Monday, August 1, 2011

What if SMRT is nationalised

I've been reading with great interest on the debate of nationalising our public transport. However, I'm quite curious on why they kept harping on the fact that it's not in Singapore's interest to nationalise our public transport system despite so many examples of our neighbours doing a fairly good job of maintaining theirs, in particular the train network.

Therefore I tried to do a what-if scenario. What if the Singapore government buys over SMRT. The reason for choosing SMRT is quite simple. It's operations is mostly based in Singapore and it's operating both the trains and bus network. I did a little digging and found some quite interesting facts that we may not know about.

First of all, the Singapore government has given SMRT the following licences to operate the Singapore transport network:
  1. a 30 years licence to operate the North-South-East-West (NSEW) and LRT line which will expire on 31 March 2028. 
  2. a 10 years licence to operate the Circle line which will expire on 4 May 2019
  3. a 10 years licence to operate the bus network which will expire on 1 September 2016
Now it seems a little clearer why the government seems to have its hands tied in introducing competition to the bus routes. The details of the licence and operating agreement are not known but judging from the fact that the government refuses to consider introducing competition to some of the routes to other operators, it may seem that this may be one of the clauses in the agreement.

I did a simple calculation on how much will it cost the government to buy over SMRT using the number of outstanding shares and it's estimated to cost about 2.8billion Singapore dollars(no premium). The cashflow of SMRT has always been positive so operating the network should even bring extra revenue to the government.

Judging from the fact that the government has always been prudent on the budget allocation, I don't think they will want to spend almost 3 billion dollars to buy over SMRT and I've yet to calculate the cost of SBS Transit. The rule of the law also works against the government as the agreement to operate the assets have yet to expire. To unilaterally terminate the agreement will scare away organisations to set up shop in Singapore.

Therefore, it seems that we have to wait many years before the public transport network can be nationalised (expiry of all the agreements). Meanwhile, it seems that the government is now exercising its rights in the Service Level Agreement, forcing the transport operators to improve the service level.

However,  my hope for further improvements to the transport network is to open certain high volume transport routes to the other transport operators. The routes should be exactly the same as the routes currently in use by the duopoly transport operators, and the operators should be subjected to the similar setup (ezlink, etc). This will help in
  1. improving the frequency of the high volume routes
  2. forcing the current incumbents to buck up on their service levels
  3. letting smaller players innovate in those high volume routes.
Currently SMRT has no incentive to improve service levels because of the very fact that they are after all a listed company. A duopoly or oligopoly will never be more efficient than the free market and judging from the fact that the transport operators only seem to buck up if the government forces them to act. This speaks volumes on how efficient they are. Introducing competition to the highly congested routes will force the operators to improve on the service levels.

Will it happen? I don't know but there's no harm in wishing for it.


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