Nationalising Public Transport – Is Ho Ching in the way?

by: Gordon Lee/

Recent days have seen much talk about public transport in Singapore - Public Transport Council (PTC) has also allowed Singapore’s two public transport operators (PTOs) to increase their fares this year.

The Minister of Transport, Lui Tuck Yew, has repeatedly rebuffed calls by NCMP Gerald Giam of the Workers’ Party for public transport in Singapore to be nationalised. The Transport Minister in effect prophesied 'apocalypse' should such a situation occur.

However, in practice, the fact is that public transport is already nationalised! SMRT Corporation is owned by Ho Ching’s Temasek Holdings through their 54% controlling stake[1], and in turn, Temasek Holdings is fully owned by the Government of Singapore. The Singapore Labour Foundation (a statutory board), also has shares in ComfortDelgro who is the major shareholder of SBS Transit.”[2]

Yet, even though the Government ought to be concerned about the quality of service provided, the arrangement of the Government owning shares in publicly-listed firms skew that relationship into one where the Government, as a major shareholder, is concerned about the bottom line and profit margins.

This presents a conflict of interest at best, and at worst, a betrayal of its public responsibilities. It is no wonder, then, that the Minister is quick to defend the profits of the PTOs, saying “it is not unreasonable for the PTOs to earn fair returns from the sizeable capital investments required to sustain their operations and to invest in future public transport needs.”[3]

In return, a very grateful SMRT says that they are “committed to improving profitability and growing shareholder value and returns to our investors.”[4]

Not only has the dividend per share (paid out annually) increased 22% between 2006 and 2010, the share value has also increased almost 80% between Mar 2006 to Mar 2010.[5]

Besides allowing the PTOs to increase fares, the Singapore government is also very willing to protect the market share of the PTOs by maintaining the duopoly (which characterises the market) through its control of licences. Minister Lui insists that protecting the monopoly power of PTOs is necessary to prevent “cherry-picking”.[6]

More recently, it has also come to light that the Government has indirectly subsidised the capital replacement costs of the PTOs by extending the statutory lifespan of buses from 12 to 17 years, and that is set to be relaxed even further.[7]

So, why then does the government claim that public transport is not, in fact, in public hands?

The reason is clear, the government wants to control the potentially lucrative public transport market, but it wants to keep the market lucrative and profitable for itself. Full, direct ownership of the PTOs will place immense political pressures on the government to sacrifice this cash cow for the public good.

That explains the current arrangement of indirect ownership of the PTOs, allowing the Government to eat its cake and have it too.

Moreover, following a series of massively embarrassing blunders by Ho Ching’s Temasek Holdings, the Government and Temasek Holdings have to justify the investment risk that they are taking with public funds - and when it comes to investment, the best justification is to prove high returns. Temasek Holdings proudly claims to have given the Government returns of 17% compounded annually for the past 37 years since its inception.[8]

How this incredible figure is arrived at is indeed puzzling. At the height of the financial crisis, the “Intangibles” component of Temasek’s assets shot up 50 per cent from $14.8bn in 2007, to $21.4bn in 2008.[9]

How much of this valuation is creatively done in critical years to make up for portfolio losses is anyone's speculation.

Also, are the returns on investment skewed by the fact that yearly government budget surpluses are transferred to Temasek, which then includes those interest-free capital injections into the performance figures of its portfolio?

Looking at the portfolio of Temasek Holdings also further raises eyebrows. Temasek Holdings owns CapitaLand and other real estate companies, allowing it to profit from rocketing land and house prices. Temasek Holdings also own other state-protected monopolies, such as Singapore Power, CityGas and MediaCorp.

This is yet another case of a conflict of interest that exists with the management of Temasek Holdings.

The Minister and his Government have to decide where their priorities and duties lie, and review existing arrangements in an open, transparent and honest manner which respects the needs of the country.

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The writer is an undergraduate student reading Economics at the University of Warwick.

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[1] http://www.smrt.com.sg/investors/Shareholding_statistics.asp
[2] http://theonlinecitizen.com/2011/07/nationalising-public-transportation-is-it-feasible/
[3] http://www.asiaone.com/Motoring/News/Story/A1Story20110714-289124.html
[4] http://www.smrt.com.sg/investors/documents/annual_reports/2010/pdf/SMRT_A_R_2010_Low_Res.pdf (p. 44)
[5] http://sg.finance.yahoo.com/q/hp?s=S53.SI&a=06&b=26&c=2000&d=07&e=5&f=2011&g=m
[6] http://www.channelnewsasia.com/stories/singaporelocalnews/view/1143622/1/.html
[7] http://motoring.asiaone.com/Motoring/News/Story/A1Story20110804-292701.html
[8] http://www.temasek.com.sg/
[9] http://www.temasekholdings.com.sg/our_portfolio_financial_highlights_performance.htm