Opinion

Why The New Rail Refinancing Framework is Not Going To Help Fares Go Down

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Ryan Ong

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SMRT trains experience more breakdowns per week than an unpopular 13 year old. That’s one reason for their fare hikes: to better maintain the rail system.  A justification that, you might notice, makes it possible for SMRT to raise revenue by failing harder. But maybe, just maybe, the rail refinancing network will fix that:

What is the Rail Refinancing Framework?

The idea is the Singapore government will purchase and own the rail lines (as well as some other major rail assets). Private companies, such as SMRT, will then rent / lease the rail assets, and operate them for profit.

The rationale behind this is:

  • It will improve SMRT’s bottom line, since now they don’t have to pay to maintain the rail lines.
  • The government will have better control over the fares.
  • There might be fewer fare hikes, since its cheaper to run the trains.
  • The government might a better job of maintaining the rail lines. It can’t be hard to improve on the current management. I’ve known three-pack-a-day chain smokers to manage their lungs better.

Will it Result in Lower Fares?

Right, because that’s a precedent in this country. Transport operators who actually lower existing fares.

Look, it probably isn’t happening. Private companies aren’t fond of lowering prices, not when the customer has already adjusted (psychologically, not financially) to the higher prices.

And precedent aside, do remember this is a company that once paid a CEO $1.67 million in one year (including stock options), and is rumoured to pay interns $1,800 a month. All that money has to come from somewhere.

 

Will it Result in Less Frequent Fare Hikes?

There is now a theoretical reason for fewer fare hikes. Either that, or the fares will rise by smaller amounts. A lot of this depends on how much the license to operate the trains will cost, when the government takes over.

 

Will it Result in Better Service?

If the Land Transport Authority (LTA) takes over, and implements its customary blend of insane attention to detail and disdain for sleep, then yes. We should see fewer disruptions.

Do you like the new rail financing framework? Comment and tell us why!

Image Credits:
Jerry Wong

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Ryan Ong

I was a freelance writer for over a decade, and covered topics from music to super-contagious foot diseases. I took this job because I believe financial news should be accessible and fun to read. Also, because the assignments don't involve shouting teenagers and debilitating plagues.

  • Sicheng Su

    Good points, but you are taking a very short term view. Your article answers the question “will the rail refinancing framework help to lower fares immediately (or within the next 6 months, or something like that).” I see zero arguments listed here about whether it will help in the medium to longer term which is the more important question. My guess is it will, because the LTA has a stronger incentive and is in a better position to maintain the rail system than SMRT (because the benefits to the overall local population, which blame LTA for things that go wrong even if it’s not LTA’s fault, far outweight the benefits to SMRT from proper maintenance – in economics terms, positive externalities). Of course it depends on how much rail operators will need to pay LTA to lease the tracks but I’m guessing it’ll be less than if they serviced it themselves.

    One solution to the problem you mentioned that rail operators are unlikely to lower fares because consumers are already used to the higher fares (and hence the operators being the ones who benefit from the lowered costs rather than consumers) is for the regulator to mandate that profits above a certain percentage of revenue are put into a reserve (essentially a new liability on the balance sheet) that can only be drawn upon by the operator when profits go below a certain level. That way, any extra profit earned by the operator as a result of the rail refinancing stuff will go into smoothening its profits over the long term and reducing its need for imposing fare hikes on commuters to deal with future spikes in its costs. It won’t get fares down immediately, but it’ll keep them down for longer, which is a good thing for everyone since I think Singaporeans are much more scared of the prospect of fares going up over the long term than they are of the absolute level of fares now.