efficient authority.

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This article first appeared in New Asia Republic on 25 April 2011. We thank NAR for allowing TOC to reproduce it in full here.