SINGAPORE MASS RAPID TRANSIT

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SINGAPORE MASS RAPID TRANSIT:

(Social responsibility): 16.

Ms Denise Phua Lay Peng asked the Minister for Transport why is the Singapore Mass Rapid Transit (SMRT) operating as a for-profit entity instead of a social enterprise with the goal of providing cheaper, faster and better commute for the public.

The Minister for Transport (Mr Raymond Lim Siang Keat): I would like to assure Ms Denise Phua that having public transport operators (PTOs) as for-profit entities is not incompatible with providing high-quality and affordable public transport services. Our approach is to ensure that our PTOs are motivated to operate as efficiently as possible, within a regulatory framework that safeguards the interests

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of the commuting public, so that the whole system produces the best outcome for commuters.

Ms Phua mentioned cheaper public transport. It is the PTOs' profit motive that drives them to constantly strive for efficiency and productivity improvements to reduce costs. Without the profit motive, the PTOs would have fewer incentives to continuously review their operations and services, and to introduce cost-saving innovations, such as improving manpower rostering and work processes. Experiences in other jurisdictions show that public transport services run by state-owned enterprises without the profit motive tend to have higher costs. For instance, we were informed by the transport authorities in Adelaide that costs fell by some 20% after they privatised their public transport operations. A study in 2006 showed that SMRT had the lowest operating costs per passenger amongst nine other international rail operators, of which eight were state-owned operators.

While motivated to keep costs down, SMRT is also prevented from over-charging to increase its profits by a strong regulatory price control framework. Our public transport fare increases are capped by a fare adjustment formula administered by the Public Transport Council (PTC). This fare adjustment formula has been carefully deliberated and refined over the years to ensure commuters' interests are safeguarded. It is a price cap formula, which takes into account macro-economic factors. It is not a cost-plus formula, where the cost increases of the PTOs are allowed to be passed through. This ensures that the PTOs cannot unilaterally raise fares based on what the market can bear. In fact, the fare formula has a productivity extraction component which allows commuters to benefit from the PTOs' productivity and efficiency enhancements, in the form of lower fare increases in future years. Indeed, our

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MRT fares are much lower when compared against major cities such as Hong Kong, London, New York and Tokyo. And this is on a PPP (Purchasing Power Parity) adjusted basis.

Ms Phua also mentioned faster and better public transport services. To ensure that the pursuit of profit is not at the expense of service quality, we have put in place a set of Quality of Service (QoS) Standards for buses, and Operating Performance Standards (OPS) for rail. These standards specify the expected service levels and are reviewed regularly. The Government also works in close partnership with the PTOs to improve services where possible, such as injecting additional train trips during peak hours and lunchtime. The PTOs are also motivated to ensure that their services meet the needs of their customers, as their profitability improves if more commuters make use of their services. This approach has served us well. For example, SMRT recently won the 'Best Passenger Experience Award' at the inaugural Metro Awards 2008, beating other finalists such as Copenhagen Metro and MTR Corporation (Hong Kong).

Mr Speaker: Ms Phua, you have two minutes left.

Ms Denise Phua Lay Peng (Jalan Besar): Sir, public transport, like education, housing and health, is a basic key essential service that is usually provided by the State and also a key component of cost of living. So, when this is delegated to a listed company, whose objective is always to, I guess, maximise net profit margins, then there will also be tension between generating profit and providing better and cheaper services, hopefully. So, would the Government consider restructuring firms like SMRT to either agencies like HDB or cooperatives like NTUC, to reduce this tension?

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Mr Raymond Lim Siang Keat: In short, the Member is suggesting that public transport operators should really all be social enterprises. I think that is her basic proposition. As I have said in my answer, it is not true that if the PTOs are profit-driven, it will not serve the public interest. In fact it is because it is a commercial entity that gives it the incentive to be efficient, cost-conscious and customer-centric.

What is the public interest here? The public interest here is that you want a public transport system to be affordable and a high quality public transport system. How do you achieve this? We achieve this not by saying that every public transport operator must be a social enterprise but by introducing competition into the framework, contestability which we are doing, and have strong economic and service regulations in place to protect the commuters' interest. In the case of economic regulation, we do not allow the PTOs to profit maximise because we have a price-cap formula. They cannot charge what the market can bear. So what they have to do, because of the price-cap formula, is really to lower down their costs in order to increase their profits. Further, PTC's and LTA's service regulation is what ensures that, in the pursuit of profit, they do not compromise on service standards. Now, food is important. It is an essential. If we follow your argument, then you would say all supermarkets in Singapore should be social enterprises. But we do not have that. Yes, we have NTUC, but we also have Carrefour, Giant, Cold Storage. So, I think we should focus less on the form but on the outcome that we hope to achieve.

Mr Speaker: Order. End of Question Time.

[ Pursuant to Standing Order No. 22(3), Written Answers to Question Nos. 19 and 24 on the Order Paper are reproduced in

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the Appendix*. Questions Nos. 17-18, 20-23 and 25-35 have been postponed to the sitting of Parliament on 27th August 2008. ]

*Cols. 3271-3274.