PUBLIC TRANSPORT FARE REVISION

Column: 3345

PUBLIC TRANSPORT FARE REVISION: The following Question stood in the name of Mdm Cynthia Phua –

13. To ask the Minister for Transport in respect of the recent public transport fare revision (a) why the quantum of fare revision by the transport operators is not in line with the drop in oil prices; (b) whether the Public Transport Council will adopt greater transparency in explaining how revisions are arrived at; and (c) what is the average number of passengers (i) who take single journeys; and (ii) who take multiple transfer journeys.

Er Lee Bee Wah: Question No. 13, Sir.

The Minister for Transport (Mr Raymond Lim Siang Keat): Mr Speaker, Sir, Mdm Cynthia Phua asked why public

Column: 3346

transport fares have not fallen by a similar amount as oil prices. This is really a question about the link between oil prices and public transport fares. When the Public Transport Council (PTC) decides on fare adjustments each year, the adjustment is based on a formula that is pegged to changes in the Consumer Price Index (CPI) and the Wage Index (WI) over the preceding year, and not oil prices. Oil prices, therefore, impact public transport fares only indirectly through their impact on the CPI.

This means that fares will not fluctuate to the same degree as oil prices, as oil impacts the various components of the CPI to different degrees. Furthermore, an increase in one component in the CPI may be offset by falls in others. Thus fares will not drop as much when there is a dramatic drop in oil prices. But equally, when oil prices shoot up, fares will also not shoot up as much either. We explicitly decided not to allow direct pass through of fuel and wage costs to commuters by the operators. This is to give operators every incentive to operate efficiently, and keep costs as low as possible. This was why last year, despite a 40% increase in diesel prices, the increase in CPI and WI was only 2.1% and 6.9% respectively, leading to an allowable fare adjustment of just 3%. As the PTC also made the operators absorb a large part of the increase in transfer rebate then, fares went up by only 0.7% in October last year. So, the fare formula not only incentivises the operators to be efficient, it also moderates the effects that drastic spikes in oil prices have on public transport fares. In this way, commuters are protected while the public transport system is kept sustainable.

Mdm Phua suggested that the PTC adopt greater transparency in its deliberations. In fact, the maximum allowable fare adjustment each year is transparent, as it is determined by a formula based on publicly-available

Column: 3347

indicators such as CPI and wages. Conditions for deviations from the formula are also specified in the 2005 Report of the Committee on the Fare Review Mechanism. If and when a deviation is warranted, the PTC will clearly explain its decision, as it did in 2007 when it rejected the operators' applications to increase train fares.

However, the recent announcement by the PTC and operators to reduce fares was outside the fare review framework. This was because the operators had decided not to apply for a fare increase under the fare review formula this year. Being mindful of the current economic conditions, they instead took the initiative to work with the PTC to pass on more than the savings they will receive from the Budget measures to commuters.

Together with the PTC, they decided on an overall 4.6% reduction in bus and train fares. This is a significant reduction as it more than offsets the fare increases of the past three years combined (0.7% in 2008, 1.1% in 2007 and 1.7% in 2006). Commuters on the whole will pay total fares that are less than what they paid in 2006.

Some commentators have presented the fare reduction package as only a 2 cents reduction. This is misleading. We need to look at the whole fare adjustment. This year, the fare adjustment formula allows for a fare increase of up to 5%, or 6 to 7 cents. On top of foregoing this 6 to 7 cents fare increase, the operators decided on a further 2 cents reduction across the board, and the PTC concurrently increased the transfer rebate by 10 cents. So the fare reduction package is not only "2 cents", but in fact "2 to 14 cents" per journey. For journeys that involve more then one transfer, the reduction is even more, 26 or 38 cents.

In working out the fare reduction package, the PTC had sought to benefit

Column: 3348

as many commuters as possible, particularly those who make transfers. Currently, six in 10 commuters, a majority, make at least one transfer a week. These commuters will enjoy significant savings because of the increase in transfer rebate.

In fact, all commuters will benefit in the longer term from these changes. The increase in transfer rebate brings us closer to distance-based through-fares, where a direct journey will have the same fare as a transfer journey of comparable distance. By reducing and ultimately eliminating the transfer penalty, all commuters would be given more choice over the routes for their journeys. They would not be penalised for choosing to make transfers if doing so were faster, more direct or provided a better travel experience.

Mr Cedric Foo Chee Keng (West Coast): Sir, supplementary question for the Minister. Is it correct that the price of fuel affects the operating cost of the public transport operators? And is it also correct that the second order consideration for the PTC, after having applied the formula which the Minister described, is to test the proposed increase against the returns that the public transport operators are getting and, therefore, make adjustments in accordance to that?

Mr Raymond Lim Siang Keat: The Member is correct. The fare review mechanism spells out when the PTC can deviate and what are the factors they take into account. The return on total assets (ROTA) is one of the reality checks that the PTC has to take into account.

Mr Cedric Foo Chee Keng: Sir, does this not mean that fuel price has an impact on fare adjustment?

Mr Raymond Lim Siang Keat: Insofar as it impacts the CPI and the ROTA, yes it does, but indirectly.

Column: 3349

Mr Speaker: Last question, Mr Foo.

Mr Cedric Foo Chee Keng: Sir, a follow-up question for the Minister. The Minister describes the CPI and the WI, the average, and then there is a productivity extraction, which basically forms the basis of the formula. If the WI and the CPI were to drop because of sustained or prolonged economic downturn, would fares be decreased?

Mr Raymond Lim Siang Keat: It is very useful to read the fare review mechanism. It is found on the PTC website. It specifies that if the fare formula is negative, which means both fall, the PTC has the power to order a fare reduction, for example, next year. It is part and parcel of the whole fare review framework.