RAPID TRANSIT SYSTEMS (AMENDMENT) BILL

Order for Second Reading read.

The Senior Minister of State for Transport (Mr Khaw Boon Wan): Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time."

Our Rapid Transit System (RTS) has expanded over the years. In 1987 when we started, we had less than 70 km of network. With the opening of the Woodlands extension in 1996, the Bukit Panjang LRT in 1999 and the Changi Airport extension this year, the network is now nearly 100 km long.

When the Northeast Line (NEL) opens next year, the network will further expand to about 120 km.

Meanwhile, changes have also taken place in the industry. The SMRT Corporation, the holding company of SMRT Ltd (SMRT) which operates the existing MRT network, was listed in 2000. SBS Transit Ltd, another publicly listed company, will be operating the NEL.

Rationale

Our current licensing and regulatory framework for rapid transit systems must keep pace with these changes so that it remains relevant in the light of actual experience. This is the reason for introducing this Bill.

The Bill will empower the Land Transport Authority (LTA), the industry regulator, to impose conditions, restrictions and performance standards on rapid transit licensees, both existing and future, through a legislative framework. The imposition of these conditions, restrictions and performance standards on the licensee is not new. Currently, they are provided in the Licence and Operating Agreement negotiated between LTA and the licensee. What this Bill will allow us to do is to put these conditions, restrictions and performance standards on a legislative footing. In this way, we achieve greater transparency in our regulatory framework.

Let me now highlight the two key provisions in the Bill.

Clause 2

Clause 2 of the Bill amends section 15 of the Act to empower the LTA to impose:

(a) conditions on its licensees on matters relating to corporate governance;

(b) restrictions on the licensees' involvement in non-public transport businesses; and

(c) standards on the licensees' performance in areas such as the provision of RTS services and their maintenance.

LTA has a duty to retain regulatory oversight over key issues of corporate governance and other business activities of its licensees because the RTS infrastructure is paid for by public funds. Such LTA oversight ensures that the huge capital investments and the public interest are adequately safeguarded.

Clause 3

Clause 3 of the Bill expands the statutory powers of the LTA in three areas.

First, it empowers the LTA to issue codes of practice and directions, under sections 15B and 15C, in areas such as the operation and maintenance of RTS systems. This is necessary as changes in the industry and advances in technology may require new codes of practice.

Second, it expands the definition of events of default to include, among others, non-compliance with Codes of Practice and LTA's Directions (under section 16). It also makes provision for financial penalties to be imposed in the event of any occurrence of default. The ability to impose financial penalties will provide LTA with the means to take deterrent action if the operators fail to perform to regulatory expectations.

Third, it empowers the LTA (under section 15A) to add, delete or modify the conditions of the licences granted under section 13. However, any such change can only be effected in accordance with the due process as set out under this clause. The proposed amendment also allows licensees aggrieved by the new conditions to appeal to the Minister. In this connection, the grounds of appeal by licensees have also been expanded under section 17.

Mr Speaker, Sir, since its beginning in 1987, our Rapid Transit System has grown to become an important part of our public transport system. It now serves one million commuters a day. When the North East Line opens, more commuters will get to benefit from this form of transport.

Our regulatory regime has to keep pace with developments, both in the industry as well as the changes in RTS technology. In this way, we can better safeguard the interests of the commuters, while ensuring transparency and fairness to the industry players.

Sir, I beg to move.

Question proposed.

Mr Chay Wai Chuen (Tanjong Pagar): Mr Speaker, Sir, this amendment Bill on the rapid transit systems is timely and necessary. As our MRT lines have expanded and another new operator of the North East Line is coming on stream, it is also important to lay out and further improve the ground for competition and performance requirements of our operators. Performance related indicators and codes of practice must also comply in order for our MRT to operate efficiently. By nature, this area of public transport, whether it is for buses or trains, usually falls into some area of natural monopoly. It is necessary to run it both efficiently and yet meet public expectations of service.

Sir, rule-based competition is important to evaluate the performance of the operators. The amendment Bill focuses on three main areas - on the corporate changes in shareholding, on restrictions to lines of business, and standards of performance. While I applaud that such conditions and restrictions spelt out clearly for operators are good, sometimes it is difficult to see how it is applied in practice. Have we not, for example, seen the original SBS gone into property development? On the other hand, if an operator maximises the employment of its assets by properly going into interesting businesses, should it be discouraged in an entrepreneurial and efficient economy? We must appreciate that the MRT commands a sizable amount of assets and should be a dynamic sector in creating value in the economy. Infrastructural companies operating on public charter should run their business efficiently with the aim also of serving the public. Their aim must be to make a reasonable return by industrial comparison and ensure that the services are efficient, satisfying public demand and reinvestment.

While I agree that rules and regulations should be tightened to ensure efficiency to service public needs, the LTA should also determine what are the performance yardsticks for monitoring and making these yardsticks known publicly. They can be the number of delays in operations per year, the number of failures to observe safety regulations, revenue and load factors, etc, so that the public will be able to know how the public facility operator is doing. These red marks must be the basis to impose fines and penalties on these operators.

Presently, this proposed amendment only provides for the penalty of $1 million on operators for failure to comply with the provisions or directions of the Authority. It makes no mention of failure to comply for performances. I believe operators who fail to deliver services up to standard should be given fines and penalties. This does not seem to be provided at all in this Bill. Although there is a provision in this Bill for the Authority to suspend or cancel the licence of the licensee, it is hard to envisage what alternatives the Authority has in cancelling the licence. After all, the trains have to run. Hence, I feel that putting in a scheme of fines and penalties for non-performance or failure is necessary. This will awake the management of the company. Public infrastructure operators fear penalties and fines more than public outcries. And by these fines, I do not mean a fine of $10,000 for the stoppage of trains for four days. The fine should be meaningful enough and of sizable amount so as to make it a deterrent for the companies. The reason for this is simple. For fines, such public infrastructural companies will have to measure the yardstick. And for public outcries, it is very hard sometimes to determine the impact.

Sir, I hope the Minister will consider this point.

Mr Khaw Boon Wan: Mr Speaker, Sir, I thank Mr Chay for his comments. I take it that he supports in principle this Bill. He made a number of points. I noted three important ones.

First, he made a philosophical point. He said, yes, while he understood the need to place restrictions on non-public transport activities of licensees, we should not go overboard and stifle entrepreneurial activities on the part of licensees. That I agree. The clear dos and don'ts are easy to define, but there will be a lot of grey areas. So, it is one of those things where it is very difficult to codify. Therefore, occasionally, it has to be on a case-by-case basis. And the way to go about doing it is to make sure we have wise men and women sitting on the board of LTA, so that they can apply their wisdom, expertise and experience when a case crops up.

The second point he made was about performance yardsticks - that licensees should be subject to measurement, whether they meet up with their expectations, and he made a point about making those indicators public. I agree. We already have sets of performance indicators governing SMRT or SLRT, and I will ask LTA to think about going forward to the next step of making them public and make the process transparent.

The third point he made was about financial penalty - the point that, yes, we have the power to cancel a licence in the event of a major default in activities. To him, that is a very drastic step, which I agree. In fact, one of the objectives for moving this Bill is to build in this financial penalty framework so that we can have a more discriminatory way of governing the performance of the licensees.

Question put, and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House.

The House immediately resolved itself into a Committee on the Bill. - [Mr Khaw Boon Wan].

Bill considered in Committee; reported without amendment; read a Third time and passed.