Land Transport Authority of Singapore (Amendment) Bill

Debate resumed.

Mr Gerald Giam Yean Song: Mr Deputy Speaker, I thank the Minister for his clarifications. I have three follow-up questions on what he has said.

First, it is regarding the whole model that he was talking about where he said the profit motive drives efficiency. This may hold true in general, but not for the public transport industry. This is because of the inherent market failure in the public transport industry. As the BSEP has proven, the fact that we need to inject this whole subsidy in at this time in order to improve services is a recognition that there is a market failure in the public transport industry. The profit motive, yes, it drives efficiency, but only when there is stiff competition, when there is sufficient competition. But given our small market, true competition really is not possible.

So, the Government has said that we are introducing contestability. But contestability, we have to admit, is a poor substitute for competition. With 10- and 15-year contracts – 15 years in the case of the MRT contracts – there is not really that much incentive for them to perform in order to prevent themselves from being unseated. Who else can realistically run the PTOs? In fact, the Minister alluded in his response just now on how difficult it is to introduce new operators into the system, and I am sure the PTOs know that. So, I contend that contestability is not a major motivator of the PTOs to improve. The bottomline is: do we want to have a system where we have two profitable listed companies whose motivation is not necessarily to improve quality of service to commuters but to generate profits and to improve the dividends that they can distribute to their shareholders? They have distributed over $1 billion in dividends since 2003.

My second clarification is regarding the Minister quoting the UniSIM survey. My response to that is: if commuters are so pleased with the service, and the Government assesses that they are sufficiently pleased with the service, why is there a need to increase the QoS now? Is this not an admission that the service is not up to the mark? So, the proof is really in the pudding. Let us look at the mode share of public transport over the past few years. The LTA set a target of 70% in 2020, but, in 2004, the mode share was 63%, in 2009 it dropped to 59%. I am not sure what the mode share is right now. But obviously, we are talking about a situation where commuters are being deterred from going on public transport, and it is not a stretch to say that it is because of the poor service that they have experienced.

My last point is that I do not think the Minister addressed my question about why the Government has decided only now to decisively increase the QoS standard. Why did they not roll it in over the past, let us say, five years, and anticipate this population growth? Surely, the Government knew that there was going to be population growth. If there is a need for increased housing, there is also a need for increased transport.

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Mr Deputy Speaker: Before I call on the Minister for Transport, I would like to remind Members, in your clarifications, keep it short. Do not try to make any short speeches. Minister for Transport, Mr Lui.

Mr Lui Tuck Yew: Thank you, Mr Deputy Speaker. I think to say that it is a market failure in the transport industry and true competition is not possible for a city of this size begs the question why there is this shift towards privatised entities running transportation across a number of cities. And I would like to hear Mr Giam's explanation of why he thinks that this trend is seen in a number of cities and whether they are all experiencing market failure, and whether operators with a profit motive in those countries are also doing commuters there a disservice, and why governments are all moving in this direction. Again, I say this: we see the best in the solution that is not adopted and it becomes increasingly attractive over time. But I think we do not see the downside. The body of evidence is that, certainly, from across a number of cities, the nationalised entities are less cost-efficient, meaning that they actually require larger subventions. Going in that direction ultimately means either the commuters pay more or the taxpayers pay more or you suffer a decline in standards. I think that is the real truth about it because there is that nexus between standards, costs and the associated issue of where your fares are.

Second point is: if the UniSIM study is so favourable, why do more? Well, I have been asked from "why do more now", to "why not do even more" to "why only now", which was actually your next question. I think the point is that this is a Government that really wants to try and improve the quality of life here in Singapore.

Whether it is better housing, better schools, more effective and more affordable healthcare and transportation, we are prepared to do so. We are financially in a position where we can do so without having to borrow and putting the costs on future generations. And, hence, therefore, the question must be that if we can improve the quality of service that a commuter can experience without passing on the cost burden to him or her or the family, why should we not do it? We have a goal to hit 70% mode share in transportation. You are right in that it has declined. I think, in part, because we also made tweaks to the COEs as well as to the ARFs and the road tax. You may recall that ARF for cars at one time was as high as 175%, and now it has been brought down to 100%. COEs were growing at 3% and then, subsequently, it was brought down to 1.5%. Hence, for a number of years, those who were aspiring to own cars were able to do so and they, indeed, found cars to be more affordable compared to what we were experiencing in the mid-1990s. For those who remember, in the mid-1990s, COEs cost $100,000, and a Honda Accord was $150,000. That was the situation then. Over the years, it came down. And I dare say that much as some of you are prepared to take public transport and that there is a general degree of satisfaction with the public transport system from the surveys and anecdotal information that has been given to us, that there is also a deep desire for many people to own their own vehicles, whether it is because they have a young family, whether it is because they are dating and they think it is an important instrument, or whether they have elderly parents that they need to fetch.

Why not do this gradually over the last five years? Well, one of the things that we have done is that over a number of years, the PTC has, on an incremental basis, improved the standards. But I think we felt that it was necessary to decisively ramp it up. And if we are prepared to put $60 billion investment in rail, it was also appropriate to make sure that we put an appropriate sum of money into the buses in order to bring about an overall improvement in the transport network in Singapore, bearing in mind that there are those who depend solely on buses or those who use buses to complement their travel by rail. And that if we can do this, then it becomes, overall, a more attractive commute to the average commuter and, hopefully, as we tighten on supply of COEs, we can shift people towards public transport.

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Perhaps, I should take this opportunity to address some of the points that were raised by Dr Janil on taxis and COEs, because talking of COEs, he reminded me that he had brought up some points that I did not manage to address. For taxis, it is at the higher end of the public transport spectrum. It is not mass public transport. It is at the higher end of the public transport spectrum that allows a direct door-to-door commute. So, the pricing, the quality of service, is somewhat different. The concern is whether we are utilising the taxi fleet in an optimal manner. We have seven taxi operators today. Six of the operators, the majority of their fleet is run by a single driver. I think you will understand that with a single driver, it is not possible for them to drive 24 hours. They drive for a limited duration in the day and, hence, there are significant periods of time when the taxi fleet, I believe, is under-utilised. Therefore, it is important that we work both with the operators, as well as with the drivers themselves, to see what are the ways in which we can increase the overall availability and utilisation of this fleet. As I have mentioned during the Committee of Supply when we talked about the benefits of the QoS and the fare increases last December, this is one of the things that we are doing together with the operators and we ought to be able to finalise some of these measures soon enough.

Dr Janil Puthucheary: Mr Deputy Speaker, Sir, I thank the Minister for his comments on my questions. I have two additional questions. The Minister has brought up the issue of the extended subsidies that several other comparable cities provide for their entities – I hesitate to call them nationalised models because, in truth, they are all hybridised models, they all have a public-private partnership.

My question to the Minister on this issue is: can we discuss the extent of subsidy that Singapore provides? We have previously comments on how our fares are very low and our quality of service very high in comparison to these cities, but how does our subsidy compare? In other words, are we getting value for money? Is the efficiency of our model demonstrated in the amount of subsidy that we have to provide to support this model?

Second question: the Minister mentioned how the possibility of a third bus operator was brought up as part of the review process that led to the BSEP and various other measures that have been put in place and explained why the conditions would not be appropriate to bring in a third bus operator. Now, could he give some indication as to what type of conditions there have to be in order for a third bus operator to be viable in the future?

Mr Lui Tuck Yew: Mr Deputy Speaker, first, before I address the comparison between subsidies in the bus industry across various cities − they are not nationalised entities in London, in Taipei and all that, they are actually run by private operators – I thought maybe it is useful for us to take a look at how we subsidise rail versus buses, and, hence, why we are doing some things like what I mentioned about the depots as well as advertising revenue. I think the point is that we actually provide quite a lot more in terms of capital expenditure subsidies to the rail – we build the infrastructure, we buy the first set of the rolling stock and, subsequently, after a period of time, the operator is required to buy this over and add to the stock, to maintain it, and so on. We provide quite a generous amount of commercial space for which they can derive non-operating revenue and, indeed, if you look at the operators today, about maybe 50% of the profits actually come from non-fare sources. So, they have grown that over the years and it has actually allowed them, where necessary, to provide a certain amount of cross-subsidy over to their primary operations.

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For the buses, we have not subsidised them, if I may use that term, to a significant extent. We have allowed for the extension of the lifespan of the bus over a period of time. We have actually waived the requirement for COEs and, more recently, waived the requirement for even the public buses to pay the 5% ARF that otherwise these commercial vehicles would have to pay. So, there are a number of things that we have done for the public bus industry but, if you compare the two, I think it is clear that we provided a lot more support to and investment in the rail system compared to buses. And, hence, the points about building new depots, taking over the leases of the existing depots and leasing it to them for a nominal fee, allowing them to take a portion of the bus shelter advertising revenue compared to the past. These are different ways in which we are trying to align the kind of support given to these two industries.

How do we compare to other cities? Well, I mentioned London, for example, population of eight million, operating about 8,000 buses. If you have lived there, it is a high quality bus service that they run. Sometimes, the buses are quite empty but it comes very regularly and, indeed, I know people are certainly very pleased with that. But it comes with a heavy price. And our understanding, from people who have visited London, is that the subsidy on an annual basis amounts to about £500 million. Five hundred million pounds was the last they told us. And, hence, if you compare our BSEP, our BSEP is almost equivalent − $1.1 billion, but over 10 years. That, I think, in a sense, gives you an indication of the scale. Taipei – private operators, 14 of them, so a significant amount of competition, we believe. But even in Taipei, good quality system, we understand that they are being provided a subsidy of about S$100 million every year to do that for a population of about 2.6 million people. So, that gives you some idea of the kinds of subsidies that are being provided at different ends, in London as well as in Taipei.

On the third operator and contestability, we believe that being able to introduce more operators over time, the possibility of doing so will actually add to the competitive pressures that our two incumbents will have to face. It is not so straight-forward to make sure that we introduce competition in the right way. Because if I were to put a single route up for competition, for tendering, and say, this is a very lucrative feeder service, very profitable, I can imagine that there would be a number of operators beyond the two incumbents who would want to come in and be able to actually offer that service at a lower price compared to where we are today. But if I were to, at the same time, put up an additional individual route that is strictly non-profitable where the operator is required to provide services because of the universal service obligation, I can imagine that I would have very few or no operators coming in to tender for that.

The truth is that, today, there are both profitable routes and non-profitable routes. And within the bus industry, there is a certain amount of cross-subsidy between the profitable and the non-profitable routes. So, if you do it wrong, the danger is that you may be able to save one or two cents off the profitable routes at the expense of the deterioration in service or an increase in fares and costs for the so-called non-profitable routes. And, hence, the important thing is to put together a package of routes that will be sufficiently appealing and yet will encompass a range of possibilities in terms of profitability. I think it is also important to look at the geographical area for these routes because, as I have said, if they are dispersed across the island, it will be very, very difficult for a new operator to penetrate the market unless he already has depots, parking areas and maintenance areas for the buses. Hence, we have to make sure that we sit down very, very carefully, make right the financials for the bus industry, package the routes appropriately and then put it up for competitive tender.

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Mr Pritam Singh: Mr Deputy Speaker, Sir, I would like to make a clarification. The Minister suggested that I did not say whether I supported the Bill or not. I do support the fact that we are going to have more buses on the road and Singapore commuters are going to benefit from that. But I have reservations about some of the proposals in the Bill and, hence, I have to clarify them before I give my support. Sir, the point about loans, the Government could not provide a loan to the PTOs as opposed to a grant because the Bill allows for that. So, I would just like the Minister's clarification once more, on why the Government did not ask the PTOs for the money back after a certain period of time, because I think it was a reasonable expectation.

The second question I have is with regard to the investment of additional buses. I respect the Minister for informing the House how those investment funds would be used. Because I believe the Minister for Finance mentioned that $110 million would be disbursed on a yearly basis. Today, I have come to understand that this money, as a whole, would be put into the fund. Until the PTOs use the funds, the BSEF can be used for investment purposes. Now, would there be any difference in leaving those funds in the Consolidated Fund, rather than putting them in the BSEF until they have been used?

My final point is with regard to potential abuse of BSEF monies, and this is with regard to how these routes are packaged. The Minister has given the assurance that PTOs will not profit from the BSEF monies, but I am still not sure how the routes would be packaged in such a manner where they could profit or they could not profit. Just to make the clarification.

Mr Lui Tuck Yew: It is actually a reasonably complex matter because we provide them a loan to buy the buses, and then, thereafter, it is a grant to pay back the Government – if that sheds any light on this matter whatsoever. On the new routes we will introduce, our belief is that these routes are going to be non-profitable routes because if they are profitable routes, then the bus operators would already have wanted to operate them.

Let us take, for example, a route that runs parallel to an MRT line. Many people ask for it. The truth is that there are a few of these routes that are in operation today, the results are mixed. I will give you another example. On 17 December, a Sunday morning when we actually started running the trains later in order to give more time to the engineers to do a system check, we had parallel bus services for free. We ran that. It was successful. Then, when the trains started operating paid service, we continued to run the buses for free for an overlapped period of about two hours. But it was very telling that as soon as the trains were up and running, people shifted from the free buses to the paid train services - free buses versus paid train services.

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So, we are going to introduce some parallel routes during the peak hours. We do not know how successful they are. We hope that they are successful so that there would be opportunities for us to do even more in this regard, but we are really not sure, and neither is the operator. The truth is that, for the 40 or so new routes that we would put into place, some of them will go to new housing developments. Usually, you would introduce a new bus route after a certain critical mass has built up, which means that those first few families who move in very early may find themselves at a disadvantage because it is not as well served as it would otherwise be in a steady state. What we are going to do with this is that, with the BSEP, we would be able to introduce these new routes ahead of the time than it would otherwise be. So, that is again some of the things that we are doing.

Why put money into the BSEF rather than in the Consolidated Fund? The Government wanted to demonstrate that it was prepared to ring fence this $1.1 billion and make it available over a 10-year period without putting the burden on, say, the next government who may have different priorities and, therefore, say that "No, I am not prepared to continue with this programme". So, you have this money, you put it aside, rather than to keep it in the Consolidated Fund. You know that you have it for 10 years; you can run the programme for 10 years. Thereafter, the Government of the day will have to review, make a commitment to see whether to continue with it or not. If they do not continue, and because the buses operate for 17- 20 years, it is not as if we will give the buses for free to the operators. They either return the buses to the Government or they buy them over. So, to that extent, we have gone into those details to make sure that, both now and over the longer term, for that period of 10 years and even beyond, the operators do not profit from this programme that we are running.

Er Dr Lee Bee Wah: Sir, I have two questions. First, if I understand Minister correctly, we are waiting for the arrival of drivers in order to roll out this bus enhancement plan. However, last week, someone told me that he works in SMRT and he has the drivers ready. He is waiting for the arrival of the buses. So, I would like to ask Minister: when will the first batch of new buses arrive in Singapore and how many of them? The Minister did not answer my second question: if 800 buses are insufficient and we need more, will the Ministry be prepared to do more?

Mr Lui Tuck Yew: Mr Deputy Speaker, the Member is obviously from the "do now, do more" camp. If I refer to the Member's second question, I want to make sure that the programme is implemented properly, that it is well received on the ground, that it is delivering the results that it has promised. If the recruitment of bus drivers allows us, then we will certainly be prepared to consider expediting the roll-out of the 550 buses, paid for under BSEP, which is supposed to be introduced over the five-year period. Already, 70% of these new buses will come front-loaded within the first three years. But if it is not enough or if we can do better and there is a need to do more, then yes, I am prepared to discuss with the Minister for Finance and, hopefully, the Member would lend her whole-hearted support if we request for more funds to do so.

The truth is that to buy a new bus and for it to come in, it is probably somewhere between 12 and 18 months, depending on where you get the buses from, and whether you have option buys in place that can expedite it. But as I mentioned in COS, we have also given permission for the operators to temporarily extend the buses beyond the current lifespan that we allow them to, provided it is properly inspected and it is roadworthy. So, it is not so much dependent on the arrival of new buses as opposed to making sure that we have drivers ready and properly trained. To recruit them and then to be in a position to deploy the drivers take at least nine weeks because the training itself takes nine weeks.

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I know SMRT and SBST would have been recruiting drivers over the many months and years. I would have to check with them whether, indeed, it is a case that there are drivers ready but no buses to drive because our intention is actually to allow an administrative extension of the lifespan of the buses in order to quickly introduce this to augment the existing services or into new routes because, to me, it is better to have "an old bus" than "no bus".

Mr Deputy Speaker: We are approaching 7.30 pm soon. Leader of the House, do you want to extend the time?