MRT fare formula needs to be reviewed to reflect rising operating costs: Transport Minister

A review of the Public Transport Council (PTC)’s fare formula for rail transport must reflect increased operating and maintenance costs due to macroeconomic factors such as inflation, wages and fuel costs, said Transport Minister Khaw Boon Wan in Parliament on Mon (Jul 8).

Responding to Potong Pasir SMC’s Member of Parliament Sitoh Yih Pin’s question on the current level of Singapore’s rail reliability and how the operators and the Government are going to sustain and fund operations, Khaw said that while “commuters’ perception of MRT services have improved” based on PTC’s recent surveys, in addition to the MRT now being on par with “other world-class systems” such as the Taipei Metro and Hong Kong MTR, such improvements “come at the substantial expense of both of the operators and the Government”.

Highlighting that the total cost of running the rail network has increased by around S$270 million between 2016 and 2017, Khaw said that the rail companies are “operating at a loss”, as the fares paid by commuters do not cover operating costs.

SMRT Trains, he noted, incurred a loss of S$86 million, while SBS Transit’s train division also lost tens of millions of dollars, as seen the latest reported financial year.

“You may ask, why fares fell below operating cost? PTC’s fare formula is supposed to keep fares in line with macroeconomic cost factors, such as inflation, wages, fuel costs, and increases in the network capacity, with a productivity extraction. But until recently, the PTC fare adjustments were not fully implemented.

“If we had strictly followed PTC’s fare formula, the operators would have been better able to cover the costs of the intensified maintenance.

“As it is, the additional costs have been partly covered by increased government subsidy and partly absorbed by the operators who have been incurring substantial losses. So this is clearly not sustainable,” he said, adding that PTC’s current fare formula will only continue to be implemented until 2023.

Additionally, said Khaw, the Government has spent “around S$1.9 billion to take over ownership of all rail operating assets”.

While the S$1.9 billion is a one-off expense, the government is also responsible for the “proper and timely renewal” of these assets, which is “a huge and continuing financial liability”, according to Khaw.

“Under the rail financing framework, the government pays for the full upfront cost of civil infrastructure, and the first set of operating assets. The subsequent operations and maintenance of operating assets are supposed to be fully paid for by the operators, through the collection of fares and non-fare revenue such as advertising. The depreciation cost of operating assets is supposed to be largely recovered by the government through licence charges,”

Khaw added that government subsidies have “exceeded their intended scope of funding the civil infrastructure and the first set of operating assets”.

“With intensified maintenance to reach the current level of reliability, the government operating subsidies have increased further. Over the next 5 years, the government expects to spend S$4.5 billion on operating subsidies, so this is nearly $1 billion a year. And this will be on top of the government spending of S$25 billion on civil infrastructure, to build and to equip new lines,” he noted.

In order to mitigate the effects of rising operating and maintenance costs for the time being, the Land Transport Authority (LTA) and rail operators are redesigning their systems and processes, said Khaw.

“For example, LTA is using its asset renewal programme to install new technologies, such as condition monitoring sensors. For new MRT lines like the Jurong Region Line, LTA is actively engaging the rail operators upstream on the design of the system, to ensure that it is designed and built with efficient downstream operations and maintenance in mind,” he illustrated.

The rail operators, he added, are also collaborating with ST Engineering “to cut out duplication and to raise productivity”.

However, Khaw maintains that while such interventions are necessary, “they will not fully offset the higher costs of operating and maintaining a highly reliable rail network”.

Thus, said the Transport Minister, it is crucial to “implement regular fare adjustments” in order to keep the rail system “financially viable and government subsidies under control”.

“We have entrusted the important task of fare review to the PTC and they will be fair to commuters, taxpayers and operators,” he concluded.