Tuesday, May 20, 2014

Rail Financing


SMRT business outlook will improve after selling rail assets to Govt: CEO


SINGAPORE — With its once-lucrative rail business battered by escalating costs, SMRT’s business outlook will improve after it sells its rail assets to the Government, its chief executive Desmond Kuek said yesterday.

However, Mr Kuek, who was speaking at a media briefing on SMRT’s financial results, said he was in the dark on whether the Government would agree to the operator’s proposals — the latest one of which was submitted early last month. On whether there is a time-frame for the Government to give an answer, Mr Kuek said: “I wish I knew.”

He confirmed that SMRT had been in talks with the Government for some time on extending the new rail-financing framework — which was introduced in 2010 and applies to new MRT lines — to existing lines. Under this framework, the Government will pay for and own rail assets on the lines, such as the trains and signalling systems, which will be leased to operators.

This arrangement will, among other things, remove the burden of capital expenditures on asset replacement from the operators, which will focus on other service improvements and maintenance work. SBS Transit’s Downtown Line was the first to be placed under the framework.

Responding to media queries, a Ministry of Transport spokesperson confirmed that it had received SMRT’s latest proposal but said the ministry needed to study it in detail.

“Given that our public transport operators are publicly-listed companies, we are mindful that any decisions on transition for existing lines would need to be carefully considered,” said the spokesperson. “Discussions will take time and need to take into account the operators’ current licence obligations and ownership of operating assets. Transition will only proceed on mutually acceptable terms to both the Government and the operator.”

On Wednesday, SMRT reported a loss of S$25 million on its fare businesses for the financial year ended March 31, dragging down its overall net earnings to an 11-year low of S$61.9 million. The operator incurred about S$650 million in the last financial year on capital expenditures. It expects to spend about the same in the coming year on the purchase of new taxis, replacement of buses, ongoing upgrading of the signalling system and work on the third rail and sleeper replacements.

Mr Kuek said he hoped the Government will respond to SMRT’s proposal as soon as it can. “There is an alignment of interest on both sides ... to try and move towards a transition to the new financing framework as quickly as possible,” he said. However, there are a lot of implementation issues and legalities that need to be worked through, which takes time, he added.


Mr Kuek revealed that the Circle Line was still in the red. Parts of the line began opening in 2009 and it was fully operational in 2011.

Currently, the Circle Line has an average ridership of about 360,000 per day, below the target ridership. Mr Kuek said that SMRT has had to carry out overhaul work on the line.

[And it is so crowded at peak hours.]

“Should the bus contestability framework and the new rail financing framework come about, we should see a much more sustainable business outlook for the company in the future,” he added.

National University of Singapore civil engineering Associate Professor Lee Der Horng said asset replacement could be taxing on the operators as these are “big ticket items”. Should this burden be removed from SMRT, its profits will be dependent on factors such as ridership instead, he noted.

Dr Park Byung Joon, head of the urban transport management programme at SIM University, said moving existing lines under the new framework would be a “fundamental change in the public transport model”, which is probably why the Government is taking a while to respond, he said.

Last Thursday, SMRT shares soared almost 20 per cent as investors speculated that a sale of assets to the Government was imminent.

When asked about the surge in share prices and why the submission of SMRT’s proposal to the Government was not made known to the public earlier, Mr Kuek shot back: “Is that the reason for the share price increase?”

He reiterated that the company did not know “the real reason”. “We don’t know of any material information that we did not previously disclose, that could have led to what happened last Thursday. There is a whole lot of speculation, and we are trying to understand what the activity is about.”


New rail financing framework may lead to smaller fare increases, say analysts

By Saifulbahri Ismail
05 May 2014 22:19

Analysts say the new rail financing framework could translate to better service levels and smaller or less frequent fare increases.

SINGAPORE: The new rail financing framework is not expected to be implemented before 2016, say transport analysts in response to a recent tender called by the Land Transport Authority (LTA) to engage consultants to help build up its asset management capabilities.

Analysts also say the framework could translate to better service levels and smaller or less frequent fare increases.

Last week, transport operator SMRT said its business outlook will improve after it sells its rail assets to the government.

The new rail financing framework was introduced in 2010, in which the government will pay for and own rail assets.

These operating assets include the trains and signalling systems, which will then be leased to operators. The burden of capital expenditures on asset replacement will thus be removed from operators.

All new rail lines starting from the Downtown Line will come under the framework. Meanwhile, the authorities and operators are in discussions to bring existing lines into the framework.

Analysts expect commuters to benefit from this arrangement because operating expenses should decline when the new framework kicks in.

"When they become more financially sustainable, we can reasonably assume the commuters may not face the frequent fare adjustments,” said Professor Lee Der Horng from the National University of Singapore’s department of civil and environmental engineering.

“By looking at the fare adjustment formula, we can see that if the operator's responsibility can be further lessened, then the operators may not have strong reasons to raise the request through the government to adjust the public transportation fares."

The good news may not just stop at fares, as experts say service levels may also see improvements.

"If the government will put a lot of money to have a huge increase in capacity and have a huge increase in the maintenance structure, the capacity will increase and the maintenance will be done more properly,” said Dr Park Byung Joon, head of the urban transport management programme at SIM University’s School of Business.

“We should see better quality services, we should see less disruptions. But, on the other hand, we have to ask ourselves how much are we willing to pay to have that kind of improved services."

Rail operator SMRT said it has submitted a proposal to the government on the new rail financing framework. It believes the framework can help the sustainability of its business.

However, experts say this depends on the cost of the licence for the assets leased to the operators.

"Don't forget the operators in the future still need to pay the fees to the government in order for them to use all these operating assets. Therefore, how the charging scheme is going to look like at this point of time, we do not know," said Professor Lee.

Analysts say the new rail financing framework should be implemented after the LTA has worked out its asset management capabilities.

LTA recently called for a tender to engage a consultant on this and the final report is expected in early 2016.

Dr Park said: "The LTA is more of a regulator. They don't have the capacity, or they don't have the human resources, to be able to manage the assets. So, this is the first step moving from the existing system to a different system."

- CNA/ec

[The public transport system should never have been privatised. This is proof of its failure. ]

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